Ammonia plant cost comparisons: Natural gas, Coal, or Electrolysis?

A recent feasibility study compares the costs of building and operating a new ammonia plant using one of three technologies: natural gas, coal, or electrolysis.

Unsurprisingly, natural gas is the most competitive today. However, it might surprise you how closely competitive electrolysis has become.

I’ve written variations on this theme before, including a report on two comparative studies of ammonia production pathways from two teams of researchers in Canada and Italy in February 2017, and more recent updates on the cost-competitiveness of electrolytic hydrogen feedstock relative to natural gas, based on analysis by the International Energy Agency in June 2017.

However, this is the first time I’ve seen hard numbers for a technology cost-comparison reported by an actual project-in-development, as opposed to academic projections.

I must stress two things at the outset. First, these numbers aren’t real: they are still just projections, based upon unknown assumptions. Second, these numbers are site-specific: they represent detailed research into a new build at a particular location and they communicate the economic opportunities and limitations of that location; there is no reason to assume these numbers would be the same anywhere else. While they can usefully enter the public record, they must be used with care – as I explain further below.

The project in question is the Chemical Fertilizer Plant being proposed by the Nepalese government, a public-private partnership led by the Office of the Investment Board and the Ministry of Agricultural Development. The plant would be built near Dhalkebar, in Dhanusa district. It would be an ammonia-urea plant with capacities of 1,220 metric tons per day (mtpd) of ammonia and 2,125 mtpd of urea, which is about 700,000 metric tons per year (mtpy) of urea, approximately equal to Nepal’s annual demand.

A huge amount of government budget goes into subsidizing the fertilizers to the farmers. Hence, establishment of a chemical fertilizer plant within Nepal can substitute the import as well as help reduce the government burden. This project seeks an investor to set up a modern urea plant in Nepal. Such facility will not only cater to Nepal’s fertilizer needs but it can export fertilizer to Indian markets.
Government of Nepal, Office of the Investment Board: Chemical Fertilizer Plant project bank

In December 2015, The Investment Board commissioned the detailed feasibility study from a firm called Infrastructure Development Corporation (Karnataka) (iDeCK). The study was intended to provide “an economic and financial analysis before and after the establishment of the fertilizer plant,” and specify “appropriate technology for Nepal … [and] necessary raw materials.”

In 2017, according to local press reports, the Feasibility Study was delivered with the following economic analysis on the projected Capital Expense (CapEx) and Operating Expense (OpEx) for three “modalities:” natural gas, electrolysis, and coal.

Nepal: Chemical Fertilizer Plant Natural Gas Electrolysis Coal
CapEx, total $665 M $983 M $1,300 M
OpEx, per ton $268 $448 $372
CapEx, per ton ammonia capacity $1,603 $2,370 $3,134
All capacity units assumed to be in metric tons. CapEx includes 1,220 mtpd ammonia plant and 2,125 mtpd urea plant. Source does not specify to which product OpEx numbers refer (ammonia or urea); I assume ammonia. CapEx per ton calculations are my own, based on the stated ammonia capacity at an assumed 340 days per year.
Source: The Kathmandu Post, Committee to recommend modality for urea plant, 08/05/2017, reporting on the Feasibility Study for Nepal’s proposed Chemical Fertilizer Plant.

What I find most striking about these numbers is how close to competitive electrolytic ammonia has become.

Assuming a 340-day capacity factor (see my explanation of capacity factors), the daily capacity of 1,220 tons becomes an annual capacity of 414,800 tons. At a cost of $665 million, the natural gas plant would cost slightly more than $1,600 per ton of annual capacity.

This might be a reasonable cost in the Himalayas – I cannot claim to know cost escalation factors for that location – but it is far above the $900 to $1,200 I’m seeing for the most competitive projects being built in the US today. (For more discussion of costs in the US market, see my recent articles on the Phibro plant in Indiana, using pet coke feedstock, and the Yara / BASF plant in Texas, using hydrogen feedstock).

In any case, these numbers are valuable additions to the public record. The feasibility study, however, as reported in the local press, raises certain questions:

  • It is perhaps reasonable to assume that an electrolytic ammonia plant in Nepal might pay globally uncompetitive rates for power. Nepal doesn’t have great access to electricity: according to the CIA World Factbook, 6.6 million residents (about a quarter of the population) have no electricity at all and, while the country produces 3.342 TWh, it must import an additional 1.758 TWh, more than 50% again. These factors would tend to push up the price of electricity.
  • In Nepal, over 90% of the power supply comes from hydroelectric dams. Unfortunately, Nepal is in the Himalayas, a seismic zone: in 2015, a pair of earthquakes killed more than 8,600 people, injured more than 24,000, and caused extensive damage to its hydroelectric dams. According to Nepal’s Hydropower – The Status and Challenges, a paper published at the end of 2015, “Nepal should undertake genuine soul-searching exercises regarding in particular the implementation of large reservoir projects in seismically active zones.” (For more on this subject, see The New Yorker’s Nepal’s Dangerous Dams or Scientific American’s The Impending Dam Disaster in the Himalayas.) This would imply that generating capacity cannot be expanded reliably, easily or cheaply, making power supply somewhat inelastic.
  • Anyone familiar with ammonia or electricity production in India will note the risks surrounding the feasibility study’s recommendation to build “a pipeline to ensure uninterrupted supply from any one of three Indian cities: Jagdishpur, Gorakhpur or Gaya.” Ammonia production in India is often curtailed (shut down), and the electricity market is regularly roiled by black-outs, both caused by shortages of natural gas among other issues. Perhaps exacerbating this issue, India is engaged in a multi-year campaign to drastically increase its own ammonia production using natural gas. How an “uninterrupted supply” could be ensured for export to Nepal is a complex, perhaps speculative question, but this presents a significant operational risk for any investor.

However, there is a more creative way to look at this, which I suspect was not considered in the Feasibility Study:

  • Nepal has a dry season and a wet, monsoon season. The dry season is at its most severe from February to April, when there is not enough water to generate hydroelectric power and, as a result, Nepal has crushing power shortages and “over 12 hours of load shedding per day for over a decade.” Electrolytic ammonia could be produced during only the wet season, at a more competitive electricity tariff.
  • Ammonia could be more valuable as an energy carrier than it is as a fertilizer: “The Nepalese government, stung by the dry season energy deficit, is relentlessly pushing for storage projects.” Ammonia is already demonstrated to be the most cost-effective long-term large-scale energy storage technology available.
  • This is often an issue of scale: why centralize production in one large ammonia plant, when the power is produced (and stranded) at numerous, smaller locations around the country? Nepal could consider the costs of several smaller electrolytic ammonia plants, sized to match the excess wet season power supply. What the project would lose in efficiencies-of-scale, it would gain back in straightforward efficiency.
  • Such a system of distributed electrolytic ammonia plants would help to stem the “system losses” of the electricity grid, operated by the Nepal Electricity Authority (NEA), which come to a staggering 24.8%, or almost one TWh per year.

As a final thought, I’d add that nowhere in the available documents regarding Nepal’s Chemical Fertilizer Plant is there any mention of sustainability or carbon emissions: Nepal is investigating an electrolytic ammonia plant purely because it is a technologically-viable alternative to a natural gas fed ammonia plant. Soon, electrolytic ammonia will be economically-viable as well. And this will open tremendous opportunities for countries that lack sufficient natural gas resources but have significant untapped renewable power resources – like, for instance, India – to be self-sufficient for fertilizer as well as for energy.


  1. Dear Sir:

    Many thanks for this information, it is of great help for our region and country where we have no fertilizer at all.

    Can it be possible to produce ammonia/urea from BIOMASS that we have plenty and at very afordable prices. Small scale. We have at no price Brazil Nut SHELLS – about 30.000 tons per year.

    Hope you can help us.

    Many thanks and have a nice weekend.

    Best regards

    • Tshering Lhendup says:

      that is what I am looking for small new plant using electrolysis. I must know roughly how much it will costs

      • Karl Petter says:

        You should get in touch with NEL.

        They provide different types of electrolyzers depending on your need. Check out

        They will be able to tell you the costs related to electrolysis. Yara is one of their clients.

  2. Ella Dork says:

    Thanks for sharing the info. May i know how long does it take to build the plant and how long is the useful life of the plant?


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