Financial impact of transition to green ammonia for fertiliser production | Agriculture – Dairy Scoop

The target is to produce 5 million tonnes of green hydrogen under NGHC by 2030, both for domestic consumption and exports. Refineries and fertiliser sectors have been identified as priorities for using green hydrogen. Refineries use hydrogen for the removal of sulphur from crude oil and the upgrading of heavy fractions of crude to premium fuels through a process called hydro-cracking. Fertiliser plants use hydrogen to manufacture ammonia, which is then used to manufacture fertilisers like urea, ammonium sulphate, and various grades of complex fertilisers. Both sectors are being encouraged to substitute grey hydrogen with green hydrogen.

In the fertiliser sector, there are two main segments of products: urea and non-urea fertilisers. Urea accounts for more than 60 per cent of fertiliser production in the country. The production of urea requires two inputs, namely ammonia and carbon dioxide. In the production process of ammonia, where hydrogen is drawn from natural gas, the carbon in the feed natural gas is converted to carbon dioxide. Thus, there is in situ production of carbon dioxide in the ammonia production process, which is separated and used to manufacture urea. If ammonia produced from natural gas (grey ammonia) is substituted with ammonia produced by the electrolysis of water (green ammonia), carbon dioxide will have to be sourced from another source, either from within the same complex or from a different site where fossil fuels are being combusted.

The non-urea fertilisers include ammonium chloride, ammonium sulphate, and ammonium phosphates. In this case, ammonia is reacted with acids like hydrochloric acid, sulphuric acid, and phosphoric acid. These acids are produced in a separate facility, either at the same site or sourced from facilities located elsewhere within or outside the country. Since carbon dioxide is not required for non-urea fertilisers, grey ammonia can be replaced immediately with green ammonia. Ammonia used in the manufacture of these fertilisers is mostly imported.

There is a large difference in the cost of production between grey and green ammonia. The cost of natural gas is a major element of the cost for the production of grey ammonia. More than 80 per cent of the natural gas used in the production of ammonia in the country is imported. The delivered cost of imported gas, including transportation and VAT imposed by states, is anywhere between $12-15 per million BTU depending on the location of production facilities. This roughly translates to a cost of grey ammonia in the range of $400-500 per tonne, depending on the cost structure of the plant.

In addition to the 19 million tonnes of ammonia produced domestically, 2.5 million tonnes of ammonia is imported to produce non-urea fertilisers. There has been significant volatility in international prices of ammonia due to geopolitical factors, but one can take $400-450 per tonne as a long-term average cost of imported ammonia.

The estimates for the cost of green ammonia vary in the range of $700-750 per MT. Thus, there is a gap of anywhere between $300-350 per tonne between the cost of grey and green ammonia. There is an incentive of INR 50 per kg of hydrogen in the first year of the Green Hydrogen Mission, which roughly translates to $100 per tonne of ammonia. This still leaves a gap of $200-250 per tonne of ammonia. The impact on non-urea fertilisers will vary depending on the nitrogen content of the product. For DAP, which accounts for about 30 per cent of all non-urea products manufactured indigenously, about 220 kg of ammonia is required to produce one tonne of DAP. If the green ammonia is more expensive by $200 per tonne, the cost of DAP will increase by $44 per MT.

There will be a much larger impact on the cost of urea because 570 kg of ammonia is required to produce one tonne of urea. Therefore, the impact of using green ammonia on the cost of urea will be $114 per tonne. There will be an additional cost of recovering carbon dioxide from flue gases wherever fossil fuels are burnt as a source of energy. The cost of carbon dioxide will be higher if it has to be transported from a different site. This may result in an additional cost of about $30 per tonne of urea. Hence, there will be a total increase of $144 per tonne of urea if 100 per cent grey ammonia is replaced with green ammonia. With an estimated production of 31 million tonnes of urea, the total impact will be $4.46 billion or more than Rs 37,000 crore. In the case of non-urea fertilisers with a total estimated production of 14.5 million tonnes, the impact of using green ammonia is likely to be nearly Rs 6,000 crore.

These are staggering figures, especially considering the ballooning fertiliser subsidy bill. But the use of green ammonia will be gradual, spread over the next 25 years, and even then, substitution may not be 100 per cent. There are techno-economic challenges that will be addressed as we progress. First, the cost of green hydrogen and hence green ammonia will come down gradually. Second, once the carbon trading mechanism is implemented, it will create a revenue stream for green ammonia users and will help to bridge the viability gap. In the near term, we should aim to produce the entire quantity of non-urea fertilisers using green ammonia and also replace at least 10 per cent of grey ammonia with green ammonia in the manufacture of urea in the next five years. This will result in the use of almost 5.5 million tonnes of green ammonia and reduce the emission of 11 million tonnes of carbon dioxide per annum. The achievement of this objective is contingent upon the present viability gap funding to the full extent.

The Author is former Additional Director General of the Fertiliser Association of India.

Disclaimer: These are the personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper.

First Published: Jun 23 2024 | 11:05 PM IST