Japan to consider fuel ammonia pricing mechanism concept, contract terms in a year

Japan is set to consider the concept of pricing mechanism and terms of contracts for ammonia as a power generation fuel and present the concept in a year as companies are expected to take final investment decisions for building new plants around 2023.

Starting in November, the Ministry of Economy, Trade and Industry will launch a task force under its fuel ammonia council to consider and report "solutions" to develop fuel ammonia supply chains at its fuel ammonia conference next year, according to a speech read out on Oct. 6 at the first International Conference on Fuel Ammonia, citing Minister of Economy, Trade and Industry Koichi Hagiuda.

The move comes at a time when Japan sees great potential in fuel ammonia as a CO2 zero-emission fuel as the country aims to cut its greenhouse gas emissions by 46% by fiscal year 2030-31 (April-March) from the FY 2013-14 level and achieve the 2050 carbon neutrality.

While noting preceding discussions of using ammonia as a marine fuel for decarbonizing the shipping industry, "Japan is earnest about using ammonia as a power generation fuel in order to achieve carbon neutrality," Naoshi Hirose, METI's vice minister for international affairs, told the conference hosted by METI.

"In the 2040s, ammonia power generation using only ammonia as a fuel is expected to start ahead of the world," Hirose said. "Starting in this fiscal year, we have started demonstration of 20% co-burning of fuel ammonia at a 1 GW coal-fired power plant."

Estimated demand

Japan currently estimates the fuel ammonia demand for power generation will be 3 million mt/year in 2030 and expects it to grow to 30 million mt/year in 2050, equivalent to 1.5 times the current international trade of ammonia as a fertilizer, according to METI.

At its forthcoming task force, METI intends to look at issues surrounding the development of fuel ammonia supply chains including form, period and flexibility of ammonia contracts as well as the concept of the fuel pricing mechanism, Masashi Watanabe, METI's director for petroleum and LNG policy, told S&P Global Platts.

Such elements of fuel ammonia contracts will be important as companies are expected to start taking fixed investment decisions by about 2023 to build plants in the Middle East, Australia and Russia, Watanabe said.

Under the draft of the Strategic Energy Plan, Japan's principle energy policy, the country intends to introduce 1% of hydrogen/ammonia in its power generation fuel mix by FY 2030-31, when it also aims to introduce 30% co-burning of hydrogen at gas-fired power plants or mono-burning of hydrogen for power generation as well as 20% co-burning of ammonia at coal-fired power plants.