How Penguins Revolutionized Modern Agriculture.
Hello, dear community,
Thank you so much for the great feedback on my last post. I hope your oven held up well during the practical tests.
For those of you who want to explore new horizons with your oven, here’s the link to the post I mentioned:
https://getqu.in/2A360BDV8GYN/n12zGfGeeF/
Just a thought-provoking prompt, since I’ll be running out of topics myself in a few weeks.
What topics in the fields of industry, energy, or chemistry do you, as investors, tend to question most often?
Here’s a topic close to my heart: “ammonia.” I hope you enjoy it.
Why Ammonia Is the Better Alternative to “Green” Hydrogen.
1. Significance and Background:
Ammonia is one of the most widely produced chemicals in the world. Researchers Fritz Haber and Carl Bosch called their process “bread from air”—a process that continues to shape the world today: ammonia synthesis.
Amid the competition for fertilizers during the Industrial Revolution, it was ultimately the rivalry between the major European powers that led the “land of poets and thinkers” to spark a revolution.
Based on research by biologist Justus von Liebig, nitrogen-containing fertilizers experienced an incredible surge in demand. Today, this can be compared more to the semiconductor industry.
Natural deposits of such fertilizers were limited. The potential here lay in Chilean saltpeter and guano (a mixture of seabird droppings, such as those from penguins, on limestone).
So while today we tend to seek dependencies, just under 100 years ago the goal was to limit them.
Ostwald achieved the first steps and successes in synthetic fertilizers with his Ostwald process. Today, however, this is used primarily for the production of nitric acid.
Birkeland, a Norwegian, developed a process—with the support of industrialist Sam Eyde—for producing nitric acid using an electric arc. This process, however, was drastically inefficient.
Let’s now turn to the main topic:
The Germans’ drive toward self-sufficiency remained unbroken. The chemists Fritz Haber and Carl Bosch therefore developed an industrial-scale synthesis based on nitrogen—which makes up nearly 80% of the air—and hydrogen. BASF showed great economic interest in this $BAS (-1,7%) . This led not only to a collaboration. In 1913, the first large-scale plant for the production of ammonia was built in Ludwigshafen, with a capacity of 30 metric tons per day—an enormous figure at the time.
Due to World War I and the resulting demand for explosives, additional plants were built in Bitterfeld and Leuna. Incidentally, this construction still forms the foundation for the significant chemical industry in Saxony-Anhalt today.
2. “Bread from Air”—the process in color.
Conventional production (gray):
To produce ammonia (NH₃), you need nitrogen (N₂) and hydrogen (H₂). Nitrogen can be easily obtained by feeding in air. Hydrogen was originally produced through chlor-alkali electrolysis. Today, however, hydrogen is primarily produced from natural gas via steam reforming.
After a relatively simple process, the end result is a truly repulsive, pungent-smelling liquid.
“Green” production:
The “green” production of ammonia differs only slightly from the conventional method.
Since nitrogen is already extracted from the air and thus does not generate greenhouse gases, CO2 savings are only possible during the production of hydrogen (H2).
In this process, hydrogen must be fed directly from water via electrolysis. At least, that would be the most efficient method, since no further phase change of hydrogen needs to be taken into account.
Thus, the process differs only in the production of the raw material “hydrogen.” The rest of the synthesis is also carried out using the Haber-Bosch process.
3. Uses – Why is ammonia actually so important for household use?
Ammonia is an important chemical raw material for virtually all branches of industry. Even in household use, we find it, for example, in:
- our refrigerator (refrigerant)
- our clothing (dye)
- diesel vehicles for exhaust treatment (AdBlue as a urea solution)
- proteins in the body and in the urea cycle as a breakdown product of the body’s own “overdose”
4. What does this mean in terms of potential beneficiaries for an investment?
To answer that, we must, of course, ask ourselves the questions behind the how, what, and why. Broadly speaking, ammonia can now be classified as part of the energy storage sector, though it receives significantly less attention in this regard than hydrogen.
The world’s largest publicly traded manufacturers are Yara $YAR (-2,75%) and CF Industries $CF (-0,34%) , although Yara, which also produces its own product, is more closely associated with the chemical trading sector, such as Brenntag $BNR (-0,53%) . As a result, the company is better positioned to weather crises during recessions. Chemical distributors can dispense containers of any size and purchase large batches, thereby retaining the difference as a margin. This tends to mean that, in times of economic uncertainty, customers are more willing to buy smaller containers to reduce inventory in the event of a production shutdown due to lack of demand.
CF Industries, on the other hand, is a “true” producer and has been aiming to produce “green” ammonia since this year.
With regard to advanced processes, the trend is now such that, due to improved efficiency, air is no longer injected—only pure nitrogen. Alongside this, of course, is hydrogen. Manufacturers usually possess the necessary process expertise themselves, so dependence on hydrogen suppliers can essentially be ruled out. One exception here is Linde’s engineering division $LIN . They possess expertise in entire hydrogen and ammonia plants. Incidentally, this would also be another reason to avoid the “small” hype stocks, such as Nel $NEL (-1,17%) or Plug $PLUG (-2,37%) in the hydrogen sector, and why these are unlikely to gain traction. After all, ammonia would be a massive customer for this industry. Nevertheless, ammonia producers are absurdly undervalued on the stock market—with average P/E ratios of 5. In contrast, some stocks in the largest hydrogen ETF $HTWO (+0,04%) are valued at >20—if they can even post profits at all.
Here’s an example:
CF-Industries is valued at around €14 billion. Plug Power is still valued at just under €7 billion—that’s half as much. While Plug has been burning through cash for years and doesn’t even generate revenue in the billions, CF is extremely profitable.
Both operate primarily in the “clean” energy sector. Nevertheless, CF is expected to see a decline in business in the coming years. This is inexplicable and illogical, and it certainly won’t happen.
5. So where is the growth potential?
This is truly extremely difficult to assess in this context, as the market is largely saturated and divided.
In general, however, one should indeed highlight BASF. Although the closure of ammonia production at the Ludwigshafen site is attributable to high production costs in Europe, the company largely retains the entire value chain of ammonia-based products in-house.
In the following, I would like to take a closer look at a few ammonia-based products that, in my opinion, have high growth potential. Given the growth potential of these products, manufacturers’ ammonia production should remain stable in the future and, of course, continue to gain in importance.
Urea:
Contrary to popular belief, urea is not merely ammonia or a solution of it. It is a distinct chemical compound and a derivative of ammonia.
With a market share of 46%, urea is the preeminent nitrogen-containing fertilizer. This trend is naturally set to continue as the global population keeps growing. Furthermore, many of the raw materials of the future are plant-based. This naturally means there is considerable growth potential here as well, along with a secure, crisis-resistant market. People will always eat!
3 representative examples: Yara $YAR (-2,75%) , CF Industries $CF (-0,34%) , Fertiglobe $FERTIGLB
Nitric acid:
Nitric acid is arguably the best-known nitrogen-containing acid. However, it is extremely dangerous in high concentrations, as it releases nitrous gases that are toxic and corrosive. It is used as a raw material for explosives such as TNT or nitroglycerin and is therefore essential for the mining sector. It is also found Yara is involved here as well. And no, this is not meant to be an advertisement. However, they control the vast majority of ammonia and nitrous production themselves and greatly value lucrative business opportunities.
Other major players in this sector include SKW Piesteritz GmbH and Staub & Co., as well as many other medium-sized companies.
Aniline:
Although aniline is now produced using ammonia only in the final stage of modern processes, it remains a steady market with growth potential. Earlier processes involved a complete reaction chain using ammonia. Aniline is a raw material for the production of dyes, medications, and synthetic rubber, as well as fibers—commonly known as synthetic fibers. As a substance, aniline also gave its name to the largest chemical company, BASF $BAS (-1,7%) , which derives from the original name of the Badische Anilin- and Soda-Ffactory .
In addition, however, DuPont $DD (-2,27%) , Shin-Etsu $4063 (-0,26%) and Eastman $EMN (-0,79%) also offer many aniline-based products.
6. Ammonia as the Fuel of the Future?:
The purpose of my posts is, of course, to discuss energy sources of the future while focusing on diversification.
A Solution as an Alternative Fuel:
However, since ammonia consists of 75% hydrogen and 25% nitrogen, it can easily be split again using a so-called ammonia cracker. This means that hydrogen can, for example, be harnessed for energy in a fuel cell and, on balance, has an efficiency many times higher than that of ammonia. Nevertheless, it still lags far behind battery-powered vehicles.
Nevertheless, even here, well-known companies—particularly in the heavy-duty transportation sector—have emerged that are considering ammonia as a solution for the future.
The Deutsche Bahn wants to convert some of its freight trains to ammonia in order to minimize its diesel fleet.
The VW subsidiary $VOW (+1,25%) , MAN, is working on ammonia-based marine engines.
John Deere $DE (+3,66%) is also working on such engines for medium-duty tractors.
7. Ammonia as an energy storage medium—what are its advantages?
The main point here is that while hydrogen is needed to produce ammonia, it would have to be liquefied for transport—a process that consumes a lot of energy.
A quick recap: To do this, hydrogen must be cooled to approximately -250 degrees Celsius and compressed to 700 bar.
Ammonia, on the other hand, can be liquefied at 20 degrees Celsius—that is, room temperature—and at approximately 8 bar.
The energy required is therefore dramatically lower. Furthermore, ammonia’s energy density (~3.3 kWh/l) is higher because hydrogen (~2.2 kWh/l in liquid form) is chemically bound as an energy carrier, thereby reducing the volume of the hydrogen.
The relevant parameters are taken from the “Formula Collection” published by Duden.
In addition to the advantage I described above—that the compression energy required for ammonia is significantly lower than that for hydrogen—ammonia can also be easily stored chemically and handled much more advantageously. For example, ammonia can be converted into a salt, making it very easy to store and transport as a solid. At approximately 60 degrees Celsius, these salts decompose and release ammonia again.
But even without conversion, ammonia is already usable today as a gas, since the natural gas network infrastructure is designed to handle it. It can be transported by ship, via pipeline, or even in standard gas cylinders or cartridges.
This is because the structure of ammonia is coarser and larger than that of hydrogen.
8. What is the general disadvantage of ammonia?
The biggest disadvantages are the acute health and environmental hazards posed by the substance. Leaks would certainly cause lasting environmental damage to animals, nature, and humans.
It contains only a quarter of the energy of gasoline and only half that of diesel. Consequently, twice the amount would be needed compared to fossil fuels.
Incomplete combustion—which is quite common in engines—produces “nitrous oxide,” a narcotic and potent greenhouse gas. Engines must therefore burn fuel extremely efficiently and thoroughly.
Postscript:
I hope you enjoyed this post.
The next post will cover the chemical processing of lithium. The carbon footprint is an interesting aspect here, but the focus will be on how the stock market completely misjudges the value chains and how valuations distort the picture of the real economy.
