The economics of low-carbon hydrogen and ammonia are “very, very challenged” and the industry is grappling with difficult questions over the role of policy and the ability to pass costs on to end-users, Jean-Paul Desrochers, manager of low-carbon hydrogen at state firm Saudi Aramco, told the World Hydrogen Congress in Rotterdam.

Even as one of the lowest-cost producers of blue hydrogen, ammonia and green hydrogen, Aramco is encountering reluctance among potential offtakers in Asia because of the price, he said. The firm is in talks with potential buyers in Japan and South Korea, which are bringing in regulations and incentives to try to drive use of ammonia in the power sector.

“Without those incentives, we are hearing from the market that it is difficult for them to contract,” Desrochers said. “As a producer, we think we can produce some of the lowest-cost blue ammonia and blue hydrogen, as well green hydrogen, but even with the lowest costs of these products, the end-user is still struggling with committing to buy.”

Power utilities are risk-averse when it comes to the switch to hydrogen

Power utilities are risk-averse when it comes to the switch to hydrogen, the costs of which would need to be passed on to end-consumers in the form of higher electricity rates, he added.

Desrochers said he favoured the use of incentives rather than legislation mandating the use of low-carbon products but ultimately a combination of both will probably be needed to bridge the gap between the value of the green product and the willingness of consumers to pay.

Aramco aims to start supplying low-carbon hydrogen and ammonia to the market in 2027 at a rate of c.1.5mt/yr before ramping up production towards the end of the decade.

“We have big plans to expand by 2029,” Desrochers added.

Global market

A global market for low-carbon hydrogen will ultimately emerge, but there is unlikely to be a single unified price, he said. Prices will reflect different regional dynamics through differentials, as with other commodity markets such as LNG. But hydrogen and ammonia pricing would be more complex than other commodities because of the various inputs including renewables and—in the case of ammonia—differing sources of hydrogen.

Pricing for ammonia for use in energy applications will be further complicated by the fact that there is already a market in some sectors such as fertiliser.

“Pricing for hydrogen is going to be much more complex, with a lot more factors influencing it than, for example, the LNG market,” Desrochers said. “It is going to take time for that market to evolve because right now there is no hydrogen market, there is no ammonia market as it relates to energy. And that is a challenge—buyers want price stability, but how do you price your product for 10–15 years if there is not a market?”

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Author: Stuart Penson