By Dr Alloysius Joko Purwanto, Energy Economist: Low-carbon hydrogen has emerged as a new option in the world’s strategy to decarbonise, not only amongst advanced economies but also in developing ASEAN countries. Most ASEAN countries have developed hydrogen strategies and roadmaps towards reaching their carbon neutrality targets by mid-century.

While transportation and power generation are seen as future primary end-users of low-carbon hydrogen, ASEAN countries should also explore its non-energy use as a key entry point to the low-carbon hydrogen economy.

According to a 2024 report from ERIA, ASEAN consumed around 3.7 million metric tons of hydrogen in 2020. By 2025, this number should reach around 4.4 million metric tons. This hydrogen use is entirely confined as feedstock to the industrial sectors. The ammonia industry absorbs almost half of it, followed by oil refining (slightly over 30%), methanol production (12%–14%), chemical and other industries (3%), and raw steel production (1%).

Currently, the hydrogen used in these plants is produced through steam methane reforming, partial oxidation of refinery bottoms, coal gasification, or as a byproduct of chemical processes, which are all emission-intensive processes. ERIA estimates that ASEAN’s hydrogen production in 2025 will generate at least 36.5 million tons of carbon dioxide – comparable to Myanmar’s total annual carbon dioxide emissions from energy use as of now. 

The existing and obvious current demand for hydrogen use as feedstock in the industry sectors, especially in ammonia production for fertiliser manufacturing, is a low-hanging fruit for the region to start its low-carbon hydrogen economy. Three key factors necessitate the urgent transition of ASEAN countries from high-carbon to low-carbon hydrogen in ammonia production.

First, the growing importance of ammonia businesses, both globally and within the region.

Globally, 80% of ammonia demand is for fertiliser. With Asia’s agricultural sector as the primary driver, global ammonia demand is expected to increase by 8% per year from 2022 to 2031 – double the annual growth rate during the period spanning 2016 to 2022.

As of end-2021, ASEAN had an installed ammonia production capacity of around 11.7 million tons per year, with more than 7.8 million tons of that capacity located in Indonesia. Indonesia is the biggest ammonia exporter in the region, followed by Malaysia, while the rest of ASEAN are importers of ammonia and its related products. Malaysia and Indonesia were amongst the world’s top 10 urea exporters in 2023, with nearly half of their exports directed to markets within ASEAN.

Even as ammonia remains essential to agriculture, its demand is set to grow significantly due to decarbonisation efforts, including its use in the maritime sector and as a clean hydrogen carrier in international trade. ERIA’s report estimates that decarbonisation objectives should boost ammonia demand in ASEAN by 3.7 times from now to 2050, compared to only 1.9 times without the decarbonisation purpose in place.

Second, there is significant potential to get financial support.

Financial institutions may still be reluctant to provide loans to finance future demand for hydrogen fuel cell vehicles, hydrogen gas stations, or hydrogen power plants. The absence of a financial market for trading hydrogen or its derivatives, along with the need for infrastructures to be built, present additional difficulties.

However, financial institutions – especially early movers with deeper understanding of project risks, key value chain relationship, and stakeholder roles – are likely to back renewable energy-powered electrolysers for green hydrogen production or carbon capture and storage (CCS) facilities to produce blue hydrogen at ammonia plants. The certainty of demand and buyers as well as the limited new infrastructure to build are the most motivating factors for the support.

Third, using low-carbon hydrogen in ammonia production should accelerate the development of renewable power generation, electrolysers, and carbon capture and storage (CCS) facilities, amongst others. This scale-up will drive down costs, hence reducing the production cost of low-carbon hydrogen.

This virtuous circle could further expand the use of low-carbon hydrogen in oil refining, methanol production, steel raw production, chemicals, and other industries where demand for hydrogen already exists.

How can ASEAN Member States (AMS) facilitate the shift towards the use of low-carbon hydrogen for ammonia and fertiliser production?

First, by initially prioritising the export market. Per ERIA’s estimates, producing blue ammonia in Indonesia, for instance, would add 24% to costs, while green ammonia production would incur a fourfold cost increase compared to the current conventional pathway.

With low-carbon hydrogen prices remaining high in ASEAN, export markets such as Japan should be considered the main consumers during the early stages of commercialisation. These advanced economies, driven by efforts to reduce the carbon intensity of their industries, have high purchasing power to import low-carbon commodities such as green ammonia or fertiliser from AMS.

Second, AMS should elaborate policy measures to facilitate the development of green hydrogen in areas with abundant renewable resources for power generation but low electricity demand.

As transport and storage costs of hydrogen are higher than those of ammonia or fertiliser, green hydrogen produced from renewable energy needs to be consumed directly as feedstock in ammonia plants. The ideal scenario for developing a green ammonia or fertiliser industry would be to locate these plants as near as possible to the green hydrogen production sites and then transport final products – green ammonia or fertiliser – to buyers.

Finally, governments must formulate detailed cross-industry plans to ensure timely development of renewable electricity capacities or CCS infrastructures necessary to produce the required volume of low-carbon or green hydrogen. These plans should include carbon pricing mechanisms, with revenues directed towards maintaining industry sector competitiveness. ASEAN countries with renewable energy resource potential should prioritise the development of green hydrogen or ammonia, while countries with relatively stable access to natural gas supply might prioritise blue hydrogen or ammonia production.

Following this, regional coordination and cooperation across ASEAN must find the optimal mix of hydrogen capacities and supply chains, maximising both economies of scale and scope.

This opinion piece was written by Dr Alloysius Joko Purwanto, Energy Economist, ERIA, and has been published in The Manila Times and Borneo Bulletin. Click here to subscribe to the monthly newsletter.

Disclaimer: The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of ERIA.