Seeding a New Pathway: The Opportunity for Distributed Green Ammonia
A distributed model for green ammonia can bring additional price stability, lower emissions, and a more predictable fertilizer supply to those who need it the most.
Pathways to ammonia production — currently dominated by a centralized, fossil-based, and vulnerable system — are poised to diversify to include distributed models that can be green, flexible, and resilient. Since its development in the beginning of the 20th century by Fritz Haber and Carl Bosch (birthing the Haber-Bosch process), industrial ammonia production has remained practically unchanged. Though technological progress has been made, producing ammonia remains heavily dependent on fossil fuels and concentrated in large-scale facilities, as economies of scale lower production costs. While ammonia has significant growth potential in the energy transition, currently 70 percent of ammonia is used for synthetic nitrogen fertilizers. But the current production pathway is unpredictable, and sometimes unable to deliver ammonia in the volumes and prices needed. Here we chart a different path for ammonia production, one that could save on both costs and carbon emissions.
What’s problematic with current ammonia production?
The current ammonia system has three main issues: high emissions, price volatility, and supply chain disruptions. Fossil-based ammonia production, which accounts for over 1 percent of greenhouse gas emissions, heavily relies on natural gas and emits as much as ~2.3 tons of CO2 per ton of ammonia produced. Due to this feedstock reliance, ammonia prices are tied to natural gas price volatility. Russia’s invasion of Ukraine drove up natural gas prices in 2022, pushing US ammonia prices to peaks of $1,600 per ton — a threefold increase from the 2018–2020 market average.
The geographical separation between production and consumption centers complicates ammonia delivery, involving numerous intermediaries and transportation modes such as rails, barges, pipelines, and trucks. In the United States, ammonia production is centralized in the Gulf of Mexico, due to its abundant natural gas resources, but the largest share of consumption is further away in America’s breadbasket — the Midwest. Adverse conditions, such as weather events, unintended stoppages, and strikes, along with poor infrastructure access, can triple the cost of transportation. The current centralized production model is not only carbon intensive and vulnerable to price shocks but can also undermine the reliability of fertilizer supply chains.
A new pathway
Distributed green ammonia (DGA) production proposes a new paradigm (see Exhibit 1) — based on stable and reliable delivery for those who need fertilizers the most. DGA means green ammonia production using electrified ammonia synthesis reactors supplied either by the local clean energy grid or on-site renewable energy generators. DGA can complement centralized production as a price hedge, especially for industrialized countries, while for low- and middle-income countries it can be a way to add in necessary fertilizer to underserved markets more quickly. Instead of bearing the full brunt of market shocks, farming communities gain greater control over their fertilizer production with production decoupled from natural gas volatility and located close to consumption — reducing logistics costs. Thus, DGA can help bring additional price stability and more certainty in the fertilizer market.
DGA brings additional co-benefits. Deployment of a DGA system generates local investments, accelerates the growth of renewable energy infrastructure, and creates new green jobs in farming communities. Some DGA systems can also offer a higher degree of operational flexibility and easier integration with intermittent energy resources, as opposed to the constant energy supply needed to operate conventional industrial ammonia facilities. Project construction is faster given the lower production volume, usually ranging from 100 tons per year (tpa) up to 100,000 tpa, particularly for modular, containerized systems that can be easily assembled and replicated (See Exhibit 1). These co-benefits further strengthen the investment case for DGA.
Exhibit 1: Advantages of DGA Systems Compared to Conventional Ammonia Production
With geopolitical crises and natural gas spikes leading to steep ammonia price hikes, DGA ammonia production is already viable. Flexible DGA production systems are well-suited to operate with renewable energy generators. 50-kiloton-per-year (ktpa)-scale systems are already cost competitive with less flexible industrial-scale green ammonia plants (see Exhibit 2), and are becoming competitive with blue ammonia in the moderate natural gas price range. Reduction in feedstock and ammonia synthesis cost will be the primary drivers of cost decline, with more rapid cost curve decline expected for modular systems. Electricity cost will remain the largest cost component to minimize — for both grid-connected and off-grid systems, price reduction potential will be lower in the near term.
Exhibit 2: Current and Future Levelized Cost Levels of DGA compared to Conventional and Low-Carbon Ammonia Production Pathways in the United States
Note: Grey and blue ammonia facilities assume production in the Gulf and delivery in the Midwest, with a natural gas price between $3/MMBTU and $8.5/MMBTU. Green facilities assume production and distribution in the Midwest. 45Q, the tax credit for capturing and sequestering carbon from point sources, is assumed for blue production, and 45V, the tax credit for clean hydrogen production, is assumed for green production.
The DGA model is most successful in locations that are prone to supply chain disruptions, experience high logistics costs, and have abundant renewable energy resources. That is the exact context of RMI’s latest report on DGA, which focuses on unlocking the DGA opportunity in Minnesota. Industrial-scale, low-carbon production pathways will nonetheless continue to be relevant and needed to support the broader decarbonization of the sector. Most of the first DGA projects are in fact emerging in locations that have long relied on fertilizer imports and have been affected by high prices, such as sub-Saharan Africa, Southeast Asia, and the US Midwest.
Momentum is growing, but more needs to be done
Several DGA projects across the world are already operational or currently in the planning and construction phase. Talus Renewables, a Texas-headquartered DGA startup, signed a 15-year offtake agreement with Kenya Nut Company in the summer of 2023, aiming to procure green ammonia from a modular containerized production facility in Kenya. During the same year, Tsubame BHB, a Yokohama-based DGA startup, signed a letter of intent for an offtake agreement with the State Enterprise for Agriculture Service to produce green ammonia and green fertilizers in Laos. Projects are also emerging in the United States, with Talus Renewables and Landus, a farmer-owned cooperative, announcing in June 2024 the opening of a first-of-its-kind commercial DGA facility in Iowa.
Energy is mounting in the startup space around Haber-Bosch innovation too. For example, this year Ammobia, a San Francisco-based DGA start-up, introduced its enhanced Haber-Bosch technology, which uses 10 times lower pressure than conventional systems to synthesize ammonia. This breakthrough technology enables more cost-effective, efficient, and flexible green ammonia production.
In addition to DGA, development of larger-scale clean ammonia facilities is underway, such as Atlas Agro’s Pacific Green Fertilizer project in Richmond, Washington, set to produce 700 ktpa of ammonia derivatives. At a scale between DGA and centralized production, they are closer to their end-user and low-cost, but still require multi-step supply chains.
The introduction of first wave DGA projects will however require support at the outset, as widespread adoption of a novel technology is associated with certain risks and potential roadblocks. To secure financing from lenders, project developers will also be required to secure long-term offtake agreements. Potential offtakers might be reluctant to enter into long-term contracts, as such arrangements are atypical in the fertilizer market. Cost competitiveness is also a concern, as current conventional ammonia production might cost less than DGA production. As for project development, DGA suppliers face challenges related to permitting and long interconnection queues. These issues might make investments in DGA less desirable.
Accelerating solutions that can favor the adoption of DGA in high-opportunity regions is vital. Facilitating long-term offtake agreements, establishing product differentiation and certification schemes for green ammonia, creating demand aggregation outlets, and promoting policies that can reduce the production cost for DGA will be fundamental to scale the opportunity. DGA has the potential to revolutionize the industry by bringing enhanced resilience and stability in regions that have often endured high fertilizer prices and inconsistent supply.
