Argus launches global low-carbon ammonia benchmark

London 26 June 2024

Global energy and commodity price reporting agency Argus has launched an index to assist companies trading low-carbon hydrogen products distributed to key markets in northeast Asia.

The Argus Japan Korea Low-Carbon Ammonia Benchmark (JKLAB) is for the mass-balanced all-in cost of low-carbon (“blue”), liquid ammonia produced in the US Gulf coast and delivered on a cfr basis to either Ulsan, South Korea, or Niihama, Japan. This cost-based approach is fundamentally different from assessing spot prices and is designed specifically to assist offtake negotiations.

The index is based on autothermal reformer ammonia production using Henry Hub-priced natural gas, with carbon capture and storage, for a minimum cargo size of 20,000t. This production route delivers a carbon intensity within the thresholds set by Japan and South Korea.

A key vector for transporting large volumes of hydrogen across oceans is to combine it with nitrogen to form more easily handled liquid ammonia. Northeast Asian power generation companies have successfully trialled the substitution of coal with ammonia, and now intend to roll out commercial co-firing at an initial rate of about 20%, and then raise coal-ammonia blending test rates to 50%.

The lack of a clear market reference for low-carbon ammonia has made counterparty negotiations difficult, with a broad range of formulas used to agree provisional offtake deals. These must now be finalised, yet variations in formula pricing present significant risks for end user utilities that operate on a cost-plus model, as well as developers themselves.

The Argus JKLAB index offers buyers in Japan and South Korea as well as producers in the US and elsewhere a common reference to structure offtake agreements. This enables them to manage their input cost volatility for long-term supply contracts, which often run for over a decade, without having to rely on a myriad of complex instruments. For example, the production cost of US Gulf coast blue ammonia has seen a 12-month price range of 34% and managing multiple input costs is complex owing to their differing market fundamentals.

Argus chairman and chief executive Adrian Binks said: “We have a long history of providing transparency to commodity buyers in Japan and South Korea. Northeast Asia is a nexus in the hydrogen economy as market participants embrace innovative ways to reduce greenhouse gas emissions. Our new JKLAB provides a clear market signal to developers, consumers and governments as they seek to price long-term offtake agreements around a single instrument, rather than having to rely on multiple references to natural gas, power, carbon capture and storage or volatile low-carbon hydrogen or unabated ammonia prices.”

The Argus JKLAB complements Argus’ leading suite of ammonia spot price assessments and hydrogen production costs around the world. These are based on a range of pathways including coal gasification, steam-methane and autothermal reformation of natural gas, as well as grid and direct-coupled renewable electrolysis.

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