Optimal design of a green ammonia export supply chain from Saudi Arabia under demand, price and route uncertainty: a two-stage stochastic programming approach
This paper employs a two-stage stochastic programming model to demonstrate that an optimal green ammonia export supply chain from Saudi Arabia to Europe and East Asia should be concentrated solely at the NEOM site with a capacity of 1.80 Mt/yr, yielding a significant economic advantage over deterministic designs and proving highly sensitive to market prices and capital costs under demand and route uncertainties.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
The world is searching for a way to power its future without burning fossil fuels, and one of the most promising solutions involves turning sunlight and wind into a clean fuel called green hydrogen. However, hydrogen is difficult to ship across oceans because it must be kept at extremely low temperatures or under immense pressure. To solve this, engineers often convert hydrogen into ammonia, a chemical that is much easier to transport and store, before shipping it to countries that need it. Saudi Arabia, with its vast deserts and strong coastal winds, is uniquely positioned to become a major exporter of this green ammonia. Yet, building the massive factories and ports required is a gamble. Investors must decide where to build and how large to make these plants years before they know exactly how much fuel the world will buy, what price they will pay, or whether the shipping lanes they rely on will remain open.
A new study by Abdulkader Hanbazazah at the University of Jeddah tackles this uncertainty by creating a sophisticated computer model to find the safest and most profitable path forward. Instead of guessing a single future, the researchers simulated fifty different possible worlds, combining high and low demand, varying prices, and the risk of shipping routes being blocked by conflict. They tested five potential coastal sites in Saudi Arabia—three on the Red Sea and two on the Arabian Gulf—to see which combination of solar panels, wind turbines, and chemical plants would survive the worst scenarios while still making money. The goal was not just to find the cheapest way to make ammonia, but to design a supply chain that could withstand the unpredictable nature of global markets and geopolitics.
The model revealed a clear winner for the location of the first major export hub: NEOM, a new city being built in the northwest corner of the country on the Red Sea. Despite the fact that ports on the Arabian Gulf are closer to Asian markets like Japan and Korea, the study found that the wind resources at NEOM are so much better that they make the production cost there roughly 130 dollars per tonne lower than anywhere else. This price advantage is so large that even if the Red Sea shipping route were blocked, forcing ships to take a much longer journey around Africa, the savings from making the fuel cheaper would still outweigh the extra shipping costs. Consequently, the model ruled out building any export facilities on the Gulf coast for the foreseeable future, as their higher production costs would never be recovered, regardless of how safe the shipping lanes might be.
When it came to deciding how big the plant should be, the researchers discovered that the most common approach of planning for the average future is actually a financial disaster. If a company built a facility sized to meet the average expected demand, it would lose about 140 million dollars every year because the plant would sit idle whenever demand was lower than the average. Instead, the optimal strategy is to build a smaller plant, sized to meet the demand level that is likely to be met or exceeded 90 percent of the time. This "risk-aware" design, which focuses on 1.8 million tonnes of ammonia per year, avoids the heavy costs of unused capacity. While this smaller plant might not capture every possible sale, it ensures a steady profit of about 160 million dollars a year on average, whereas the larger, average-sized plant would lose money in half of all possible scenarios.
The study also examined how much investors should worry about the worst-case scenarios, such as a sudden drop in prices or a complete blockage of the Suez Canal. Without any government guarantees, a very cautious investor would refuse to build anything at all, fearing that a bad year could wipe out their savings. However, the researchers found that a simple safety net—a guaranteed minimum price of 750 dollars per tonne for the ammonia—changes the game entirely. With this price floor in place, even the most cautious investors would be willing to build the plant, because the worst possible outcome would no longer result in a loss. This suggests that international contracts that promise a minimum price, similar to schemes already being used in Europe and Japan, are the key to unlocking the capital needed to build these massive green energy projects.
Ultimately, the research shows that the future of Saudi green ammonia exports depends less on finding the perfect shipping route and more on making the right choices about location and size under uncertainty. By choosing the windiest site and building a plant that is resilient rather than maximized, the industry can secure a profitable future even when the world is unpredictable. The study concludes that the value of using this careful, scenario-based planning is immense; it saves hundreds of millions of dollars compared to guessing, proving that in the high-stakes world of green energy, the smartest investment is one that prepares for the unexpected.
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