Air Products CEO plays down CBAM risk for giant US blue ammonia project
Source：hydrogeninsight
Air Products CEO Eduardo Menezes has played down the risk a suspension to the EU’s Carbon Border Adjustment Mechanism (CBAM) could pose to the firm’s blue ammonia project in Louisiana, saying construction costs remain the most important factor.
The firm had last month revived plans for the multi-billion-dollar Darrow project in Louisiana, with Air Products in talks with Norwegian fertiliser producer Yara to offtake 80% of the blue H2 produced at the plant and take over the ammonia production side of the project.
“The way this agreement would work we would produce hydrogen and nitrogen, sell that to them [Yara], they would make ammonia and from there it becomes their accountability,” Menezes said.
Air Products aims to finalise a definitive agreement with Yara and reach a final investment decision by the middle of this year.
However in recent months, the EU has signalled its intention to suspend the CBAM for fertilisers, which puts a price on the embedded emissions of imported ammonia and hydrogen.
Such a suspension would ensure grey ammonia remains a cheaper alternative to blue ammonia.
The plan to suspend CBAM have been met with criticism from potential clean ammonia importers, with Yara saying that it would send “a damaging message at the worst possible time”.
Menezes largely shrugged off these concerns at a recent Air Products investor call, however, arguing that CBAM only has an “indirect” impact on the project’s economics.
“If it goes to Europe, you know it’s still subject to a very low CBAM tariff. The impact is really indirect if something happened,” he said, adding that it would ultimately be something for Yara to take into account.
Hydrogen Insight has reached out to Yara for comment.
Menezes added that “99% of the decision is related to construction costs more than anything,” rather than uncertainty around CBAM, having earlier in the call stated: “We must have a highly reliable capital cost estimate based on agreements with reputable EPCs [engineering, procurement and construction companies] that meet our return requirements.”
However, in the event that Air Products decides to abandon Darrow, it is unclear to what extent the company can recoup what it has already spent on the project.
“No-one can tell exactly how much will be recoverable if we don’t go forward,” Menezes said.
“The exposure that we have is the capital that was spent before we decided to stop new purchases in the project, which we did one month after I joined the company. The only money we’re spending in this project is really the equipment that is arriving, that we purchased before that time.”
However, the company has also noted that the amount it has invested in the project already reduces inflation exposure.
Air Products envisages the Louisiana Clean Energy Complex eventually producing 1,700 tonnes of blue hydrogen per day, of which 80% would go towards Yara’s ammonia production and 20% would feed into the industrial gases firm’s existing US Gulf Coast hydrogen pipeline.