INSIGHT: EuroChem eyes fertilizer industry crown with $1bn Kingisepp ammonia plant

Author: Richard Ewing

2019/08/06

LONDON (ICIS)--For someone for whom smoking at work would be hazardous, EuroChem Northwest's director is proud of his expensive “silver cigar” – the large, shiny ammonia converter at Kingisepp in Russia that is lighting up the group’s fertilizer operations and prospects.

A dazzling labyrinth of highly-reflective metal tubes, pipes and tanks, the recently commissioned $1bn plant is more like an expensive house of mirrors than the state-of-the-art export-oriented facility, boss Ilya Beloborodov describes as the “world's most beautiful" industrial project.

Boasting the largest single-train ammonia production capacity in Europe, the peak construction period of the fast-track project some 90 minutes’ drive from St Petersburg involved nearly 6,000 people working around the clock – including in sub-zero temperatures – at the huge brownfield site near the Estonian border.

Switzerland-headquartered EuroChem hopes the showcase project, which recorded zero fatalities or incidents of significant harm, will be the first stage of a multi-billion dollar investment roll-out in this corner of Russia, with plans for new ammonia, urea and methanol units already well advanced.

“The construction of EuroChem Northwest was a real challenge; a huge challenge in fact,” Beloborodov admitted during a special media presentation at an office overlooking the facility.

“But we decided to take up this challenge and five years later, here we are," he added, before leading a tour of the site where he posed for photographs in front of the gleaming "silver cigar".

Indeed, it appears he relished the task so much, he may soon go through it all again. With key infrastructure already in place and competitive natural gas costs “below $3.00/MMBtu versus around $4.00/MMBtu for some European producers”, the case for further expansion of the site appears a strong one.

“We have the land and the natural gas pipeline capacity from Gazprom for the second and third stages, and are just 50km from the [Estonian] port of Sillamae to the west, and a similar distance to the Russian port of Ust Luga, where our bulk terminal project is currently being executed,” he continued.

“EuroChem has been looking at these proposals for the past 18 months when we realised just how many commercial opportunities this site has.”

Already the fifth largest global fertilizer producer by nutrient capacity and profitability, the Zug-based company is targeting a top three spot over the next few years as the privately-owned group throws down the gauntlet to rivals such as Norway’s Yara and Canada’s Nutrien.

With fertilizer operations at several sites in Russia, the group is well aware of its potential exposure to geopolitical tensions that have occasionally hindered export operations via Sillamae, hence its eagerness to become more self-reliant in raw materials like ammonia.

“Self-sufficiency is very important to us; we are good people, but when you say ‘Russia’ today, it’s not the best situation unfortunately,” acknowledged EuroChem’s head of global operational logistics, Dmitry Boldyrev.

“But that’s life, we want to be secure on the supply side and have our own material, otherwise we could be in trouble one day [if the political situation deteriorates]."

He went on to say that the company had been considering building an ammonia pipeline to Sillamae, but the political situation between the two countries - which "is not the best right now" - stopped those plans.

"Having said that, we're not the only ammonia producer to experience such issues, as users of the main ammonia pipeline from Russia to [the Ukrainian port of] Yuzhny have also experienced problems in the past," added Boldyrev.

The arrival of the new plant means around 250,000 tonnes/year of ammonia previously sourced from a third party for discharge in Belgium, is instead manufactured in-house by EuroChem.

Home to long-established fertilizer and feed phosphate manufacturing operations at group producer Phosphorit, the Kingisepp facility now supplies “warm ammonia” to those units, as well as key feedstock for downstream EuroChem fertilizer and chemicals operations in Lithuania and at Antwerp, Belgium.

The important nitrogen crop nutrient and building block for other fertilizers and chemicals is first stored in “some of the largest freezers in the world” as Beloborodov described each of the 30,000-tonne capacity circular storage tanks protected by thick concrete walls ringed with hi-tech sensors.

Manufactured and accumulated at around  minus 30 degrees Celsius, the liquid ammonia is then transported to Sillamae by scores of rail cars that load all day, every day.

Seaborne cargoes of up to 23,400 tonnes leave twice a month from the Baltic Sea on the LPG tanker Cambridge for discharge in Lithuania and/or northwest Europe..

Not all of the material stays in house, with third parties including Yara being also recipients, although the details of such offtake deals are opaque, having never been confirmed by any of the parties.

What is clear is EuroChem is thinking big and seeking to diversify its product mix through major investment in mining and industrial capacities.

"We don’t want to put all our eggs in one basket," Boldyrev said.

With engineering, procurement and construction (EPC) contracts already put out to tender for the new 1m tonne/year ammonia facility, 1.1-1.5m tonne/year urea plant, and a 1.8m methanol unit, a final decision on their creation is only months away.

"In Russia, we have very cheap gas and especially for this ammonia project, Gazprom built a new pipeline to provide energy to this site," Beloborodov added.

"The capacity of the pipeline is sufficient to provide feedstock to the potential new units at Kingisepp, and it's important to note securing such an affordable amount of gas is not always easy in Russia."

The green light for such production expansion now appears only a matter of time, with executives confident the success of the EuroChem Northwest project can be repeated, despite what seem tangible political tensions.

“EuroChem Northwest is a great example of collaboration between Russian and foreign partners, many of them from Europe,” concluded EuroChem's financial controller Vladimir Vasilinenko.

Pictures source: EuroChem

By Richard Ewing