INTERVIEW: Surging gas costs make India's green ammonia competitive with blue: METI official

Japan's emerging low-carbon hydrogen and ammonia market is being reshaped by geopolitical tensions that have eroded the cost advantage of low-carbon, or "blue" ammonia over renewable ammonia, with Indian supplies now reaching competitive prices, a senior government official told Platts July 1.

Green ammonia is derived from renewable hydrogen, while blue ammonia is derived from natural gas, coupled with carbon capture and storage.

"Green ammonia prices from India at FOB $600/mt have significantly narrowed the gap with blue ammonia, particularly over the past three years as natural gas costs have surged following Russia's invasion of Ukraine and disruptions through the Strait of Hormuz," said Daisuke Hirota, Director, hydrogen and ammonia division at Japan's Ministry of Economy, Trade and Industry.

Several Indian renewable ammonia project developers signed supply and purchase agreements with fertilizer companies for the supply of 670,000 mt/year of ammonia at a weighted average price of Rupees 53.35/kg ($559/mt). The US dollar-converted price of the rupee-denominated tender has also reduced by nearly 10% since the tender concluded in August last year, due to rupee depreciation against the dollar.

The geopolitical disruptions have had an unexpected positive impact on low-carbon fuel development by accelerating energy security conversations across major economies, Hirota said. "The EU, India and China are all talking about energy independence and energy security, and the same is applicable to Japan," he added.

Platts, part of S&P Global Energy, reported Indian renewable ammonia offers to Japan at $700/mt CFR Japan, significantly lower than CCS-based low-carbon ammonia offers from the US at close to $800/mt.

In comparison, Platts assessed CFR Far East conventional ammonia at $765/mt on July 1, 56% higher than its pre-war level.

Ammonia demand outpacing hydrogen

Japan's ammonia market is advancing faster than pure hydrogen due to infrastructure constraints, Hirota said. The country lacks large-scale cracking facilities to convert ammonia back to hydrogen, while liquid hydrogen technology remains at an early stage of development, limiting the ability to transport and utilize pure hydrogen at scale, he added.

Power generation is emerging as the fastest-growing demand sector in Japan, driven by the government's long-term decarbonization power source auction (LTDA) and surging electricity needs from data centers. "Power demand is growing because of additional demand coming from data centres," Hirota said.

The transition is more challenging in other sectors, he said. In the chemicals and other industries already consuming conventional ammonia produced from unabated fossil fuels, switching to green alternatives is more straightforward than in sectors currently relying on coal or LNG, given the price gap.

Japan's hydrogen and ammonia market development is being driven by government policies, similar to approaches in the EU, India and China, Hirota said. Key policy mechanisms include the FuelEU Maritime regulation and International Maritime Organization emissions rules for shipping, alongside demand from refineries and power generation.

Under Japan's LTDA, the government has evolved its support structure. The first two LTDA rounds did not cover full project costs, but from LTDA 3 onwards, both capital and operating expenses for upstream production and downstream consumption are fully covered, enabling investors to make final investment decisions based on auction awards alone, Hirota said. Winners of the first two auctions must also secure contracts for difference awards to proceed.

Japan awarded 516 megawatts of hydrogen and ammonia-based decarbonized power capacity in its third LTDA, with hydrogen mono-firing projects winning support for the first time. The winning power companies were Kobelco Power and Hokkaido Electric for ammonia-coal cofiring capacity and CEF H2 and Hoku Energy for hydrogen mono-firing.

The fourth LTDA introduced a pre-qualification process requiring projects to meet a carbon intensity threshold of 0.87 tCO2e/t of ammonia. The new rules also harden energy security and industrial competitiveness by requiring Japanese investment and greater use of Japan-made equipment and infrastructure to reduce overreliance on any single country or region.

Each bidder can participate with only one upstream project, though multiple upstream projects can compete if matched with corresponding downstream offtake commitments, Hirota said.

India's strong position

India has emerged as a particularly competitive location for renewable-based hydrogen and ammonia production, Hirota said, combining relatively low renewable energy costs with manageable construction expenses.

While Saudi Arabia offers the world's cheapest renewable power, projects located inland of the Strait of Hormuz face geopolitical risks that complicate investment decisions, he said. Australia benefits from inexpensive renewable energy but faces significantly higher construction costs compared to the Middle East and India.

"India is in a very strong position for renewable-based new energy," Hirota said. "It is a very interesting market and has potential for developing hydrogen projects."

India's ACME Group secured long-term renewable ammonia and methanol offtake agreements with Japan's IHI and Mitsubishi Gas Chemical. ACME will supply 488,000 metric ton/year of renewable ammonia to IHI from its Gopalpur facility, where the Japanese engineering firm holds a 30% stake. Separately, Mitsubishi Gas Chemical agreed to purchase 100,000 mt/year of renewable methanol from ACME's Paradip plant.