(Bloomberg) -- A unit of Hive Energy Ltd. says a group led by Japanese trading house Itochu Corp. is nearing an agreement to buy green ammonia from a project in South Africa.

Hive Hydrogen South Africa may start output of green ammonia — which could be utilized as a fuel for heavy industry and power plants and is also used in fertilizer and cleaning products — from the $5.9 billion facility in the southern port of Coega in 2029.

The signing of a pact with the Itochu-led group is “not there yet,” though the parties know what “the offtake agreement will look like,” Hive Hydrogen South Africa General Manager Colin Loubser said in an interview. He declined to identify the other participants in the group, citing confidentiality.

A spokesperson from Itochu said that discussions over an offtake agreement are still ongoing.

Securing an offtake agreement — few of which have been signed in the nascent green-hydrogen industry — improves the viability of projects and makes them more attractive to financiers and investors. 

Such an agreement would boost the prospects of the mega project and would put it ahead of a host of other plans to produce the green fuel in southern Africa, utilizing the region’s abundant renewable power resources and adding impetus to the plans of Namibia and South Africa’s governments to develop the industry.

In neighboring Namibia, Enertrag SE is backing the €10 billion ($10.8 billion) Hyphen project. Compagnie Maritime Belge SA has built a small hydrogen plant there and plans a $3.5 billion ammonia facility.

Hive Hydrogen, which is 75% owned by the UK’s Hive Energy, plans to sell the fuel it produces to east Asia, with initial output currently scheduled for the second quarter of 2029. 

Green hydrogen, which burns without producing climate-warming greenhouse gases, is produced by splitting water using renewable energy. It can then be converted into ammonia, which is easier to transport, has higher energy density than hydrogen and doesn’t require cooling to extreme temperatures.

The fuel is seen as a potential way of decarbonizing ship transport and heavy industry, and could also be used to fire power plants. While it’s currently more expensive to make than other fuels like diesel and so-called blue hydrogen that’s made using natural gas, costs may fall as technology improves and regulators impose penalties on the use of fossil fuels.

South Africa has ambitious plans to develop ammonia plants, hydrogen ports and pipelines, and steel facilities fired with hydrogen or ammonia. A portion of a $9.3 billion climate finance pact with some of the world’s richest nations — known as the Just Energy Transition Partnership — is being directed to help develop the industry. 

Hive Hydrogen, which is 25% held by South Africa’s Built Africa Group, wants to eventually own about 10% of the project, Loubser said. 

Itochu, which last year signed a memorandum of understanding on developing the plant, could take a 25% stake together with its partners, Loubser said. Other potential investors include two oil majors and a large fund, he added. 

There are plans to allocate a $420 million stake to communities near the plant, with $160 million of that financing already secured, he said. 

When complete, Hive Hydrogen’s first phase is expected to produce about 900,000 tons of green ammonia annually. The facility will require the installation of 3.5 gigawatts of renewable power capacity.

--With assistance from Loni Prinsloo, Shoko Oda and Adelaide Changole.

(Corrects job title in third paragraph; updates first paragraph with details.)

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