Market and product

Japan's emerging low-carbon hydrogen and ammonia market is being reshaped by geopolitical tensions that have narrowed the cost gap between blue ammonia (made from natural gas) and green ammonia (made from renewable-based hydrogen), with Indian supplies now reaching competitive price levels, according to a senior Japanese government official who spoke to Platts on July 1.

Green ammonia is produced from renewable-sourced hydrogen, while blue ammonia is produced from natural gas combined with carbon capture and storage (CCS) technology.

Daisuke Hirota, director of the hydrogen and ammonia division at Japan's Ministry of Economy, Trade and Industry (METI), said green ammonia priced at around $600 a tonne FOB from India has significantly narrowed the gap with blue ammonia, particularly over the past three years as natural gas prices surged following the Russia-Ukraine conflict and disruptions in the Strait of Hormuz.

Several Indian renewable ammonia developers have signed supply agreements with fertilizer companies to deliver 670,000 tonnes of ammonia a year at a weighted average price of around 53.35 rupees per kilogram (about $559 a tonne). The dollar-converted value of that rupee-denominated tender has also fallen nearly 10% since the tender closed last August, due to the rupee's depreciation against the dollar.

According to Hirota, these geopolitical disruptions have had an unintended positive effect on low-carbon fuel development by pushing major economies to pay closer attention to energy security. He noted that the EU, India and China are all discussing energy independence and security, and Japan is no exception.

Platts data shows Indian renewable ammonia offers to Japan priced at around $700 a tonne CFR, notably lower than CCS-based low-carbon ammonia offers from the US, which sit close to $800 a tonne. By comparison, Platts assessed conventional ammonia CFR Far East at $765 a tonne on July 1 - 56% above pre-conflict levels.

Ammonia demand growing faster than pure hydrogen

Hirota said Japan's ammonia market is developing faster than the market for pure hydrogen because of infrastructure constraints. Japan currently lacks large-scale cracking facilities to convert ammonia back into hydrogen, while liquid hydrogen technology remains at an early stage, limiting the ability to transport and use pure hydrogen at scale.

Power generation is emerging as the fastest-growing demand segment, driven by the government's long-term decarbonized power source auction (LTDA) program and surging electricity demand from data centers. Hirota said power demand is rising partly because of the additional load coming from data centers.

He noted the transition is more difficult in other sectors. For the chemical industry and other sectors that already consume conventional ammonia made from unabated fossil fuels, switching to green ammonia is comparatively easier than for sectors currently relying on coal or LNG, given the still-significant price gap between those fuels.

Government policy shaping the market

According to Hirota, Japan's hydrogen and ammonia market development is being driven by government policy, similar to the approach taken by the EU, India and China. Key policy mechanisms include the FuelEU Maritime regulation and International Maritime Organization (IMO) emissions rules for shipping, alongside demand from refineries and the power sector.

Under the LTDA program, Japan's support structure has evolved over time. The first two auction rounds didn't cover full project costs, but starting with the third round, both capital and operating expenses for upstream production and downstream consumption are fully covered, allowing investors to make final investment decisions based solely on auction results. Winners of the first two rounds still need to secure contracts for difference to move forward.

Japan awarded 516 megawatts of hydrogen- and ammonia-based decarbonized power capacity in its third LTDA round, with hydrogen mono-firing projects receiving support for the first time. The winning power companies were Kobelco Power and Hokkaido Electric for ammonia-coal cofiring capacity, and CEF H2 and Hoku Energy for hydrogen mono-firing.

The fourth LTDA round introduced a pre-qualification process requiring projects to meet a carbon intensity threshold of 0.87 tonnes of CO2 equivalent per tonne of ammonia. The new rules also tighten energy security and industrial competitiveness requirements, calling for Japanese investment and greater use of domestically made equipment and infrastructure to reduce overreliance on any single country or region. Each bidder can enter only one upstream project, though multiple upstream projects can compete against each other as long as each is paired with a corresponding downstream offtake commitment.

India's strong position

Hirota said India has emerged as a particularly competitive location for renewable-based hydrogen and ammonia production, combining relatively low renewable energy costs with manageable construction expenses.

He noted that while Saudi Arabia offers the world's cheapest renewable power, projects located further inland near the Strait of Hormuz face geopolitical risks that complicate investment decisions. Australia benefits from low-cost renewable energy but faces significantly higher construction costs than the Middle East or India.

Hirota described India as being in a very strong position for renewable-based new energy, calling it an interesting market with real potential for hydrogen project development.

India's ACME Group has signed long-term offtake agreements for renewable ammonia and methanol with Japan's IHI and Mitsubishi Gas Chemical. Under the deal, ACME will supply 488,000 tonnes of renewable ammonia a year to IHI from its Gopalpur facility, in which the Japanese engineering firm holds a 30% stake. Separately, Mitsubishi Gas Chemical has agreed to purchase 100,000 tonnes of renewable methanol a year from ACME's Paradip plant.

Source: INTERVIEW: Surging gas costs make India's green ammonia competitive with blue: METI official — Vipul Garg, S&P Global Commodity Insights (Platts), July 1, 2026