Shortages in ammonia production affect not only agriculture, which requires large quantities of fertiliser, but also global shipping, as ammonia is a promising zero-carbon fuel and a means of storing and transporting hydrogen, write Wolfgang Dieter Gerstlberger and Gunnar Klaus Prause, professors at the School of Business and Governance of TalTech, in their recent article in the scientific journal Energies.

Estonia’s plan to start its own ammonia production would allow to resolve the situation created by the war in Ukraine, where imports from Russia have been halted in many sectors and new sustainable alternative fuel solutions are needed. The study reported in the research article focused specifically on the ammonia market in the Baltic Sea region (BSR) and analysed the potential economic consequences of domestic ammonia production.

One of the authors of the research article, Professor of Economics Gunnar Klaus Prause, says that this will unavoidably lead to a number of social or political problems. ‘For example, finding skilled workers for factories, or if renewable energy is used to generate electricity, problems with accepting wind farms,’ Prause specifies. The same applies to establishing nuclear power plants, including construction, logistics, and storage. According to Prause, the question might arise of who and under which conditions will accept ammonia in their ‘back yard’ because of the risks involved with it. Naturally, there is also a need for major investments, which, in turn, require political decisions and a national guarantee that any agreements will be honoured.

Would it make economic sense?

Based on modelling, data analysis, case studies, and expert interviews, the authors mapped possible locations for ammonia production facilities. The study assessed the impact of an annual supply of up to two million tonnes of ammonia on the Baltic Sea region if global turbulence continues.

As Estonia was a so-called port of export for Russian ammonia, the national plans to build the necessary infrastructure for ammonia production in Ida-Viru County are understandable. The authors developed a framework of so-called realistic opportunities to identify what they would be worth in terms of investment, as well as to assess the ammonia market in the Baltic region and potential investments in production facilities from an economic perspective.

Prause believes that the most suitable locations for the plant are in North-East Estonia, particularly in the Sillamäe region, because certain requirements must be met. ‘First, there should be enough water for electrolysis – either a lake, a reservoir, or a river. Second, it should not be far from the Baltic Sea because of the wind farms on the one hand, and the power grid connections needed during the transition period or for when there is no wind on the other.’ If the production of fertiliser from ammonia is also an option, the CO2 produced there could be quickly and cheaply used by the nearby oil shale power plants.

Green production makes sense

The results show that the creation of an ammonia production capability is technically and economically feasible if the focus is on green production. The investment model under examination suggests a plan for the years 2025–2050 that could see production reach 750,000 tonnes by 2025 (with one plant) and 3 million tonnes by 2050 (with four plants).

Between 2025 and 2050, it would be feasible to build up to six plants, each with a production capacity of 750,000 tonnes. The investment costs for the construction of ammonia plants would amount to $3.3 billion (about €3.1 billion). The cost of eco-friendly power production, i.e. wind farms, must be added to this investment amount. It is also important to note that studies project that the annual demand for ammonia will be 1.5 million tonnes by 2025, rising to 3 million tonnes by 2050. The doubling of demand is likely to come from the maritime sector in the Baltic Sea region, where ammonia is particularly needed as a zero-carbon fuel.

In conclusion, the current global crises increase the need for new multifaceted research to add to the existing data and to build a thorough and comprehensive database that can be used in a variety of ways.

One interesting solution would be to explore and empirically test different conceptual versions of the aforementioned real options analysis. What else would be useful? For example, a more detailed formulation of management and policy recommendations in the areas of ammonia production, transport, and infrastructure in general.

The above-mentioned studies are of particular importance for Estonia and the Baltic Sea region, as until the end of 2021, the Russian Federation was the world’s second largest producer of ammonia with an annual production volume of up to 16 million tonnes. Around a quarter of this was exported. Moreover, almost half of Russian ammonia exports reached their destination countries via Baltic ports, including about 2 million tonnes of ammonia mainly via the ports of Sillamäe and Ventspils (Sillamäe being the most important). After the start of the war in Ukraine, when the European Union imposed strict trade sanctions on Russia, stopping exports of ammonia through EU ports, ammonia production and supply problems intensified. Thus, the price of ammonia, which ranged between $200–400 per tonne in the years 2017–2020, more than quadrupled by the summer of 2022, to $1,300 per tonne. Setting up production in the Baltic Sea region (specifically, based on sustainability principles) would go a long way towards alleviating this situation as well as meeting the demand of the local maritime sector.