Ammonia Technology Roadmap	Chapter 2. The future of ammonia production
Towards more sustainable nitrogen fertiliser production

quantity of CO2 in a concentrated stream would be generated from 75 Mt of ammonia production, or about one-third of total ammonia production in 2050.

If this ammonia production were displaced by electrolysisor methane pyrolysisbased production, another CO2 source would be needed for urea. The CO2 could be supplied by other industries, or could be sourced from direct air capture (DAC). Using CO2 from DAC would have an advantage that its later release during urea application on fields would be carbon neutral, given that the CO2 was just recently extracted from the air. However, DAC has not yet been demonstrated at large scale and costs are currently very high – major developments are needed to bring the technology to full scale and bring down costs. Furthermore, DAC has substantial electricity and land use requirements compared to an ammonia plant. About 265 TWh of electricity would be needed to capture the 110 Mt of CO2, roughly equivalent to all the electricity consumed in Indonesia today. An alternative option could be to further reduce the share of urea and instead produce other forms of nitrogen fertiliser.

Investment

For the ammonia sector, the CO2 emission reductions in the Sustainable Development Scenario translate into a massive overhaul of a large industrial sector that has been built up over many decades and for which conventional technologies are well established. It calls for large-scale investment in new, near- zero-emission processes and supporting infrastructure. By 2050 the global fertiliser sector will need to install 155 GW of electrolyser capacity and infrastructure to transport and store 90 Mt CO2.

At least in the initial stages of deployment, investing in new technologies may be considered riskier, considering the uncertainties involved and given that higher total production costs for near-zero-emission routes may lead to lower profitability for the project. As such, government support mechanisms will be needed to help mobilise the required investment and align incentives to enable near-zero- emission production to be profitable (see Chapter 3). Despite the initial higher risk and uncertainty of investing in near-zero-emission technologies, in the longer term following the Sustainable Development Scenario investment pathway is likely to be lower risk. In a future where the rest of the economy is transitioning towards net zero emissions, investment in high-emitting capacity is at risk of becoming a stranded asset, unable to produce ammonia competitively within the evolving market and regulatory conditions.

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Ammonia Technology Roadmap	Chapter 2. The future of ammonia production
Towards more sustainable nitrogen fertiliser production

The Sustainable Development Scenario will require on average USD 14 billion in capital investment in process technologies for ammonia production each year between now and 2050, of which 80% are in near-zero-emission capacity. The average annual investment required in the Net Zero Emissions by 2050 Scenario is only slightly higher, at USD 15 billion to 2050. For context, in 2019 global GDP was USD 88 trillion, of which USD 21 trillion (about 25%) was for capital investment, of which nearly USD 2 trillion (9%) was for capital investment in the energy sector.

Capital investment in process equipment for ammonia production by scenario

IEA, 2021.

Notes: CCS = carbon capture and storage; STEPS = Stated Policies Scenario; SDS = Sustainable Development Scenario. Ammonia used as an energy carrier is not included.

While total cumulative capital investment is comparable to the Stated Policies Scenario, the Sustainable Development Scenario requires a massive redirection of investment away from conventional technologies and towards near-zero-emission technologies.

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Ammonia Technology Roadmap	Chapter 2. The future of ammonia production
Towards more sustainable nitrogen fertiliser production

Cumulatively from now to 2050 the global capital investment required for process equipment in the ammonia industry in the Sustainable Development Scenario is comparable to that required in the Stated Policies Scenario – around USD 400 billion. However, the nature of the individual investments is quite different. In the Sustainable Development Scenario a large proportion of investment goes towards near-zero-emission process routes. About 30% is in hydrogen-based routes, including electrolysers and synthesis units to produce ammonia from electrolytic hydrogen, while 50% is in CCS-equipped routes, including the CO2 capture equipment itself and the equipped SMR units. This means that a considerable proportion of investment goes towards new technologies – a third of cumulative investment is in technologies that are today at the demonstration or prototype stage. In contrast, virtually all investment in the Stated Policies Scenario is in mature technologies. The uncertainty involved in investing in new technologies means the investment in the Sustainable Development Scenario is higher risk, and thus government support will be important.

Many factors contribute to the scenarios’ roughly equivalent investment needs – the dynamics in the Sustainable Development Scenario relative to the Stated Policies Scenario include the following:

Half as much cumulative capacity addition to coal-based ammonia production. Since the CAPEX of coal-based ammonia production is about double that of natural gas-based production, this puts a downward pressure on investment.

Considerably higher deployment of CO2 capture technologies. Since applying these technologies results in additional CAPEX, this puts an upward pressure on investment, even as CO2 capture costs decline by about 20% throughout the modelling horizon.

Considerable deployment of electrolysisand pyrolysis-based ammonia production. The costs of electrolysers and methane pyrolysis decline by more than 50% over the course of the modelling horizon due to technology learning as deployment increases across the energy system. As such, in most regions these routes have higher CAPEX than natural gas-based ammonia production until about 2030, whereas in later decades their CAPEX is lower. Regional differences in the cost of capital equipment also affect the relative costs, and since electrolysers are assumed to be more globally traded, they thus have less regional differentiation in cost of capital. Thus, electrolysis and pyrolysis deployment leads to both upward and downward pressures on investment, depending on the time period and region.

Lower ammonia production, by 7% cumulatively, due to use efficiency measures. This means less production capacity is needed, putting a downward pressure on total investment. Note that the average investment per tonne of

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Ammonia Technology Roadmap	Chapter 2. The future of ammonia production
Towards more sustainable nitrogen fertiliser production

ammonia produced over the course of the Sustainable Development Scenario is 1.5% higher than in the Stated Policies Scenario, with a 24% increase in the 20412050 time period.

Higher capacity turnover in some regions in order to meet CO2 emission reduction requirements. Retiring capacity earlier than would otherwise have been the case, so it can be replaced by near-zero-emission technologies, increases capacity additions and puts an upward pressure on investment.

At the global level, these upward and downward pressures balance out to lead to roughly equivalent cumulative investment in the two scenarios.

The share of total investment by region in the Sustainable Development Scenario is aligned closely with the share of production. About 22% of cumulative investment in the Sustainable Development Scenario occurs in China, which is the largest producer. This is followed by 12% in India, 10% in the Middle East, 8% in the European Union and 8% in the United States. Within each region, the difference in investment between the Sustainable Development Scenario and the States Policies Scenario is driven by the variation in technology routes followed and regional cost of capital.

In China cumulative investment is about 25% lower in the Sustainable Development Scenario than in the States Policies Scenario. Investment in coalbased ammonia production capacity is considerably lower, and a significant amount of investment is in the electrolytic route that benefits from major cost declines. In the United States and the Middle East, cumulative investment is comparable in the two scenarios. In both regions, higher investment in CO2 capture technologies to equip natural gas-based ammonia production is outweighed by a combination of investment in lower-CAPEX pyrolysis-based production in the later decades and lower total capacity additions due to lower demand for ammonia.

Meanwhile, the European Union and India see 10% and 7% higher cumulative investment, respectively, in the Sustainable Development Scenario than in the States Policies Scenario. In the European Union this is driven primarily by early investment in considerable electrolytic-based production prior to 2030, when the CAPEX of that route is still higher than for natural gas-based production. Furthermore, the rapid deployment of electrolytic production capacity along with flat production volumes means a higher turnover of capacity. India also relies primarily on the electrolytic route. Given that India has relatively low capital costs for equipment manufactured domestically, including equipment for natural gasbased ammonia production, the electrolytic route relying on imported electrolysers

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Ammonia Technology Roadmap	Chapter 2. The future of ammonia production
Towards more sustainable nitrogen fertiliser production

retains higher CAPEX than the natural gas route throughout the modelling horizon, leading to higher investment needs in the Sustainable Development Scenario.

It is important to keep in mind that capital investment in process technologies is only one component of the costs of a more sustainable ammonia industry. Investment in R&D and demonstration is still needed to bring the required near- zero-emission technologies to market readiness. Production with CCS will require considerable investment in CO2 transport and storage infrastructure. While the full costs of this infrastructure are likely to be shared with other sectors, the cumulative cost of transporting and storing the CO2 captured from just the ammonia sector in

the Sustainable Development Scenario	through to 2050 is	an estimated
USD 17 billion (assuming current costs	of USD 15-55/t CO2,	declining to
USD 12-30/t CO2, depending on the region).

For the electrolytic route, when electricity is produced on site from variable renewables, investment will be needed in electricity generation capacity and hydrogen storage. When electrolytic hydrogen is produced using electricity from the grid, the additional investment in electricity generation capacity and distribution infrastructure is seen by ammonia producers as electricity costs. Given that electricity costs more than natural gas and coal, the shift towards increasing production from electrolytic hydrogen in the Sustainable Development Scenario results in about USD 75 billion in additional cumulative energy costs globally during 2021-2050 relative to the States Policies Scenario, a 5% increase. This increase in total energy costs occurs even though natural gas continues to be used in the Sustainable Development Scenario at lower prices than in the States Policies Scenario, given lower global demand for fossil fuels.

The efficiency measures that moderate ammonia demand in the Sustainable Development Scenario also require investment. With regard to improved NUE on farmland, the costs are associated with planning and implementing nutrient management plans. Some of these investments are for equipment that enables better monitoring of crops and more precise application of fertilisers, such as crop sensors, weather monitors, GPS guidance systems, automatic swathe control technologies (which prevent double application on areas where fertiliser has already been applied) and variable-rate application technologies (which automatically change the application level according to the management zone or information from crop sensors).

Other costs are the expertise and labour required to design and carry out nutrient management, which may include efforts from farmers themselves as well as agronomists/crop advisers, soil scientists, extension agents and fertiliser dealers.

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Ammonia Technology Roadmap	Chapter 2. The future of ammonia production
Towards more sustainable nitrogen fertiliser production

The cost of a comprehensive nutrient management plan can vary considerably by farm – available estimates are several thousand dollars per farm or anywhere from USD 5 to USD 30 per acre (USD 1 000 to USD 7 000 per km2). These costs would go towards activities such as soil and crop testing (both initially and monitoring over time), developing remote-sensing imagery maps, data analysis to develop site-specific recommendations and plans, developing decision support systems, field scouting, tracking yields and fertiliser application record-keeping.

Fortunately, despite the various costs of nutrient management, there is often a pay-off not only in environmental benefits but also financially. A well-designed nutrient management plan seeks to achieve a nitrogen application rate that optimises profitability at the given site, taking into account the cost of fertilisers and the revenue gained from increased crop yields, while also ensuring environmental objectives are met. By reducing the over-application of fertilisers, one estimate suggests that precision agriculture techniques could save anywhere from 5% to 30% of input costs and would provide a return on investment within a couple of years.

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