As the world pursues cleaner energy sources, demand for alternative fuels such as hydrogen will see growth. Hydrogen is a clean-burning fuel. However, it presents a number of storage and transportation challenges that are solved with ammonia, which is also expected to see growth as a hydrogen fuel carrier. Midstream companies that own critical infrastructure and have expertise in energy storage and transportation are playing an important role in the build out of hydrogen infrastructure. Today’s note provides an overview of hydrogen and ammonia, select projects, and some of the midstream companies involved.
Summary
- As the world pursues cleaner energy sources, demand for alternative fuels such as hydrogen will see growth. There has also been an emphasis on ammonia, which can be utilized to transport and store hydrogen more safely and efficiently.
- Ammonia suppliers have seen new interest from utility providers to supply low-carbon ammonia for power generation. They are also partnering with midstream companies for infrastructure help.
- Buttressed by government incentives and funding, clean hydrogen infrastructure has seen increased investment recently with more growth anticipated.
Hydrogen and Ammonia: Old Technology, New Application
Today hydrogen is mainly used for oil refining, in ammonia production for fertilizers, and other industrial applications. However, the element’s potential as a power source has long been recognized. There is also an increased focus on using hydrogen in large-scale power generation.
Traditionally, methane (natural gas) is used as the feedstock to produce hydrogen, which contributes to greenhouse gas emissions (GHG). Blue hydrogen is produced from methane but uses carbon capture and sequestration (CCS) technology to mitigate GHG emissions. Given its abundant natural gas reserves, North America is expected to be a leading region in blue hydrogen production.
Green hydrogen uses electricity from renewable sources to turn water into hydrogen through electrolysis. Green hydrogen tends to be more early-stage. However, there have been more project announcements in recent months likely related to incentives discussed below. NextEra Energy (NEE) has a number of green hydrogen pilot programs underway, including a potential project with CF Industries (CF) in Oklahoma announced in April. Linde (LIN) announced a green hydrogen project in New York last September.
Most often associated with fertilizer, ammonia is playing an interesting role in the hydrogen story as a means to transport and store the element. Ammonia is less flammable than hydrogen and can be stored at a higher temperature. This makes storage and transportation easier and more cost-efficient compared to gas or liquid hydrogen. Also, large-scale ammonia production infrastructure already exists due to its widespread use. A potential wrinkle may be the need for energy efficient catalysts to process ammonia into hydrogen at the point of use.
Ammonia Producers Are Turning to Midstream to Help Meet New Demand
The use of hydrogen and ammonia for power generation is still in its early stages. However, utility providers are striking deals with ammonia producers for long-term supplies. In January, JERA Co. (JERA), Japan’s largest energy generator entered separate partnerships with ammonia producers CF Industries (CF) and Norway-based Yara International ASA for ammonia supplies. In February, CF entered a partnership with South Korea’s LOTTE CHEMICAL to assess South Korea’s ammonia demand for power generation.
With their expertise in storing and transporting molecules and their existing infrastructure, midstream companies can be helpful partners as ammonia producers look to decarbonize existing operations or develop new low-carbon production facilities.
For example, in March, Enbridge (ENB CN) announced that it signed a letter of intent with Yara to build a low-carbon blue ammonia production facility at Enbridge’s Ingleside Energy Center in Texas. The project has an expected capacity of 1.2–1.4 million tons per annum (MMtpa). Production will start up by 2028, with Yara expected to contract full offtake.
In October 2022, CF entered into an agreement with ExxonMobil (XOM) and EnLink Midstream (ENLC) to collaborate on a carbon capture project for CF’s manufacturing complex in Louisiana slated to start up in 2025. The partnership will leverage EnLink Midstream’s (ENLC) transportation network, and the carbon will be permanently stored in XOM-owned storage. CF Industries expects to market up to 1.7 MMtpa of blue ammonia when production begins. This output would make it one of the largest blue ammonia facilities announced.
Midstream companies may also involve themselves in ammonia production. Last month, Pembina Pipeline Corporation (PPL CN) announced an agreement with Marubeni Corporation to jointly develop a low-carbon hydrogen and ammonia production facility in Alberta on land Pembina owns. The facility should have a design capacity of up to 1.0 MMtpa. Production plans to export to Japan and Asian markets.
New Government Incentives Could Drive Growth
Multiple incentives for new hydrogen projects were introduced or expanded under the Inflation Reduction Act (IRA). These include the new clean hydrogen production tax credit (45V) and the carbon capture tax credit (45Q) for CCS projects. Those two credits are not stackable, but these highlight the optionality companies have when investing in hydrogen projects.
The US Department of Energy (DOE) has also introduced the Regional Clean Hydrogen Hubs program (H2Hubs), which includes up to $7 billion to establish six to 10 regional clean hydrogen hubs across the U.S. Eligible projects include hydrogen production, processing, delivery, storage and end-use of clean hydrogen through a region. The DOE will select the winning projects later this year.
In Canada, blue hydrogen is in focus as it facilitates reduced emissions while utilizing ample natural gas reserves. Hydrogen was also highlighted as a growth area in Alberta’s Natural Gas Vision and Strategy, which set a number of goals for 2023 and beyond.
Bottom Line
While in the early stage, clean hydrogen and ammonia could gain more traction through government incentives and emissions reduction targets. Midstream companies and MLPs can participate in increased usage of hydrogen and ammonia by leveraging existing assets and expertise in physical distribution and storage.
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