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Thursday, 17 November 2022

The Enterprise Climate CEO Poll: OCI N.V. and Fertiglobe’s Ahmed El Hoshy

Enterprise Climate CEO Poll- Ahmed El Hoshy, OCI N.V. and Fertiglobe: With all eyes on Sharm El Sheikh as COP27 continues, Enterprise Climate and EnterpriseAM are presenting our inaugural Climate CEO Poll, a series of interviews with CEOs discuss key issues including climate finance, regulation, and the green economy.

Ahmed El Hoshy (LinkedIn) is the CEO of OCI NV and Fertiglobe, the joint venture between OCI and Adnoc. Euronext-listed OCI is one of the world’s top producers and distributors of hydrogen-based products, including ammonia, nitrogen fertilizers and other nitrogen products, methanol and bio-methanol, with a four-continent footprint and a production capacity of 16.2 mn metric tons per annum (MTPA). Fertiglobe is the world’s largest seaborne exporter of urea and ammonia combined and the largest producer of nitrogen products in MENA, with a combined production capacity of 6.7 MTPA of urea and merchant ammonia. We talked to El Hoshy about green hydrogen, decarbonization, and what he thinks would be the best outcome of COP27.

Enterprise: Let’s start at the top — what’s green hydrogen and how does it relate to your core ammonia and methanol businesses?

Ahmed El Hoshy: Green hydrogen is the low-carbon fuel of the future, it’s as simple as that. It’s particularly important when we look at how to decarbonize hard-to-abate sectors, such as general industrials, marine transportation, power generation, food production, and agriculture.

As things stand today, green hydrogen makes up a negligible fraction of global hydrogen production — much less than 5% of all hydrogen being produced. Gray hydrogen is the dominant form in the market today, and around 50% of it is used to produce ammonia and methanol. When you look at it, ammonia and methanol are the keys to the green economy transition — they can deliver hydrogen via existing pathways and infrastructure, making it much, much faster to quickly reach our decarbonization goals.

The problem with hydrogen is that it’s very difficult, by itself, to store and transport — its boiling point is -253°C. So as gas, you’re storing this under incredibly high pressure, and as a liquid, you’re looking at cryogenic temperatures — really, really cold.

That’s where ammonia comes in — it’s an ideal carrier for hydrogen with a boiling point of just -33°C and there’s plenty of transport and storage infrastructure already in place all around the globe. That makes it one of the most efficient ways to transport green hydrogen. It has a much higher energy density and is less energy intensive to produce and store.

To transport hydrogen over long distances, you need to use stable derivative such as ammonia, LNG or methanol. That’s one of the reasons we think that ammonia and methanol have huge potential to decarbonize shipping, replacing diesel, fuel oil, and other fuels that emit greenhouse gases when combusted.

This becomes even more relevant when we start pricing carbon — when that’s taken into account, ammonia and methanol are the shipping, power and vehicular fuels of the future.

E: Where is green hydrogen in your business model?

AH: We realize that decarbonization is not a “nice to have,” it’s central to our strategy. You can call it luck or call it skill, but we happen to be in the ammonia and methanol industries, two industries that the consensus now agrees play a significant part in our energy future.

And frankly, it’s exciting. For Europe and Egypt in particular, the situation we have before us today is win-win. Egypt is an ideal place to generate renewable energy and because it is right next door to Europe, we can not only help European countries move towards their energy independence, but we can also help them decarbonize and deliver on their climate goals at the same time.

In MENA, Fertiglobe has four production locations — two in Egypt, and one in each of Algeria and Abu Dhabi. OCI has five more — two in the Netherlands and three in the United States. With that global footprint, we think we’re ideally positioned to drive, and be part of the green economy going forward.

We have decarbonization initiatives running at every single plant. We’re moving from fueling plants with natural gas and generating CO2 emissions, to looking at capturing that CO2 and using green hydrogen rather than natural gas. And as we do that, we’re uniquely positioned: We have the youngest global asset base in our industry, and that gives us the potential to deliver the lowest emissions of any global portfolio.

What’s more, our portfolio is in the right geographic locations. We’re in Beaumont, Texas, on the Gulf Coast. We’re in Rotterdam, the key European seaport. We’re in Abu Dhabi and Algeria. And we’re in Egypt right at the foot of the Suez Canal. That’s a list that includes three of the four largest bunkering destinations in the world.

Being globally present with this platform means that we can deliver network effects over time at the same time as we convert infrastructure that today produces gray ammonia into infrastructure for green ammonia.

The plant we just started commissioning in Egypt is the first phase of a plant that will produce green hydrogen and green ammonia — we’re very excited about it. It is the first of its kind in Africa. Fertiglobe is studying building another green hydrogen plant in Abu Dhabi in collaboration with Masdar and Engie and at a 1 mn ton per annum low-carbon ammonia plant in Abu Dhabi with partners includign Ta’ziz (an Adnoc-ADQ joint venture), GS Energy, and Mitsui. In Europe, OCI is involved in the NortH2 plant as an off-taker of green hydrogen from the North Sea, while in the United States, we have several low-carbon projects underway including a new blue ammonia facility in Texas.

E: We’ve seen a scramble in Egypt and other regional players (KSA, the UAE) to line up investment in green hydrogen and ammonia. How many of these early-stage agreements do you think will become plants?

AH: I think it’s good to be optimistic. It’s good to see the players and ideas that are out there. But to do a pure greenfield? That’s been our business for more than 20 years, and I can tell you that the economics are difficult to make it work. It’s difficult to bring it all together when you consider interest rates for project finance and the challenge of finding off-takers for low-carbon products, to name just two of the factors that need to be in place.

We talked about this at the Hydrogen Council, which I am a member of: We’re seeing plenty of projects announced globally despite rising interest rates, but less than 10% of those projects in general get to the stage of final investment decisions, in my view.

E: Why do you think that is?

AH: There needs to be a carrot and stick approach to improve the economics of these projects. This means support in the form of grants or subsidies that make projects more attractive. Or a mandate — ideally, both. Legislation that requires businesses to meet certain low-carbon targets by “x” date or be charged “y” amount for its emissions. It’s a challenge to line up a big emitter as an off-taker unless there’s a clear incentive for them to do it. We need to create the demand for the supply side to fill. Having supply available will not, by itself, create demand.

E: Does the Biden administration’s subsidy of USD 3 per kg help or distort the market, then?

AH: I think the Inflation Reduction Act definitely helps. But really, I think what the industry, policymakers and regulators need to do is look at the existing ammonia industry. It’s global. There are existing plants and storage facilities. There are loading facilities and trading businesses and vessels to handle it.

How can we decarbonize that one piece at a time? How do we go from zero to 5% and then to 10% and 15% — and do it economically, not all from scratch. Everyone needs to learn lessons on how to work together with governments to create schemes that make sense. On building a market. And on certification.

Breaking things down into discrete chunks makes it all about action, not about kicking the ball down the line to some idyllic future. By taking steps one project at a time, we will build knowledge and more effectively reach a stage where some of the grander ideas we’re seeing now make practical sense.

E: What’s the key, then? Regulatory change even before incentives?

AH: Absolutely. As incumbents with existing infrastructure, we find that there’s a lack of clarity on issues such as mass-balancing and co-production. Not everyone will be familiar with those terms, so I’ll explain.

Let’s say, for example, that you have a 1 MPTA ammonia plant. You start using 10% green hydrogen and make it 90% gray instead of 100% gray. Do you now have a product that’s certified 10% green? Certainly not in Europe, where the way the mechanics work today is that we look at the whole plant’s emissions and not the feedstock. That makes it very tough for an incumbent to make a decision to partially decarbonize.

It is important to resolve this because it’s tough to go from zero to hero — to go fully green. But why can’t we have a proper, safe certifying mechanism that allows a producer to sell into Europe something that is 10% green and be charged 90% of the carbon tax and not 100%? The jury is still very much out on what that looks like. But we need to not let the perfect be the enemy of the good by giving existing producers a pathway to decarbonize — and by creating an approach to certification that allows mass-balancing and co-processing to happen.

E: Circling back those US producer subsidies: Could you see a day when the EU, for example, provides funding to Egypt to subsidize production destined for EU markets?

AH: Egypt has clear competitive advantages in green hydrogen, and what you want as the European Union — as the US and developed countries — is to support that. One of the biggest costs of green hydrogen is the cost of renewable energy. Egypt has the best solar and wind corridors in the world, and 97% of us live on 3% of land, so there’s plenty of space. The Mediterranean-Red Sea corridor is a huge advantage.

But when subsidies tip the scale in favor of US producers, we’re going to need support here to be competitive and move projects forward. Support from Europe and other partners can do that.

The Biden administration’s IRA is something of a double-edged sword. It’s a change in the right direction, and other countries realize that — the US has just given huge incentives for low-carbon hydrogen projects. Canada, for example, is now following in the same footsteps and discussing investment tax credits for low and no-carbon industries.

At the same time, it creates complexity for projects in the Middle East, Australia and Latin America. It’s kind of taken the wind out of the sails of some of the projects there.

But again: The IRA won’t create demand. There needs to be demand incentives on the other side for supply and demand to align. And as I said earlier, we still need global alignment on certification.

E: If you were starting a new climate-related business today, what would it be?

AH: I think there are several areas that look really interesting. The first is building businesses that create trust via proper certification — to help weed out noise and create a platform for governments and businesses to communicate about what’s trustworthy and fair.

Then, if your pockets are deeper, I would look at how to solve long-term technical challenges such as direct air capture of carbon and sustainable aviation fuel.

E: What would make COP27 a success from your point of view?

AH: An agreement that we need to level the playing field. COP27 has been a great platform for governments and the private sector to exchange thoughts. It’s helping decrease the noise and focus on what governments and regulatory bodies can do to help get low-carbon supply and demand off the ground.

Ultimately, we need to create a situation where the economics prevail and which also results in a remarkable reduction in emissions over time. To build real momentum, we need a balanced approach to incentive and requirement — the carrot and the stick.

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