Q&A: OCI CEO says EU needs simpler IRA response

The US Inflation Reduction Act (IRA) is a game changer for methanol, ammonia and hydrogen markets in the EU and Middle East, says OCI Global and Fertiglobe chief executive Ahmed El-Hoshy. The EU needs a simpler regulatory solution, El-Hoshy tells Argus.

Is the EU's response to the IRA enough for green fuels and fertilizers?

The beauty of the IRA is its simplicity. You get [rewards] when you meet specific criteria [making] it simple to plan when making investment decisions.

Last year, we took final investment decisions (FIDs) for US projects after only 18 months — one in Iowa for carbon sequestration and another in Texas going to be operational with a 1.1mn t blue ammonia project in 2025. This was a direct result of the IRA.

The IRA also brings challenges. Compare our activity in the US with Europe, where we've six or seven projects we've been working on for up to five years. We've made progress towards making the FID. We need more clarity on regulation and financing, and this will only come through support from government.

How much production did OCI curtail in 2022?

For ammonia, the two lines at our plant in Geleen, Netherlands, have been running at 40pc of capacity for the last 18 months. Whereas in the Middle East and the US, we are at full throttle.

We had to stop production at [the] methanol plant in the Netherlands due to gas prices. And we're now looking to convert this plant from using natural gas as feedstock to using 100pc waste feedstock — a combination of municipal solid waste and biomass waste. In the meantime, though, I anticipate it will remain closed this year.

Converting existing infrastructure and sites, which previously ran on fossil fuels, to run on renewable feedstocks is a quicker and easier way to decarbonise than building something new. It can only be viable [with] public sector support.

What are you doing this year to cope with higher energy prices?

In Europe, we're continuing to restrict production where natural gas is being used as feedstock. We're also increasing ammonia import capacity at our terminal in Rotterdam. That's cheaper than burning natural gas on our Dutch site.

If natural gas is $30/mn Btu, we're buying ammonia in at $22/mn Btu as a finished product. We then upgrade into fertilizers and chemicals in Europe.

We do have a pathway to decarbonise both methanol and ammonia production as part of an agreement with the Dutch government. And we're hoping to be in a position to bring them back to scale. That can only be achieved with financial and infrastructure support from the government.

How will the EU's carbon border impact business once in operation?

It's a very good first step in the right direction, especially if you are touching €100 for an EU ETS allowance and increasing the value of low carbon [products]. There are a few challenges.

If you tax grey ammonia coming into the EU, but not imported derivative products, you can still import products to the customers of your customers and not pay the carbon border adjustment mechanism (CBAM) to cover related emissions.

There also needs to be more regulatory value for lower carbon products. At the moment, there's not enough to compensate for TTF exposure. If we are deciding on a decarbonisation project, for example, at our Dutch facilities, significant risk remains. We don't have clarity on whether we pay for carbon capture in Europe while still linked to TTF gas prices.

Higher hydrocarbon and renewable costs, and lack of renewable energy abundance, makes it very hard to produce affordable green products.

What needs to happen to ensure Europe remains competitive?

Europe needs to decide: does it want to be a methanol, ammonia and low carbon fuels importer or does it want produce its own? There's existing infrastructure in Europe and we should utilise it.

Europe also needs to ensure decisions prioritise getting to FID based on what's most likely to achieve climate targets and where financing can have maximum impact. It's all about demand activation. A regulatory stick and/or carrot helps trigger that demand. Initiatives like the EU Innovation Fund are the right steps to be taking.

By Dafydd ab Iago

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