Why this US hydrogen developer is changing its strategy in Latin America

US energy infrastructure firm MMEX Resources has changed its hydrogen strategy in Latin America, where it has projects in Argentina and Peru.

The move comes amid challenges globally to narrow the price gap between clean hydrogen and fossil fuels and consensus that the industry will eventually take flight later than originally expected, possibly during the second half of the decade. 

MMEX Resources – in addition to a US$500mn, 20,000t/y hydrogen project underway in Texas – has an export initiative in Argentina’s windswept Tierra del Fuego province to produce derivate green ammonia. The company also has a project in Peru geared to exports and to domestic offtake by the mining sector. 

In a context where Latin American countries can offer investors world-class wind and solar resources, vital to reducing unit costs, but not the hefty subsidy carrot being dangled in the US, MMEX is downsizing projects in the region and targeting the local offtake market.

“We decided to focus on smaller-sized projects, let’s say the US$30mn-50mn range capex, and find small to medium-sized industries that are emitting a lot of CO2 and try to propose solutions to have them use hydrogen, or convert to maybe ammonia or methanol in some specific or niche conditions,” MMEX Resources project development manager Nabil Katabi told a webinar held in advance of the World Hydrogen Latin America conference.

“Bottom line, rather than going for the big industrial projects which we think it is too early for in LatAm – but you can start looking at it and taking positions – we’re looking at smaller-sized projects that also can go and look for CO2 credits on the voluntary carbon markets to help bridge that cost and subsidy gap, much easier in the small capex world,” he said.

Katabi cited the potential to change fuel source to hydrogen in the spheres of cement, clinker, mining and scrap steel operations.

“Develop an ecosystem of small projects and you’ll get to the big ones,” Katabi said.

He added that the likes of voluntary carbon markets, cheap electrolyzers and potentially carbon penalties on emitters would “make projects in LatAm work.”

Announced in 2022, the company’s Argentine project, MMEX Austral H2, has estimated capex of US$500mn and planned ammonia production of 20,000t/y.

Katabi, in response to a question from BNamericas, commented: “You don’t have the economics to do it today, but what everyone who has a project in Argentina is doing is really making sure that we have a land position for the day that the economics will work.”

“It’s a kind of wait-and-see attitude but, in the meantime, we’re looking at those smaller developments, projects to get the experience curve on hydrogen projects up.”

To help get investment wheels spinning, countries in the region are laying the regulatory foundations, inking cooperation agreements, building sector roadmaps to send out the right signals, and working on financial solutions to support economic feasibility. 

Chile, for example, is launching a multilateral-supported US$1bn financing facility to help derisk projects and trim the cost of capital, while the local branch of German development cooperation agency GIZ is spearheading efforts to introduce contracts for difference and helping marry developers with investors.  

“I think we need to pull [in] all resources we can, look at innovative approaches to try to get that cost barrier down and make sure that we’re seeing proper investment into the sector here as well,” Corinne Ribbons, an international advisor at Chile’s energy ministry, said.

The pipeline of projects in Latin America is growing, with some targeting the export market, some domestic demand, others both. 

Regional trailblazer Chile is home to around 70 publicly announced projects, among them the US$2.5bn Volta permitting-phase green ammonia project, planned for the sun-blessed Atacama desert. Volta owner MAE is working on project economics.

In recent comments, MAE founder and Southern Cone investor James Calaway said subsidies were not sustainable, and that falling prices of solar and storage systems were playing in its favor.

Underscoring a pilot project was not necessary and that the rich solar resources was a juicy cost incentive, Calaway said that “we’re close in the Atacama, we’re not there yet.” He added that with the State, and with support from international finance, work could get underway. 

In terms of the US market, clean hydrogen producers can apply for a tax credit of up to US$3/kg. The level is based on carbon intensity.

“We have real, hard data on what it costs to produce hydrogen, from our projects in the US,” said Katabi. “Even with that US$3/kg, it’s difficult to produce at a price that makes sense for who the big clients are going to be in Europe, and the refining sector, the shipping sector, the steel sector, so imagine the challenge this is going to be for Latin America."

MMEX is an established Latin America player, having worked on power plant, transmission line, ethanol production and refinery infrastructure projects in Peru, where it has also carried out upstream work.

Shipping fuel, local demand

Shipping firm AP-Moller Maersk’s regional energy transition chief Alexis Rodriguez told the webinar that a challenge and “huge” opportunity for Latin America was becoming a “gas station for international trade.”

Geographically, Latin America is well-positioned to become a supplier of clean methanol and ammonia for the shipping industry.

“First we need to identify where we have to allocate the infrastructure, second, how the difference of price will be,” Rodríguez said. “The price gap will make a business case feasible or not feasible.”

Shipping companies are exploring solutions using both derivatives, the event was told.

Last year, AP-Moller Maersk said it had 25 methanol-enabled vessels on order. Globally, work is also underway to enable ammonia as an alternative marine fuel and to develop associated handling and storage regulations. 

Citing the importance of collaboration and addressing the gap to unlock the region's potential, Rodríguez added that building local hydrogen economies was vital, something echoed by Ribbons.

She said: “I agree, and I think that when we’re talking about building a market for hydrogen and starting to produce low-carbon hydrogen in the region, we need to be looking at, initially, using that domestically.”

Drivers include the need to get initial dollars flowing and to decarbonize local economies and build local ecosystems, especially given the magnitude of the challenge of getting an export industry started and the fact that the international offtake market has not developed as fast as originally thought.   

World Hydrogen Latin America is due be held December 2-4 in Chilean capital Santiago. Find out more here.