13 April 2013 09:57 [Source: ICB]
Nitrogen fertilizer production in the US was in a state of decline, but is now in a period of transition. After 20 years of rising raw material costs and players closing and relocating plants, there is renewed impetus among domestic producers to invest in their own country.
Rather than looking to other regions, producers of ammonia and urea are eyeing new opportunities on US shores for the first time since the 1990s. According to engineering contractor ThyssenKrupp Uhde, this is the dawn of a new era with plenty of opportunity.
Thanks to shale gas feedstock, one of the world's largest single-train liquid fertilizer plants will be built in the US
"The US has been a net importer of nitrogen fertilizer for years and now there's a possibility that it will become more cost effective to produce fertilizers in newly built plants rather than importing them. Fertilizers are a relatively quick way of turning gas into money; there's a project time of only about three years from contract award to the start of the plant. Other options to process the gas can take far longer and impose a higher risk."
Richard Saure, head of sales department for the company's ammonia and urea plants, adds: "The fascinating question is whether the US producers will stop building new fertilizer capacities when the domestic market is saturated, or if it will become an exporter of nitrogen fertilizer. As a contractor, we are very interested in the answer."
ThyssenKrupp Uhde currently has three major projects underway as part of this new wave of development in the US. Illinois-based fertilizer producer CF Industries has awarded contracts for the provision of engineering services and supplies for two fertilizer complexes in the country - one of which will be equal in capacity to the largest ammonia plant in the world at 3,300 tonnes/day.
A third project was awarded by Egypt's OCI Construction Group (see box).
"This is the first time since the 1990s that new nitrogen fertilizer plants are being built in North America," says Saure. "Other regions had been advantaged and it was more cost effective to produce there.
"Fertilizers are a relatively quick way of turning gas into money. Other options... take far longer and impose a higher risk"
About 15 years ago North American producer Agrium was opting to build a large fertilizer plant in Argentina and later, another in Egypt. Today, players such as CF Industries are choosing to construct new complexes in the US. For the first time in years foreign investors like OCI are also trying to get a foothold in the country.
Saure says this trend was first seen in early 2011, when ThyssenKrupp Uhde received its first enquiries for new North American units in February that year.
Around the same time, PCS Nitrogen had restarted a mothballed plant in Geismar, Louisiana, while Janus Methanol had taken over an old ammonia and methanol site in Texas, restarted it and found a co-investor in Orascom from Egypt.
A number of new plants are now under development; eight new plants have officially been announced, with several more projects rumoured, says Saure.
The renewed emphasis on the US is a step change for ThyssenKrupp Uhde, which has been experiencing noticeably less activity in markets where it has traditionally built plants.
With the nitrogen fertilizer production chain dependent on natural gas, ammonia plants need to be built in locations with easy access to low-cost feedstock.
For the past 30 years, this has meant that North Africa and the Middle East have been strategically important, and countries such as Egypt, Saudi Arabia, Qatar, Abu Dhabi and Iran have seen a flurry of activity. "For two decades the Middle East and North Africa region was the most important market for us, and there was also a lot of nitrogen fertilizer production in India and China - they're the largest markets for urea so there were big capacities established there," says Saure.
"But the latter two are now both having severe problems with raw materials. India used naphtha instead of natural gas, but naphtha has become expensive and natural gas is short. It is very difficult, and they are looking for alternative strategies.
"They are now planning to import liquefied natural gas to produce fertilizer. In China they are basing their plants on coal gasification - but even this is very expensive.
"In the past, Egypt was most important to us with 11 ammonia plants built by ThyssenKrupp Uhde over the years. But after the Arab Spring, it became very difficult. We also used to build plants in Libya 30 years ago, but the situation worsened, embargoes came and went, and then the revolution came."
Nevertheless, the Germany-headquartered contractor and the Pittsburgh-based Uhde Corporation of America remain committed to expanding their global footprint and having a presence in all major regions.
At the moment, the US clearly remains a key focus, but there are already offices in core markets ranging from India, Australia and South Africa to Egypt, Qatar, Russia, Mexico, Thailand and China. In future, Uhde will be an integrated part of the Businesss Area Industrial Solutions of ThyssenKrupp, which is a global player with regional headquarters and local companies in every part of the world.
"With our engineering offices we can serve any region and any market, meaning we can quickly respond to such unexpected developments like those in the US. The first enquiry from the US was only two years ago when nobody in the community had really expected that to happen," says Saure.
"With our engineering offices we can serve any region and any market, meaning we can quickly respond to such unexpected developments as those in the US"
It is the only licensor/contractor that has experience and the references in building at such a scale and already has two facilities running with 3,300 tonnes/day lines in Saudi Arabia: Saudi Arabian Fertilizer Company (Safco) in Al Jubail, commissioned in 2006, and Ma'aden in Ras az Zawr, which came on stream in 2011.
"I expect we'll see more of these larger plants in the future," says Noelker. "A world-scale plant is about 2,000 tonnes/day, but one of the two plants we're building in the US is 3,300 tonnes/day. We are the only supplier that can provide the technology for that size and has the references."
Looking ahead, Noelker adds that studies have suggested even greater ammonia capacities are possible and is confident that ThyssenKrupp Uhde will be able to achieve 4,000 tonnes/day in one train. The question is whether clients will want to go that high and will be willing to rely on us as the unique vendor, he says.
"In the long run, plants will become larger, but at the moment the market still has to understand the leap from 2,000 tonnes/day to 3,300 tonnes/day," notes Saure. "This jump came in 2006 when Safco came on stream - this was the first plant of its size and was 60% bigger than the next largest plant in the world at that time. You have to give the market time to follow a capacity increase like that.
"Even today the largest plants our competitors can offer are around 2,700 tonnes/day, so we still have a 20-25% advantage. It may be another five to 10 years until customers really want to have 4,000 tonnes/day, but I'm sure that time will come," he adds.
The same was once said of the methanol market, notes Saure. Around 20 years ago methanol units totalled only around 2,000-2,500 tonnes/day, but today they have evolved to some 5,000 tonnes/day.
Projects vary considerably depending on location, and ThyssenKrupp Uhde specialises in meeting each site's exacting requirements. Every aspect of a project is carefully scrutinised and planned, from fundamentals such as size, scale and cost to the complexity of construction, climate, efficiency, regulation and labour issues.
Key advantages of US projects are the professionalism of all parties, the fast decision-making processes and the schedule awareness, says Saure. And it is no problem to implement our high safety standards, he adds.
"Market conditions change frequently and so do lead times. Construction and labour costs in US are a little higher but productivity can be higher too. And in terms of the time schedule, a region with strong winters limits certain construction work," he says.
Ensuring plants are resilient to adverse climatic conditions ranging from harsh winters to hurricane force winds is a challenge during the engineering process but one that ThyssenKrupp Uhde is well versed in.
"Winterisation is not a challenge for us; we've built plants in Canada and Russia so it's not new from an engineering point of view - although it is something we haven't needed in our recent projects which have been in countries in the Middle East," says Noelker.
"It's not a complicated process for an ammonia plant and is only needed to limited extent for those built in the Gulf Coast region. For plants in the north, it's a simple step in the engineering that can be done by housing parts of the plant to keep the cold out."
In the south, there are other challenges, he says. Facilities have to withstand high wind loads and be designed to be hurricane proof. Saure points to a previous urea project for CF Industries in Donaldsonville, which lies by the Mississippi river, north of New Orleans, and was hit by Hurricane Katrina in 2005 and Hurricane Gustav in 2008. Although there were strong winds, the plant remained intact.
"Employees experienced difficulties reporting to work as Hurricane Gustav caused wide-spread power outages and gasoline shortages in the community. However, the process plants survived without any damage. The only damage at the facility was to the fan shrouds on the cooling towers," he says.
Unlike some other regions, the US also requires engineers and operators to meet strict environmental standards and ensure the lowest possible emission and effluent rates.
"This is a new approach for the fertilizer industry," says Noelker. "We love the US market because we have a clear advantage with our technology over the low cost bidders that we sometimes face in other countries."
THYSSENKRUPP UHDE WINS MAJOYUS PROJECTS
With heightened interest in the US once again after the discoveries of vast shale gas deposits, ThyssenKrupp Uhde has been awarded three major contracts for fertilizer plants with a total contract value in excess of €1bn ($780m).
In November 2011, Illinois-headquartered producer CF Industries appointed ThyssenKrupp Uhde to provide engineering and supply services for two of its new fertilizer complexes in the region.
The deal will see ammonia and urea/urea ammonium nitrate (UAN) production units built at CF Industries' complex in Donaldsonville, Louisiana, with ammonia and urea units are planned Port Neal, Iowa.
With a $2.1bn budget, the expansion of the fertilizer complex in Donaldsonville includes a 3,300 tonnes/day ammonia plant as well as 3,500 tonnes/day of urea, 1,520 tonnes/day of nitric acid and 4,500 tonnes/day of UAN. While the ammonia facility is due to start up in 2016, the other three plants are scheduled for completion in the second half of 2015.
The ammonia, nitric acid, UAN and urea granulation plants will be based on ThyssenKrupp Uhde's proprietary processes while the urea plant will use Stamicarbon's synthesis process.
The second $1.7bn project in Port Neal, Iowa, will see the construction of an ammonia plant (2,200 tonnes/day), a urea plant (3,500 tonnes/day) and a urea granulation unit (3,500 tonnes/day). Port Neal is a strategically important location in the centre of the US bread basket in western Iowa. These are due to come on stream in 2016.
Egyptian producer OCI Construction Group has also selected ThyssenKrupp Uhde for an engineering and procurement contract for the construction of one of the world's largest single-train liquid fertilizer plants to be built in the US. Commissioning is scheduled for 2015.
The liquid fertilizer plant will be built near Wever, Iowa producing UAN, with urea solution, nitric acid and ammonium nitrate as intermediates. Urea granules will also be produced using the ThyssenKrupp Uhde Fertilizer Technology (UFT) process. ThyssenKrupp Uhde's equally highly efficient processes are also being used in the nitric acid, ammonium nitrate and UAN plants, while the urea plant will use the synthesis process from Stamicarbon in the Netherlands. The plant will also produce a high purity urea solution - also called Diesel Exhaust Fluid (DEF) - that will be used to improve the environmental performance of diesel engines by reducing the nitrogen oxides in the exhaust.
ThyssenKrupp Uhde will be responsible for the engineering of six of the seven process plants, as well as supplying the required process equipment and machinery.
There are two major changes regarding the environmental requirements, says Noelker. Regulators are increasingly keen to reduce harmful emissions so it is paramount that the new facilities incorporate technologies to limit them. This means also addressing the exhaust air from the urea granulation, he says.
Technology is already available through affiliate Uhde Fertilizer Technology (UFT) to remove ammonia and dust to a very high degree. The urea granulation uses air to fluidise the droplets and provides cooling for the crystallisation process. The stricter regulations allow the use the proprietary technology to remove the dust from the exhaust air by better scrubbing. It also makes it possible to remove ammonia vapour from the air which is sent harmlessly to the atmosphere.
The other new technology for the fertilizer industry and for natural gas reforming is NOx removal from flue gas. Noelker notes that this is something that has already been seen in some reformers in refineries in the US but outside North America there are very few examples. The technology is already available from several vendors and has been used in power stations for several years but for smaller emissions sources it has not been mandatory, he says.
North America has become a frenzy of activity and been transformed into a region blessed with advantaged feedstock. Consequently, the fertilizer market has been revitalised.
Since the onset of the 2008 global economic crisis, the financing for these projects has become more difficult; players are more critically looking at project risk and the hurdles for newcomers have become even higher. Nevertheless, with the first new fertilizer capacities appearing on US shores for more than two decades, players are full of cautious optimism.
US SHALE GAS BOOM FUELS DOMESTIC AMMONIA PRODUCTION INVESTMENT
The discovery of huge shale gas reserves and the multibillion-dollar industry it has created over the past decade has revolutionised the US ammonia market as the country looks to reduce its reliance on imports from traditional sources like Trinidad, Canada, FSU and the Arabian Gulf.
Robust ammonia demand from agricultural and industrial sectors in the US is expected to total more than 20m tonnes in 2013 and fertilizer industry chiefs expect around 7.5m tonnes of ammonia be purchased from foreign suppliers this year, versus 6.3m tonnes in 2012.
The bulk of that will be shipped from the Caribbean where several leading operators such as Yara International and PCS Nitrogen operate plants in Trinidad, although natural gas curtailments of up to 40% hurt production last year. The worst curtailments occurred during a bullish market in late 2012 and helped propel US Gulf ammonia prices up to $720/tonne CFR Tampa (€555/tonne CFR) for November deliveries, versus $555/tonne CFR Tampa in early 2012. In first quarter 2013, in response to softening demand, prices eased back and stood at $597/tonne CFR Tampa for April loadings.
Domestic ammonia production in 2013 is forecast to remain flat year on year at 13.4m tonnes, but that figure is set to jump sharply over the next few years as companies race to build, or expand, several major nitrogen fertilizer plants.
Meanwhile, other countries rich in natural gas such as Algeria, Nigeria, Saudi Arabia and Venezuela, are also investing tens of billions of dollars in giant ammonia plants as they seek to cash in on the growing demand for fertilizers against the backdrop of a rapidly-growing global population.
In the US, organisations looking to take advantage of these vast new natural resources include some of North America's largest fertilizer manufacturers as well as foreign producers and several farmer-funded groups.
As Kathy Mathers, The Fertilizer Institute's (TFI) vice president of public affairs, comments: "The abundant supply of shale gas here in the US has changed the game for many companies in the nitrogen market."
Significant new ammonia projects include CF Industries' $2.1bn ammonia, urea and UAN plants in Louisiana, and $1.7bn ammonia and urea plants in Iowa. The two projects will produce 2.1m tonnes/year of ammonia and production should start in 2015 and 2016.
Also in Louisiana, Mosaic is moving forward with plans for a potential new 800,000 tonnes/year ammonia plant that would involve investment of around $700m.
The North Dakota Grain Growers Association recently unveiled plans for a $1.5bn nitrogen fertilizer plant, while Minnesota-based CHS plans to spend more than $1bn on a 800,000 tonnes/year ammonia plant in the same state.
Egypt's Orascom Construction Industries is investing $1.4bn in a nitrogen fertilizer facility in Iowa that will produce 1.5m-2m tonnes/year of ammonia, urea and UAN from mid-2015.
Canada-based Agrium is poised to announce the site for a new plant in the Corn Belt, while Ohio Valley Resources has earmarked a site in Indiana for a huge fertilizer facility. In early 2013, PCS Nitrogen restarted its Geismar, Louisiana, ammonia plant after a 10-year break.
"If all of the proposed new nitrogen fertilizer plants are built, they would represent a 50% increase in the domestic supply of ammonia available for direct soil application," said Glen Buckley, consultant with NPK Fertilizer Advisory Service.
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