US ammonia producer LSB Industries sees market forces working in favor of blue ammonia projects versus green ammonia, and is prioritizing its blue projects while pausing a green ammonia facility planned for Pryor, Oklahoma.
Executives yesterday pointed to lower natural gas prices and an uptick in power prices along with missing guidance from the US Treasury for green molecules as the reason for pausing the green ammonia project.
Oklahoma-based LSB will use a project financing structure to fund its proposed blue ammonia plant in the Houston Ship Channel and likely find initial offtakers among Japanese and Korean power companies, CEO Mark Behrman said.
The facility, which would produce approximately 1.1 million metric tons of ammonia and capture and sequester 1.6 million metric tons of CO2 annually, is currently in the pre-FEED phase and planned for construction on the Vopak Moda Houston Ship Shuttle Ammonia Terminal.
“We selected the supplier of the technology license basic, engineering design, proprietary equipment, and catalyst, and we are in negotiations to finalize the related agreements,” Behrman said in prepared remarks. “In addition to engineering and design activities, we are working to secure offtake customers for the anticipated ammonia production. We expect initial offtakers to be Japanese and South Korean power companies.”
LSB is developing the facility in partnership with INPEX, Japan’s largest E&P company, and plans to build and operate an ammonia synthesis loop using low-carbon hydrogen produced by Air Liquide, who will also handle the carbon capture and sequestration as well as the nitrogen supply.
Based on LSB’s feasibility study, the cost of the project would come in between $500m and $750m, Behrman said, which could conservatively be financed with 60% debt, and, when taking the $750m figure, would amount to $450m of debt and $300m of equity to fund the facility.
“And for simplicity purposes, we haven’t worked out the ownership structure quite yet,” Behrman said, “but assuming that LSB and INPEX [have] 50/50 ownership of the loop that would be $150m of cash from LSB over a three-year period.”
The pre-FEED phase will last until 2Q24 followed by a one-year FEED period that would finish in 2Q25, he said.
“Within the time of us executing on a FEED study, we would expect that we would have negotiated take-or-pay contracts with the federal government, Japanese and Korean and potentially European and U.S. off-takers for the ammonia that we would produce,” Behrman said. “At the end of FEED, we would have to make a decision on whether we’re moving forward, so FID, and we would not move forward without take-or-pay contracts.”
Green ammonia pause
Meanwhile LSB has paused its green ammonia project, “given the uncertainty around the 45 tax credits, combined with the project’s current capital costs,” Behrman said.
He added: “We remain excited about this project and our opportunity to be an early entrant into the production of green ammonia and we continue to have discussions with potential offtakers for green ammonia supply, but we need clarity and finalization of the 45V tax credits before we can make a decision to move forward.”
Natural gas prices have decreased in the US while electricity prices have increased, working in favor of natural gas products.
“That then is a considerable headwind for the build-out of industry based on sourcing power from the grid, which includes green ammonia production,” he said.
“This development is also why we believe the path to blue ammonia is much easier than the path of green ammonia today, especially considering the lack of a green premium favoring production economics,” the executive said. “Therefore, our current focus is on making sure we execute effectively on our El Dorado blue ammonia project and our Houston Ship Channel blue ammonia project as they both set us up well for the future.”
At El Dorado, LSB is in discussions with the EPA for a Class V carbon capture and sequestration permit, and expects to commence production at the plant in 2H25.
