Japan sees $335-$429/mt ammonia CFR price for developing supply chain: task force

A task force set up by Japan's Ministry of Economy, Trade and Industry has estimated that the country's ammonia CFR price at $335-$339/mt from the Middle East, $413/mt from North America and $429/mt from Oceania as the main basis for developing its supply chain by 2030.

The estimates were presented Sept. 28 at the second International Conference on Fuel Ammonia after a year of considering the concept of a pricing mechanism and terms of contracts for ammonia as a power generation fuel ahead of final investment decisions for building new plants around 2023.

"We are considering ways to enhance predictability of investment by the private sector for developing [ammonia] supply chain," METI minister Yasutoshi Nishimura told the online conference.

"We will consider specific supports for infrastructure development by utilizing results from the [task force] as well as taking into account of cost differentials with existing fuels," Nishimura said.

The task force comprising major Japanese importers, trading houses, a think tank and state-owned financial institutions looked at the Middle East, North America and Oceania as potential long-term contractual suppliers of ammonia as the power generation fuel.

Their analysis assumed Japan uses 20% co-firing of ammonia for coal-fired power generation, introduces 3 million mt/year of ammonia domestic demand and targets ammonia supply costs of high Yen 10s normal cubic meters-H2 at 2030.

It used natural gas as feedstock for a 1 million mt/year ammonia plant at each of four locations including two in the Middle East and one each in North America and Oceania.

Locational costs

In the first Middle East location, it used $2.5/MMBtu as gas feedstock costs, using onshore carbon capture and storage at dry gas field, roughly 80% of the last 10-year-average of US Henry Hub natural gas price of $3/MMBtu, as the prospective supply is expected to compete with North America and Oceania.

The $3/MMBtu Henry Hub price was used for North America using onshore CCS at dry gas field, while Oceania used $4/MMBtu, slightly above the Henry Hub price assuming higher development costs from using offshore CCS at a dry gas field.

In the second Middle East location, it used $3.5/MMBtu as gas feedstock costs with reference to the national oil company's 25-year long-term gas contract price, using offshore enhanced oil recovery.

The analysis derived Japan's ammonia CFR price from the first Middle East location at $339/mt, with the second Middle East location at $335/mt, with North America at $413/mt and Oceania at $429/mt based on the gas price in the run up to an upward trend in the wake of Russia's invasion of Ukraine.

Converting the value for hydrogen, the Middle East ammonia CFR price equates Yen 19/normal cu m, a level targeted for the 2030 supply.

The ammonia CFR prices acts as a basis for Japanese companies to build their supply chains for securing a large supply volume of ammonia as the power generation fuel over mid-to-long term period.

The task force is comprised of INPEX, JERA, J-POWER, Marubeni, Mitsui, Mitsubishi, the Institute of Energy Economics, Japan (IEEJ), the Clean Fuel Ammonia Association, Japan Oil, Gas and Metals National Corp., Japan Bank for International Cooperation and Nippon Export and Investment Insurance.

IEEJ study

An IEEJ study presented at the conference Sept. 28 showed that co-firing on clean ammonia should be regarded as a major solution to decarbonize existing coal-fired power plants in Asia that are still relatively young in lifetime.

Considering the lifetimes of 40-year-long coal-fired power plants and 25-year-long solar power and battery, the study looked at four scenarios of the Energy Transition Mechanism-Base, ETM-10, NH3 and Business As Usual, looking at coal-fired power plants in Southeast Asia.

Assuming the coal-fired power plants are 10 years old, the ETM-Base scenario assumes the plants to retire in 25 years, which shortens the lifetime by five years with the introduction of solar power and battery.

ETM is a program financially supported by the Asian Development Bank for the retirement of coal-fired power plants and development of renewable power generation sources.

The ETM-10 scenario assumes the coal-fired power plants to run for 20 years, which cuts the lifetime by 10 years with the introduction of solar power and battery.

The NH3 scenario assumes 100% coal-fired power for five years, together with 20% co-firing ammonia for five years and co-firing 50% ammonia for 20 years, with the BAU scenario assuming 100% coal-fired power for 30 years.

The study showed that the NH3 scenario proved to be the most effective means of decarbonizing the 10-year-old coal-fired power plants both from the total CO2 reduction volume and average generation costs.