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Statkraft eyes green hydrogen in Brazil, India as war roils fertilizer markets

28 April 2022 Cristina Brooks

Norwegian companies are mulling production of green hydrogen to guarantee clean, economical, and secure fertilizer and steel production in India and Brazil.

Norwegian renewable generator Statkraft and hydrogen producer Aker Clean Hydrogen have signed collaboration agreements to explore opportunities to produce renewable electricity-sourced hydrogen and ammonia in the countries, according to a 26 April statement.

Aker Clean Hydrogen is a hydrogen, ammonia, and methanol production company owned by a subsidiary of Norwegian industrial investor Aker Asa.

The pair want to grow hydrogen sales in the "two huge and important energy markets," for use in fertilizer production in Brazil and steel production in India.

The companies noted that India is already the world's second-largest hydrogen consumer. It is also the third-largest producer of steel.

Both the production processes for steel and the ammonia used to produce nitrogen fertilizer require natural gas. These processes also contribute 9% of global GHG emissions, the companies said.

Hydrogen can not only replace natural gas, but also replace fossil fuel reducing agents needed for making steel.

Russia is the top exporter of fertilizers globally as well as a key global player in markets for natural gas, a major input to fertilizer production, according to a report from S&P Global Commodity Insights.

While fertilizer supply in the Northern Hemisphere has not yet been affected by the Russia-Ukrainian war, Latin America is highly exposed and India is partially exposed, experts say. "Brazil's 2023 soybean harvest might be the first crop to experience direct negative impacts from Russia's war in Ukraine," writes Dirk Jan Kennes, who heads the agribusiness research division of Dutch banking group RaboResearch.

Brazil and India are not alone. In the EU, he said, the production of nitrogen for fertilizer is highly dependent upon imported natural gas.

Brazilian fertilizer supply

In the Brazilian state of Bahia, the companies are collaborating on potential power-to-X projects with German renewable developer Sowitec.

In Bahia, the companies envision a project combining renewable power generation, hydrogen, and ammonia production, and plan to supply this to local fertilizer companies.

Brazil currently imports large amounts of fossil fuel-based fertilizers, they noted. Brazil is the world's fourth-largest consumer of fertilizers at 8% of the total, and imports 80% of its demand.

Last month Brazil enacted a National Fertilizer Plan for 2050 that targets attracting foreign investments in local fertilizer production to decrease import dependency.

Fertilizer is needed ahead of crop growing seasons in July and August. "Russia's invasion of Ukraine is adding fuel to already soaring fertilizer prices at a time when planting of major crops critical to global supplies is getting underway around the world," said US-based agricultural data provider Gro Intelligence in a 3 March blog.

"Brazil relies heavily on Russia for imports of nitrogen fertilizer, which will be needed in many fields after the corn has emerged," the company said.

Brazil is also a net importer of natural gas, and its high demand for LNG imports last year is likely to continue for the next two-to-three years under the "New Gas Market" liberalization laws, according to S&P Global analysts.

Brazil is looking to become a natural gas exporter, however, as gas production could double before 2030. This is due to the ramp-up of production in the Campos and Santos basins, according to a paper by Oxford Institute for Energy Studies.

Brazilian state-owned energy company Petrobras said the costliness of imported natural gas had impacted its margins in the third quarter of 2021.

Indian net-zero ambition

In India, the green hydrogen the companies want to produce is intended to replace some of India's current demand for natural-gas-sourced hydrogen.

For example, hydrogen, coal, and natural gas are used as fuel and feedstock in the production of steel, an emissions-intensive process.

India currently consumes about 7 million metric tons of natural-gas-sourced hydrogen per year, but it pledged to reach net-zero by 2070 during last year's COP26 climate change summit.

Domestic hydrogen production, in the form of green hydrogen from renewable energy, could not only curb emissions from natural gas but also support India's energy security, according to Aker Clean Hydrogen.

Higher spot prices for imports of natural gas in the form of LNG in the first three months of 2022 led Asian importers to curb LNG purchases and choose long-term contracts, according to S&P Global.

After Russia invaded Ukraine, India RLNG Ahmedabad WIM LNG terminal on 7 March saw a spike in prices to $88.68/MMBtu, however, prices had fallen to $23.21/MMBtu by 28 April.

Soaring global LNG prices are expected to continue amid global competition as well as pipeline supply constraints as a result of the Russian-Ukrainian war.

Norwegian project shelved

In August, Statkraft and Aker Clean Hydrogen partnered with Norwegian fertilizer company Yara with the goal of decarbonizing and electrifying Yara's ammonia production at its Herøya Fertilizer factory in Norway. That was the ambition of the companies' Hegra project.

While natural-gas-derived hydrogen is currently used in the fertilizer process, they planned to use renewable electricity to produce hydrogen instead, resulting in emission-free ammonia.

The companies said this was intended to give Norway "the beginning" of a Norwegian value chain for green ammonia and hydrogen.

Cleaning up ammonia production would have helped Norway in reaching its climate targets. The country is aiming to be carbon neutral in 2030, reducing emissions by 55% in line with EU targets, and to rely on offsets for the remainder. It is the highest-ranking country on net-zero readiness, according to big four accounting firm KPMG.

But in March 2022, Statkraft and Aker Clean Hydrogen said they would exit the Hegra project because a feasibility study showed there was no basis for the project under their ownership, although they did not provide any explanation at the time.

In September, Yara curtailed 40% of its ammonia production amid record-high natural gas prices in Europe.

High electricity prices have also proved challenging for local industry. Norway's government granted electricity bill subsidies as prices reached new highs in December, but then offered consumers fixed-rate schemes that replaced the subsidies in March.

On 27 April, day-ahead electricity prices spiked in continental Europe as Poland and Bulgaria saw their Russian pipeline gas supplies cut off after Russia required payment in rubles.

Posted 28 April 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability



This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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