Producers sceptical on US nitrogen expansion projects

23 July 2013 23:05  [Source: ICIS news]

SAN ANTONIO (ICIS)--Despite the recent spate of new nitrogen plant projects, as well as talk of capacity expansion, the sentiment is growing that less than half, if not fewer, of these announcements will ever come into existence. This sentiment was a topic of discussion Tuesday at the 88th Southwestern Fertilizer Conference.

These discussions have come after several new projects have been announced in recent months, propelled by the boom in the domestic gas supply, which has made producing nitrogen increasingly more profitable. Now that many participants have taken a closer look, the idea is growing that most of these plans will be shelved due to several factors including logistics, capital cost and eventual demand.

Canadian fertilizer producer Agrium, which recently announced it had suspended the engineering work on a $3bn nitrogen greenfield project, said by its estimates less than half of the proposed expansions will come on line.

“The big question of course on many peoples' minds is how much of the nitrogen capacity is going to get built in North America. Our view at looking at what’s been announced and our understanding from talking to some of the industry is that about 40% will get built. That is our estimate today. So 7 out of the 18 projects we are forecasting will get built,” said Chuck Magro, Agrium Chief Operating Officer.

Magro said based on a projected annual growth of 2.5% in nitrogen demand, the world market will need two world-class nitrogen plants built per year in order to meet future supply and demand requirements.  

“This does look like a lot of nitrogen coming on, but we would say the market is balanced and even could be snug,” Magro said.

Magro said a final decision regarding the brownfield expansion at the Borger, Texas facility has not been made. A decision by the board of directors is expected by the end of 2013.

Agrium is not the only producer to take a recent step backward as fertilizer producer Yara International said Friday it has not reversed its decision to postpone the planned expansion of its Belle Plaine facility. The company says the decision is based on cost concerns rather than a worry over future nitrogen oversupply in North America.

The Norwegian producer said while there is a market for fertilizer products, the implications of such an investment would not be financially sound at this point.

A producer said on the conference sidelines Tuesday that he cannot foresee very many of the additional projects coming on line for many reasons. Primarily it would revolve around the increase in capital cost and the uncertainly about the long-term price of natural gas supplies.

Perhaps the most realistic projects are the ones farther along in the process such as the CF Industries (CF) expansions, the source said.  

CF earlier this month was granted the air permits for its $3.8bn expansion projects in Donaldson, Louisiana and Port Neal, Iowa. This moves them closer to the company’s objective of having production under way by 2016. At $2.1bn, the project at Donaldson is being billed as the world’s largest nitrogen facility and will eventually have six ammonia plants, five urea plants and three UAN facilities.

The Port Neal project is estimated at $1.7 bn and is anticipated to have an eventually capacity of 849,000 tons of ammonia and 1.35 million tons of urea. CF said the facility will have two ammonia and nitric acid plants and three committed to urea as well as UAN production.

The most recent entry in the US expansion arena is Russian fertilizer producer EuroChem that has announced plans to build an ammonia and urea plant in Louisiana in order to increase its share of sales within the US agricultural market.

Company officials expect to secure a location in southern Louisiana by the end of the year for the proposed $1.5bn project. Construction could take four years to complete, but no details regarding the potential production capacity have been released.

By: Mark Milam
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