US shale fuels fertilizer growth

US shale fuels fertilizer growth

The shale gas phenomenon in North America marks a new era for the fertilizer industry – the abundance of natural gas has led to the first new production capacities in the US for more than two decades

By: Andy Brice, London

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.

“The high demand for fertilizer plants in the US is clearly a consequence of the shale gas boom,” says Klaus Noelker, head of process department for ThyssenKrupp Uhde’s Ammonia and Urea Division.

“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.

“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.

“As a consequence, the US ammonia and nitrogen industry has reduced capacities in the last decade, with a number of plants closing. Some were mothballed or dismantled, and some were relocated to other countries. After 20 years of shrinking, the tendency has now totally turned around and producers in North America are once again expanding in their own country.”

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.

“After 20 years of shrinking, the tendency has now totally turned around and producers in North America are once again expanding in their own country.”

ADVANTAGED FEEDSTOCKS

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 traditionallybuilt 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 oncoal 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.”

GLOBAL STRATEGY

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 IndustrialSolutions 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.

ThyssenKrupp Uhde specialises in building larger plants and is the pioneer of the development of ammonia facilities with a capacity of over 3,000 tonnes/day. Cost advantages mean that there is a clear trend towards building larger plants 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.

REGIONAL VARIATION

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, heads.

“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 regionwith 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 behurricane 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. Althoughthere 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.

“We have a clear advantage with our technology over the low cost bidders that we sometimes face in other countries.”

HIGH STANDARDS

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.”

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.

Sparked by the discovery of large scale shale deposits, 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.

For more about Thyssenkrupp Uhde and ammonia, go here