Argus launches low-carbon ammonia benchmark to assist trading

Energy and commodity price reporting agency Argus has launched a Japan Korea Low-Carbon Ammonia Benchmark (JKLAB) to assist companies trading low-carbon hydrogen products distributed to markets in Northeast Asia.

Argus said the JKLAB is for the mass-balanced all-in cost of low-carbon, liquid ammonia produced in the U.S. 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 agency noted.

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, Argus revealed, adding that this production route delivers a carbon intensity within the thresholds set by Japan and South Korea.

According to Argus, the key vector for transporting large volumes of hydrogen across oceans is to combine it with nitrogen to form more easily handled liquid ammonia. The agency pointed out that Northeast Asian power generation companies have 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%.

Argus stated: “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.”

Argus Chairman and Chief Executive Adrian Binks commented: “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.”