Northwest Europe ammonia-to-hydrogen production costs back below €10/mt, lowest since June

LONDON (ICIS)–The ICIS Northwest Europe ammonia-to-hydrogen assessment fell back below the €10/kg mark during week 50 and came close to setting the lowest price in almost six months as the slowdown heading into the Christmas Period weighed on contracts.

The ammonia-to-hydrogen northwest Europe assessment came in at €9.77/kg on 15 December, falling back below the €10/kg mark in the process and recording the lowest assessment since late June.

The premium held over domestic gas-based hydrogen production methods narrowed on a weekly basis as a result. Both front-month based on unabated SMR and low carbon ATR hydrogen production were €0.81-1.89/kg lower cost compared with imported ammonia-for-hydrogen.

AMMONIA MARKET

Buying from Europe for winter and even later months in 2023 has been active in the previous week, suggesting a slowdown could be coming in the run-up to upcoming holidays in the region, and in reaction to an uptick in prices at the end of the previous week.

In Europe, ammonia players were reacting to a statement issued by the EU on Tuesday, 13 December, as it announced a provisional agreement on the carbon border adjustment mechanism (CBAM).

Under CBAM, imports into the EU of products from certain emissions-intensive sectors would face an import levy.

The provisional agreement will initially cover specific products in some of the most carbon-intensive sectors: iron and steel, cement, fertilizers, aluminium, electricity and hydrogen, as well as some precursors and a limited number of downstream products.

Ammonia is specifically named under the provisional agreement.

CBAM could begin to operate from October 2023 onwards, subject to final confirmation of the agreement by ambassadors of the EU member states, and by the European Parliament (EP), plus its adoption by both institutions.

The mechanism is meant to function in parallel with the EU’s Emissions Trading System (ETS), to mirror and complement its functioning on imported goods. It will gradually replace the existing EU mechanisms to address the risk of carbon leakage, in particular the free allocation of ETS allowances.

GAS MARKET

The ICIS Dutch TTF front-month contract was largely range bound during the week, having failed to be supported due to the cold snap that moved in over Europe from Scandinavia.

Heating demand in the region rose due to the colder temperatures, as did gas-for-power demand with limited wind and solar generation, however, milder conditions are forecast for the remainder of December which are set to see demand ease as 2022 draws to a close.

The colder temperatures did see an increase in reliance from storage reservoirs to balance the system, even with LNG volume deliveries continuing to run at record high levels.

Indeed, data from ICIS showed that European Union gas stocks began the 15 December gas day at 961TWh (90.8 billion cubic metres) after 45TWh was withdrawn over the week, up on the five-year average of 38TWh for the time of year.