WoodMac: Gas resource holders in LNG vs. ammonia dilemma

According to the “Stick or twist: Should gas resource holders target LNG exports or blue ammonia?” report by energy intelligence group Wood Mackenzie (WoodMac), the acceleration of the energy transition means gas resource holders increasingly face a choice to either follow the established pathway and develop new LNG export facilities or pivot into developing blue ammonia.

Illustration; Archive; Courtesy of WoodMac

The group claimed that the scale derived from LNG investment is much higher, but profitability and payback periods make blue ammonia attractive.

It reported that the market will still need 160 million metric tonnes per annum (mmtpa) of new LNG supply to be developed by 2040, but beyond that time, developers face the risk of declining prices and underutilization as demand reduces.

Giles Farrer, head of gas and LNG asset research and co-author of the report, said: “Demand for LNG is expected to grow by just under 70% over the next 25 years to reach 700 mmtpa by 2050. But neither growth nor revenue is locked in for LNG. As the energy transition gathers pace, gas stakeholders are questioning whether longer-term demand for LNG is so assured.”

Faced with challenges, gas resource holders are starting to consider alternative ways to monetise gas exports, WoodMac said, noting that blue ammonia, produced from low-emission hydrogen, generated through gas reforming with carbon capture and combining it with air-sourced nitrogen, has quickly risen as a credible alternative to LNG for gas monetisation.

According to WoodMac, with the implementation of Europe’s Carbon Border Adjustment Mechanism (CBAM), ammonia prices are expected to increase by 60% and low-carbon ammonia exports to Europe will become competitive against carbon-intensive alternatives.

“Momentum is building for blue ammonia. We see more and more projects, especially in the US Gulf Coast, looking to export blue ammonia to Europe, and in many cases, these are backed by major LNG players,” said Murray Douglas, head of hydrogen research at WoodMac and co-author of the report.

In terms of the size of the market, approximately $250 billion of additional investment in pre-FID LNG liquefaction projects is required to meet WoodMac’s base case forecasts by 2050, and $24 billion of investment is required for blue ammonia for exports, the report said.

To note, according to the WoodMac’s AET-1.5 case, the case for blue ammonia investment is much more robust, with $80 billion required compared with $160 billion for LNG.

“For those seeking scale over the next 15 years, the prize is still LNG rather than blue ammonia, but for profitability and value, blue ammonia could prove more attractive, although this of course depends on prices, costs and tax incentives,” said Douglas.

WoodMac noted that the “apples-with-apples” comparisons are difficult due to different commercial structures and relative taxation, but, when these differences are factored in, some clear high-level conclusions emerge:

  • The profitability and payback periods of blue ammonia investments could be much more attractive than LNG.

Douglas stated: “Shorter payback periods for blue ammonia could be particularly attractive for those with first-mover advantage in accessing Europe. And if the world was going to edge closer to Wood Mackenzie’s AET-1.5 scenario, lower LNG prices and higher carbon prices would further strengthen the attractiveness of blue ammonia vs. LNG.”

  • Diversification into blue ammonia is a natural evolution for LNG developers and resource holders.

“The window of opportunity is narrow. Blue ammonia will outcompete most green ammonia projects targeting FID this decade, but this gap closes beyond 2030 as the cost of renewable power and electrolysers continue to fall,” Douglas said.

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