In recent months, many countries including the UK have seen a cost of living crisis unfold. UK inflation has reached 9.4% and America has seen a 40-year high of 9.1% (as reported by the BBC on 20 July 2022). There are various factors that have contributed to this global inflation, with increases in fuel prices and food prices being two of the significant factors.
In respect of global food supply, the conflict in Ukraine has had a particularly devastating effect. Prior to the conflict, the country was responsible for a considerable proportion of the world’s supply of sunflower oil, wheat and corn. The disruption in the global supply of these resources has led to increasing costs, which have been felt throughout the entire supply chain.
As well as arable supply shortages, the Ukrainian conflict has led to a shortage of fertiliser supply, which in turn has resulted in further cost pressures. Fertiliser supplements farmland soil to ensure the crops gain essential nutrients such as nitrogen. Both Ukraine and Russia were responsible for significant global fertiliser supply, with Russia previously accounting for around half of the world’s supply of ammonium nitrate, a widely used synthetic fertiliser. Such fertiliser is less available following the global sanctions on Russia.
Whilst it is hoped that the grain export deal signed by Russia and Ukraine on Friday 21st July, allowing sea exports of grain from the country, will ease global food supply chain issues, many countries have turned their attention on their national food security strategy. On 13 June 2022, for example, the UK Government published the Government Food Strategy, a report on the importance of resilient and self-sufficient UK food supply chains.
In recent months, we have been increasingly interested by the linkage between the UK’s Net Zero strategy, increased hydrogen production, and food security, specifically the interaction of these factors with synthetic fertiliser production. In the remainder of the article we explore the potential benefits and knock-on effects of an increased hydrogen supply in securing the UK’s food supply.
The importance of ammonia (and therefore hydrogen) for global food security
Synthetic fertilisers play a crucial role in securing high crop yields by ensuring crops receive the correct nutrients and the soil remains fertile. Following the Ukrainian conflict, fertiliser costs have tripled in some instances, causing farmers all over the world to reduce their fertiliser input, thereby reducing yields. In response, earlier this year the UK government unveiled various financial policies to assist local farmers with fluctuating fertiliser costs.
To appreciate how the UK’s hydrogen policy could assist in the fertiliser supply chain, it is important to understand the importance of hydrogen in fertiliser production. Ammonia is a precursor to a large proportion of these synthetic fertilisers. Ammonia is produced using the Haber Bosch process, which involves combining hydrogen and nitrogen to make ammonia. Hydrogen’s role in producing these ammonia-based fertilisers is not to be understated, with the global ammonia industry reportedly consuming more than 30 million metric tons of hydrogen annually. In Europe alone, it is estimated that the ammonia industry is responsible for 50% of the European hydrogen production and use.
With the UK now targeting 10GW of low carbon hydrogen production capacity by 2030, there is potential for the UK to secure a crucial element of the fertiliser production chain and increase domestic fertiliser production. Of course, this is only part of the equation and the UK will still need to secure a supply of nitrogen, but a reliable hydrogen supply would go some way to securing domestic fertiliser supply. To give an example, CF Fertilisers UK, a Teesside company, claims to produce 1.5 million tonnes of fertiliser which equates to 40% of the UK domestic fertiliser need. By expanding the sector the UK could reduce its reliance on international fertiliser imports, smooth out fertiliser price fluctuations and ultimately increase national food security. More optimistic commentators would comment that an expansion in the sector could see the UK fertiliser export industry flourish.
Decarbonising fertiliser production
Currently, the approximately 80% of hydrogen used in the fertiliser process is produced using natural gas, whilst coal accounts for approximately 15%. Such hydrogen is otherwise known as “Grey Hydrogen” (for more information about the different approaches to the production of hydrogen, take a look at our previous post “‘The Case for Blue Hydrogen’: new UK HFCA Paper”). Additionally, the process is carried out at extremely high temperatures making it highly energy intensive. Some estimates place the energy used to make fertilisers at between 1-2% of all energy generated globally and 1.1% of annual carbon emissions.
With the UK’s target to meet Net-Zero by 2050, ammonia producers are under pressure to decarbonise their processes. One way this can be achieved is through the use of greener sources of hydrogen such as Green or Blue Hydrogen. Blue Hydrogen involves the carbon capture, utilisation and storage (or “CCUS”) of carbon emissions, whilst Green Hydrogen is created using power generated by renewables. These ‘greener’ forms of Hydrogen can be fed into the traditional Haber Bosch process. This is precisely what is being planned as part of Saudi Arabia’s NEOM Project, which will be home to the largest Green Hydrogen-based ammonia plant, producing 650 tonnes of hydrogen plus 3,000 tonnes of ammonia, daily.
The fact the fertiliser industry is the biggest consumer of hydrogen, coupled with the current demand for huge quantities of fertiliser, means that even in the short term, “green” fertiliser represents a meaningful market opportunity for green hydrogen to make its entrance. Additionally, the ongoing impact of the crisis in Ukraine on energy prices, coupled with the finite nature of natural gas reserves (seen very clearly in its impact on the German energy market), illustrates just how susceptible grey hydrogen is to price fluctuation, potentially making the idea of green hydrogen seem more attractive.
It is hoped that the UK Hydrogen Strategy can have a positive knock on effect both in terms of creating a reliable supply of hydrogen for the fertiliser industry (thereby reducing reliance on volatile international supply) and in decarbonising a major contributor to the overall global CO2 production.
Burges Salmon has a leading agricultural as well as energy practice and has expertise advising on hydrogen projects, in the UK and in other jurisdictions, and acting across all legal specialisms, including planning, regulation, construction and financing. If you would like assistance on any of your projects, please feel free to get in touch. If you are interested in understanding more about the decarbonisation of the UK’s agricultural sector specifically, keep an eye out for forthcoming posts by our agricultural legal experts, Ken Kaar and Kevin Kennedy.