Green Ammonia for a Green Future

Japan’s urban landscape saw a major construction boom over 50 years ago, leaving many aging structures in need of maintenance and restoration. Cracked water and sewage systems in older buildings constructed under outdated regulations now require updates, including seismic retrofitting. While the scrap-and-build approach continues to reshape cities like Tokyo and Osaka, this trend is expected to slow by 2040 due to the nation’s declining population. What is your assessment of Japan’s current architectural landscape, and what are the key challenges the industry will face in the coming years?

You might already know that the current construction market, valued at JPY 17 trillion annually, is poised for significant expansion, fueled by the anticipated Green Transformation (GX) investments, projected to reach JPY 150 trillion over the next decade.  This could nearly double the annual market size to around JPY 32 trillion, driven by the need for infrastructure aligned with GX standards, including energy-efficient and carbon-neutral urban developments.

While Japan’s aging infrastructure requires urgent attention, the scope for new development aligned with GX goals presents immense potential for growth. The key challenge lies in the limited resources of the construction industry, where most companies are already operating at full capacity. Despite the growing market, bottlenecks are emerging due to labor shortages and the constrained capacity of general contractors.

One solution often proposed is importing foreign labor. While this can help alleviate some of the strain, there are inherent limitations; Japan simply cannot rely on large-scale immigration to meet the demand.  This bottleneck in resources will increasingly strain the ability to meet the rising demand for infrastructure projects, including tunnels, bridges, and roads, as well as GX-related initiatives. While GX investments are projected to reach JPY 15 trillion annually, the exact scope and scale of these projects remain uncertain, adding an additional layer of complexity to long-term planning.

Looking ahead, the construction market is poised for steady and sustained growth, driven not only by the need for maintenance of aging infrastructure but also by ambitious global carbon neutrality targets. The 2030 interim goals and the 2050 vision for full carbon neutrality will necessitate a broad spectrum of new construction and retrofitting initiatives, further increasing demand for skilled resources and advanced solutions.

You mentioned the need to find a workforce and that there is a significant gap there currently. One of the solutions some companies are looking for is the utilization of digital technologies. Toyo Engineering is very much at the forefront of this, with one of your projects being your DX-Plant Digital Twin, which allows for the pre-calculation of systems. You’ve also recently announced a partnership with IBM to continue developing digital initiatives. Can you tell us more about Toyo Engineering’s strategy and the added value that this offers not only your firm but also your customers?

Toyo Engineering, at its core, is an engineering company with more than 60 years of experience in engineering. When we talk about the DX-Plant, it is part of engineering but is far more related to industrial automation, an area with well-established firms with more experience in the sector than your company. What are the advantages of Toyo Engineering’s services and background as an engineering firm that will allow you to stand out as a provider of automation and DX solutions?

At Toyo Engineering, our digital transformation initiatives, particularly the DX-Plant Digital Twin, exemplify our commitment to integrating advanced technology into plant operations to deliver tangible value to our clients. With over 60 years of engineering expertise, our approach leverages deep domain knowledge in designing and operating complex plants, setting us apart from traditional industrial automation providers.

The DX-Plant is a cutting-edge digital solution designed to optimize plant operations by combining real-time data monitoring with expert advisory services. Unlike typical automation companies, we bring unparalleled insights into plant-specific challenges, thanks to decades of experience in engineering and operating facilities like urea and ethylene plants.

For instance, we recently deployed the DX-Plant system for a urea production facility in Bolivia. Through this solution, we monitor critical parameters such as pressure, temperature, and flow remotely from our offices in Japan. If anomalies arise, the system generates alerts, enabling us to guide our clients promptly in addressing issues and ensuring smooth operations. This proactive support is invaluable for clients who may lack the in-house expertise to handle complex plant systems effectively.

Our advantage lies in the unique synergy between our engineering knowledge and digital capabilities. While industrial automation companies excel in system technologies, they often lack the granular understanding of plant processes that we bring to the table. This expertise enables us to go beyond system monitoring to provide actionable insights that optimize performance, enhance reliability, and reduce downtime.

How about DX solutions for internal purpose?

At Toyo Engineering, our internal digital transformation, known as DXoT (Digital Transformation of Toyo Engineering), is a cornerstone of our strategy to enhance productivity and streamline operations. By harnessing the power of digital tools and automation, we are not only improving efficiency but also redefining the way engineering and management tasks are performed.

These systems take into account material and process requirements, automatically adjusting piping designs. If conflicts or "crashes" are detected in the layout, the system reroutes the design seamlessly. This automation significantly reduces the time and manpower needed for engineering tasks, allowing us to accomplish what once required large teams with far fewer resources.

In fact, the transformation we’ve achieved is remarkable—compared to a decade ago, engineering tasks today require considerably fewer personnel. And looking to the future, we envision even greater advancements. It’s not far-fetched to imagine that in another decade, tasks like civil engineering could be nearly fully automated, further amplifying efficiency.

Beyond engineering, DXoT is transforming how we manage projects across multiple construction sites. Our system provides real-time monitoring of various statuses—whether it’s piping, concrete work, or overall engineering progress. This information can be accessed from anywhere, including our headquarters in Japan, enabling informed decision-making and proactive management.

DXoT also enhances our ability to make strategic decisions. Previously, project prioritization relied heavily on manual assessments. Now, with DXoT, we can create multiple scenarios based on factors like manpower availability, schedules, and client requirements. This enables us to identify the most optimal paths forward, ensuring better alignment with our business goals and client expectations.

We saw that Toyo Engineering is involved in a lot of energy transition projects around developing renewable fuels, carbon capture technologies, and life cycle engineering. As part of this, co-creation engineering is something you are utilizing as a way to foster early-stage technology commercialization. Can you tell us a little more about your co-creation strategy and what some of the sectors you’ve earmarked for this going forward are?

At Toyo Engineering, co-creation is a core strategy for fostering innovation and driving early-stage commercialization of transformative technologies. By collaborating closely with partners and leveraging our extensive expertise, we aim to tackle some of the most pressing challenges in the energy transition, such as sustainable lifecycle engineering.

One of our key initiatives in co-creation focuses on waste plastic recycling. Through this collaboration, we have developed a groundbreaking process to convert waste plastics into liquid oil, enabling the recycling of materials that would otherwise contribute to environmental pollution. Our role in this project spans the entire engineering lifecycle, from basic to detailed design, including the development of an innovative reactor tailored specifically for this purpose.

Our approach to co-creation is underpinned by decades of experience in the petrochemical, oil, and gas industries. This rich history allows us to draw on proven technologies while innovating for the future. We are open to and actively seek diverse partnerships across industries, recognizing that the energy transition requires collective effort and shared expertise.

The mid-term plan you have will finish in fiscal year 2025 and mainly consists of two halves. The first half is your new business development, and the other is the strengthening of your engineering, procurement, and construction (EPC) business. Over the years, you have worked on a series of different projects with a strong expertise in the oil and gas field, as well as liquefied natural gas. You’ve also worked in water desalination plants and the chemical sector. Keeping in mind the goals of your mid-term strategy, which of these particular industries and sectors do you believe have the highest potential or will you be focusing on for the next few years?

While we continue to leverage our extensive expertise in oil and gas, and the chemical sectors, one area stands out as a game-changer for our future growth: offshore floating production storage and offloading (FPSO) systems.

FPSOs are innovative systems that combine the functionality of an oil and gas plant with the mobility of a ship. They are used for extracting, processing, and storing hydrocarbons directly at sea, significantly reducing the need for extensive onshore infrastructure. Each FPSO unit is a complex, large-scale project, costing approximately USD 3 billion to execute.

Currently, we are engaged in two major FPSO projects valued at a combined USD 6 billion. These projects are being executed through an equity-method affiliate in which Toyo Engineering holds a 35% stake. The scale and profitability of these ventures are immense and are poised to deliver substantial returns, underscoring the significant potential of this sector to become a cornerstone of our business.

Toyo Engineering brings decades of expertise to the forefront of the global energy transition, with a strong foundation in fertilizer production and a specific focus on fuel ammonia. Having executed 87 ammonia plant projects worldwide, we are uniquely positioned to support the growing demand for this alternative fuel, which is increasingly recognized as a key solution for reducing CO₂ emissions. There are numerous projects emerging worldwide, and Toyo Engineering is actively participating in some of them. As industries and governments increasingly recognize the potential of ammonia as a clean alternative to CO₂-emitting fuels, we believe fuel ammonia will evolve into a vital component of our business strategy moving forward.

Ammonia is emerging as a cornerstone of the energy transition, particularly in Japan, where coal-fired power plants face mounting scrutiny for their CO₂ emissions. As global pressure builds, Japanese power producers are exploring alternatives, and ammonia presents a viable path forward. Unlike coal and oil, ammonia produces no CO₂ when burned, making it an attractive solution for decarbonizing power generation.

Japan’s challenge lies in producing clean ammonia domestically. This has created opportunities for Toyo Engineering to contribute by not only offering our expertise in ammonia production but also addressing the infrastructure needs, such as storage solutions for imported ammonia.

Ammonia’s role extends beyond power generation - it is also a highly efficient hydrogen carrier. With its chemical composition (NH₃), ammonia stores hydrogen safely and efficiently at a manageable temperature of -33°C, making it easier to transport and store compared to liquefied hydrogen, which requires -252°C.

 Hydrogen, while pivotal to the energy transition, presents significant challenges due to its unique properties. It is extremely light, requiring multiple compression stages for storage and transport. Operating at scale with hydrogen is currently hindered by technological and material issues, such as hydrogen embrittlement, which affects the durability of equipment. These complexities make ammonia an ideal intermediary for hydrogen storage and transport, and Toyo Engineering is at the forefront of advising clients on its potential.

 As European enthusiasm for hydrogen meets the reality of its technical challenges, the spotlight is increasingly shifting toward ammonia. Its versatility as a fuel and hydrogen carrier positions it as a critical solution in the transition to cleaner energy.  Toyo Engineering’s extensive experience in ammonia projects enables us to provide end-to-end solutions, from plant design and construction to advisory services to the clients. We are already receiving significant interest from Japanese clients seeking guidance on fuel ammonia’s applications.

Let me now briefly explain a talk I did recently about green ammonia. Toyo Engineering has a long-standing relationship with Indonesia’s fertilizer industry, having constructed approximately 65% of the nation’s fertilizer plants over the past 40 years. This deep history positions us as a trusted partner and leader in ammonia and fertilizer plant development. Now, we are leveraging this foundation to spearhead one of the most innovative initiatives in the energy transition: green ammonia production through our GAIA project in a joint venture with Itochu Corporation, a major trading house in Japan,  and Pupuk Indonesia, the state-owned fertilizer company.

The GAIA (Green Ammonia Initiative from Aceh) project represents a transformative step in building the world’s possibly first commercial scale hybrid green ammonia production and maritime bunkering value chain. Centered in Indonesia, this project capitalizes on the surplus capacity of existing ammonia plants, particularly those owned by Pupuk Indonesia.

Indonesia, with its vast network of islands, boasts abundant renewable energy resources, particularly hydropower and geothermal energy. By leveraging these resources, we can generate hydrogen through electrolysis - a process that separates hydrogen and oxygen atoms using renewable electricity. The hydrogen produced is then used to create green ammonia at the existing plant, minimizing the need for additional infrastructure and significantly reducing costs.

The green ammonia produced through this process in Indonesia will primarily serve the maritime sector, providing a clean and sustainable fuel for shipping. This initiative represents a major step forward in creating a commercially viable green ammonia value chain - possibly the first of its kind. What makes this project particularly compelling is the strong support from both the Japanese and Indonesian governments. This backing not only reinforces the project’s strategic importance but also enables cost efficiencies by leveraging existing infrastructure. The result may be  a competitively priced green ammonia.

There are still some challenges surrounding the adoption of this technology. These include adapting ports and retrofitting ships. How are your joint ventures addressing these sorts of challenges?

This green ammonia project is a natural extension of Toyo Engineering’s deep-rooted expertise in fertilizer plants, our long-standing relationships with clients, and our intimate knowledge of the Indonesian market. While the core technology - hydrogen generation and ammonia production - is well-established, what sets us apart is the unique integration of existing technology with a forward-thinking business model.

Now in this initiative, we are collaborating with Itochu, a partner with proven expertise in the marine sector, their deep understanding of the maritime industry, coupled with their strong sales and distribution networks, allows us, we believe, to address the challenges of adoption of green ammonia as marine fuel.

From a technological standpoint, there are no significant challenges. The technology for hydrogen generation and ammonia production is robust and proven. Our innovation lies in the way we are applying this technology, leveraging surplus capacity at existing plants, and integrating renewable energy sources to produce green ammonia efficiently and cost-effectively.

If the technology is simple and the infrastructure is already there, why hasn’t someone else attempted this?

While the technology and infrastructure for green ammonia production may seem straightforward, the uniqueness of this project lies in the idea and vision - a concept that no one had pursued before us.

We recognized an opportunity that others overlooked, leveraging a combination of our deep understanding of fertilizer plants, our long-standing relationships in Indonesia, and the unique circumstances of the region. Indonesia’s energy distribution is managed by Perusahaan Listrik Negara (PLN), and our close collaboration with PLN allows us to align renewable energy resources with surplus capacity at ammonia plants.

In essence, this project isn’t just about having the technology – it’s about having the foresight, relationships, and understanding to implement it in a way that works seamlessly.

One of your big focuses is going to be on the production and development of sustainable aviation fuels. One of the huge challenges in the adoption of sustainable aviation fuels is the cost. They remain incredibly expensive, sometimes more than 100 times more expensive than traditional fuels. How long do you think it will take to have commercially viable aviation fuel that we can use across the industry?

While many SAF projects are underway globally, including in Singapore and Thailand, the challenge of achieving cost parity with conventional fuels is significant and unlikely to be resolved in the near term.

There are four primary ways for SAF production, each presenting unique challenges.

1. The first is used cooking oil. While this is an established method, the sheer volume of cooking oil required for large-scale SAF production makes it economically and logistically impractical. Additionally, the cost of collecting and processing used cooking oil is prohibitively high.

2.  Biofuel from Vegetation. Producing SAF from bio-based feedstocks involves significant land use and resource inputs, creating challenges in scalability and cost-efficiency.

3. The third involves burning biomass to generate carbon monoxide (CO) or carbon oxide (CO₂) for fuel synthesis. While technically feasible, it is highly capital-intensive and operationally costly, making it a less economically viable option at present.

4. The fourth one combines H2 and CO2 recovered from emission sources such as flue gas.

The key to widespread SAF adoption will depend on targeted policy support, subsidies, and incentives from governments to close the cost gap. While the timeline for cost competitiveness of SAF is uncertain, our goal is to contribute to accelerating the adoption of SAF and shaping a more sustainable aviation industry.

Your mid-term plan runs to the end of the financial year 2025 and centers around two main pillars: advanced EPC operations and sustainable tech. You’ve also set goals of averaging a net profit of JPY 5 billion from year 2023 to 2025. Can you give us an update on your mid-term strategy and what key initiatives you are pushing forward?

We are confident in our ability to meet goals set out in our mid-term plan by leveraging a diversified business strategy and focusing on high-growth sectors.

More specifically these targets are achievable thanks to the strength of our non-EPC projects, which have proven to be highly profitable and stable. In 2023 alone, 50% of our gross profit came from non-EPC activities, including licensing deals, project management services, and other specialized offerings. These non-EPC activities provide predictable revenue and complement the often-capital-intensive nature of EPC projects.

While conventional EPC projects remain a core part of our business, they can be resource-intensive and carry variable profit margins. To address this, we are actively diversifying our portfolio, with a strong focus on areas like fuel ammonia production and geothermal power, as I touched upon before. 

You’ve alluded to gearing your EPC businesses toward profitable segments, and you mentioned that 50% of your profits come from non-EPC, and therefore that is your focus. Japan has been subject to big corporate governance reforms over the past two years. As a result, we have seen a lot of private equity and institutional investors investing in Japanese companies. We saw in our research that a growing percentage of your company comes from private equity and institutional investors. Could you tell us about the corporate governance reforms that Toyo Engineering has taken in order to increase your valuation? How has this inflow of new types of investors impacted the boardroom and management decisions your company has taken?

A pivotal moment in our journey was a challenging project we undertook in the US, which had a significant impact on our company’s strength at the time. To stabilize our position and secure a sustainable future, we welcomed a White Knight Investor. This investor brought more than just capital - they brought expertise and a strategic perspective that has proven invaluable.

The investor appointed a director to our board, whose role was not to interfere with daily operations but to guide us toward more strategic, profitability-focused decisions. Their approach was straightforward yet impactful: they encouraged us to rigorously evaluate the profitability of every project. If a project’s returns were questionable, the director challenged us to reconsider its necessity and strategic value. This external perspective sharpened our focus on taking on projects that align with our long-term goals and deliver sustainable returns.

Toyo Engineering has had a truly global presence for decades. Looking towards the future, which countries are you looking to focus on as part of your overseas strategy?

Toyo Engineering’s global presence has been a hallmark of our success for decades, and as we look toward the future, our overseas strategy is sharply focused on two key markets: India and Indonesia.

India is experiencing rapid industrialization and urbanization, leading to increasing demand for infrastructure, energy, and sustainable solutions. Toyo Engineering has already established a strong foothold in India, with a track record of delivering large-scale projects across sectors like petrochemicals, fertilizers, and energy. And Indonesia, as I mentioned before, has been a long-standing partner for Toyo Engineering, particularly in the fertilizer and ammonia sectors, as well as geothermal energy sector. With our involvement in approximately 65% of the country’s fertilizer plants, we are uniquely positioned to lead innovative projects like the GAIA green ammonia initiative.

Your Indian operation received a big order in 2024 from PetroNet LNG to expand an LNG receiving terminal in Dahej. From our understanding, this will be the fourth or fifth time you are working with PetroNet LNG. Can you tell us more about this?

Toyo Engineering’s relationship with PetroNet LNG spans over two decades, reflecting a foundation of trust, reliability, and successful project execution. This expansion project, valued at approximately USD 100 million, involves the construction of a jetty and its associated topside piping infrastructure.

We were quite impressed to hear about the independence that your Indian subsidiary has taken. Can you tell us about some of the developments they have had over the past few years and what has made them so successful in the Indian market?

Toyo Engineering’s journey in India dates back to our very first international project, completed in 1965. Since then, India has remained a cornerstone of our global operations, with a dedicated subsidiary established nearly 50 years ago. This enduring presence reflects our commitment to fostering local expertise while upholding the high standards that define Toyo Engineering.

In the early years, we heavily invested in transferring knowledge and skills from Japan to India. Numerous Japanese staff members were dispatched to train and guide Indian teams, ensuring the seamless integration of Toyo’s engineering excellence. Initially, the Indian subsidiary handled mid-sized projects under close Japanese supervision. As their capabilities grew, they transitioned to managing larger, more complex projects, still with Japanese support. Over time, they achieved complete operational independence, a testament to their technical prowess and ability to uphold Toyo’s standards on their own.

In December 2024, I personally visited three construction sites in India and engaged in in-depth discussions with the project managers. I asked them challenging questions. To my delight, they not only answered every question with confidence and precision but also demonstrated a deep understanding of both the technical and managerial aspects of their projects. It was a proud moment for me, seeing firsthand the maturity and strength of our Indian operations.

With the election of President Donald Trump, a prime message is the return of industry to the United States. We read a report recently that suggested that more than 50 different infrastructure and energy-related projects from foreign countries are expected to begin in just the first six months of the President's tenure. Do you foresee the US as a potential market for Toyo Engineering?

The answer is absolutely yes. While there are both pros and cons to the potential reelection of President Trump, his administration’s emphasis on infrastructure and energy development presents clear advantages for our business. His initiatives are likely to stimulate demand for chemical, petrochemical, and gas plant projects - areas where Toyo Engineering has a proven track record and competitive edge. The US market offers a promising landscape for us, especially as Japanese companies reevaluate their operations in China due to geopolitical tensions - many are now shifting their investments to other regions, including the US.

Aside from the objectives set in your mid-term strategy, what do you want to achieve during your time as president of Toyo Engineering?

Having dedicated 42 years to Toyo Engineering, I’ve witnessed the company’s growth, challenges, and resilience firsthand. When I first joined, I was inspired by the vision and promise outlined in the company’s brochure – a testament to our ambitious beginnings. Over the years, however, I’ve observed how the cyclical nature of the industry, influenced by global fluctuations, has continually disrupted stability. My mission as president is clear: to break this cycle and establish a more stable, sustainable foundation for the future.

 Today’s global challenges bring opportunities, particularly in the push for carbon neutrality, which I see as a transformative moment for both Toyo Engineering and the industry at large. By focusing on innovative technologies, such as fuel ammonia, geothermal energy, digital transformation, we have the potential to reshape the structure of our business and emerge as a engineering company which is no longer bound by cycles of uncertainty but are defined by resilience and progress.

At the heart of our mission lies a simple yet powerful philosophy: supporting our clients by truly understanding their needs and working together to achieve shared goals. By fostering these partnerships, we can generate reasonable profits and ensure long-term success for Toyo Engineering.

My vision is to leave behind a Toyo Engineering that is more resilient, adaptable, and stable - a company that thrives not only through engineering excellence but also by embracing change and innovation.

For more information, please visit their website at: https://www.toyo-eng.com/jp/en/