FocusNorth America nitrogen fertilizer plans bank on natural gas growth

20 July 2012 22:22  [Source: ICIS news]

By Frank Zaworski

HOUSTON (ICIS)--A flurry of plans to build or expand nitrogen fertilizer plants in the US and Canada are based on the rapidly growing supply of natural gas resulting from an expanding shale gas industry.

The recent announcement from a consortium of commodity groups in the northern plains of plans to build a $1.5bn (€1.2bn) nitrogen fertilizer plant in the area of North Dakota's Bakken shale formation is but one of a number of projects for new or expanded nitrogen fertilizer production set for North America.

Canadian fertilizer major Agrium, for example, has announced intentions to construct a urea plant in the US midwest as well as plans to expand its nitrogen plants in Redwater, Alberta, and Borger, Texas.

Norway-based Yara has said it is considering building a nitrogen fertilizer plant in Belle Plaine, Saskatchewan.

US-based Mosaic announced it may build a ammonia plant to improve its cost position. The company expects to make a decision towards the end of 2012.

US-based CF Industries is in the midst of a $1.5bn debottlenecking effort at several of its ammonia plants.

The announcement of plans to build an ammonia plant in the US northern plains was prompted in part by the preliminary results of a study conducted by the Department of Agribusiness and Applied Economics at North Dakota State University that sought to determine the economic feasibility of collecting flared gas from oil wells to produce nitrogen fertilizer.

The study was conducted at NDSU by Thein Maung, David Ripplinger, Greg McKee and David Saxowsky. It study was funded by a grant from the North Dakota Agricultural Products Utilization Commission.

The authors noted that in North Dakota, flared gas consist of different types of gases including natural gas, propane, butane, ethylene, propylene and butadiene, and that most of gas flared is heavily concentrated in four western counties, the location of the Bakken shale formation and the site of intense oil drilling and production.

"As the production of petroleum crude oil increases, so does the amount of gas flared," the authors noted in the preliminary report on the study released in the first week of July.

Flared gas generally follows oil production patterns, with the amount of flared gas declining over time as oil production declines.

"This variation in production of flared gas and the cost of capturing and processing flared gas suggests that relying on flared gas along over the long term to produce nitrogen fertilizers may not be practical," the authors wrote.

However, the study determined that local production of fertilizer optimising current and predicted natural gas supply and price is not only economically feasible, but also prudent considering requirements of nitrogen by crop growers, according to the North Dakota Corn Growers Association (NDCGA).

Preliminary findings of the study concluded there will be abundant availability of natural gas in the northern plains into the foreseeable future.

The research also concluded that a fertilizer plant located where the fertilizer is consumed would result in transportation advantages, while addressing the need for a stable local supply of this essential cropping input for growers, the NDCGA said.

The researchers said that presently, the price of conventional natural gas is lower than the presumed flared natural gas cost and consequently, energy producers do not have any incentives to capture the flared gas and make it available for use.

"However, this will all change as the US Energy Information Agency (EIA) predicted that the natural gas price would likely increase in the near future. And the Environmental Protection Agency's (EPA) regulations on capturing the flared gas take effect on 1 January, 2015," the researchers wrote.

The NDCGA said capturing the flared gas can solve two problems for two of North Dakota's largest industries.

"The energy industry is having a problem with flared natural gas. The agricultural industry is having a problem with supply disruptions with fertilizer," the association's president Tom Lilja said.

"A majority of the country's nitrogen fertilizer needs are now imported. North American growers cannot remain at the mercy of far-away natural gas-rich countries and ocean freight to produce our food and fibre", Lilja said.

"Our goal at the end of the day is to allow farmers to have a hedge on their nitrogen input costs," he explained. "Currently they do not have this opportunity, since a large majority is imported from foreign sources."

He noted it currently takes 77 days to ship urea from the Middle East to North Dakota.

"That's unacceptable and we're just not going to have food security in this country unless we have fertilizer security," he said.

However, the study said that "It may not be in the best interest for nitrogen fertilizer producers to depend solely on flared natural gas as the major feedstock because the supply of flared gas could be unstable in the long run".

($1 = €0.81)

By: Frank Zaworski
+1 713 525 2653

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