HOUSTON (ICIS)--A joint venture made up of Yara and BASF started up a new ammonia plant in Freeport, Texas, the companies said on Wednesday.
The plant has a capacity of 750,000 tonnes/year.
Yara owns a 68% stake in the joint venture, Yara Freeport, while BASF holds the remaining stake.
BASF will its 32% portion of the plant's feedstock to make caprolactam (capro), a feedstock for nylon 6, or polyamide 6 (PA 6).
Yara will use its portion mainly to sell to industrial and agricultural customers in North America.
Yara will also ship ammonia to Latin America, said Magnus Krogh Ankarstrand, senior vice president, business unit North America, Yara. He made his comments in an interview with ICIS.
The ammonia plant is different from similar projects because it is not integrated with a methane reformer. Many ammonia plants rely on such reformers for hydrogen, which they use as a feedstock. Because the Freeport project lacked a reformer, it helped bring the cost of the plant down to $600m.
Instead of an on-site methane reformer, the plant will rely on hydrogen from Praxair's gathering system.
This system includes a hydrogen cavern, which will ensure that the plant has a reliable source of feedstock, Ankarstrand said.
Praxair will also provide the nitrogen. Since the nitrogen is from a plant, it will be purer than feedstock sourced from the atmosphere, which will further improve the efficiency of the ammonia plant.
The joint venture is starting up the new plant in the midst of a glut in the ammonia market.
During this decade, several companies have started up new ammonia plants in North America, taking advantage of the region's abundant supplies of low-cost natural gas. Natural gas provides both the hydrogen and the energy needed for the plant.
At the same time, prices for corn and other agricultural commodities have fallen, causing farmers to cut back on purchases of ammonia as well as other fertilizers and agrochemicals.
The combination of rising ammonia supply and weaker demand has caused ammonia prices to fall.
Ankarstrand acknowledged some of the challenges facing the ammonia market. However, companies are no longer announcing new ammonia projects, given the current glut in the market, he said. "We know of no new projects."
While this will not end the glut, it will prevent it from becoming worse.
At the same time, the longer term trends should increase demand for ammonia.
The world's population is growing, causing demand for food and fertilizer to rise. Moreover, more people in emerging economies are joining the middle class. As they adopt middle-class buying habits, they are eating more meat, which is further increasing demand for grains and fertilizer.
Ultimately, rising demand will work off the supply glut, and the ammonia market will become balanced once more, Ankarstrand said.
Shorter term trends should also help the new ammonia plant.
Yara is targeting North American industrial customers for its portion of the plant's ammonia. Growth in the US has picked up because of a synchronised expansion in the global economy, a tax cut and a favourable regulatory climate.
In Latin America, Brazil's agricultural sector is leading the country's economic recovery. Argentina's economy has also emerged from a recession, and it is another major agricultural producer.
In the US, natural gas production is reaching record highs even as prices remain below $3/MMBtu.
Over the years, gas producers have found more ways to cut costs and improve the efficiency of their operations, allowing them to make profits even while prices remain depressed.
As a result, the new ammonia plant will benefit immediately from the feedstock advantage in the US.
Interview article by Al GreenwoodLeft to right: Magnus Krogh Ankarstrand, senior vice president, business unit North America, Yara; Svein Tore Holsether, CEO, Yara International; Martin Brudermuller, vice chairman of the board of executive directors, BASF SE; Wayne Smith, CEO, BASF Corp. The executives are cutting a ribbon in commemoration of the start-up of the Yara Freeport ammonia plant. Photo by Al Greenwood.