If you want to know whether – or when – the US will become a nitrogen exporter, read what the fertilizer company CEOs say during the latest round of quarterly earnings calls.
These guys should have formed pretty solid opinions by now about how the capacity expansions will affect long-term supply and demand, and how they’re going to gain/keep market share and competitive advantage. But it can be a challenge to infer what those opinions might be.
I’ve summarized the pertinent parts of the debate here, with quotes from Agrium, CF Industries, KBR, LSB Industries, OCI, Potash Corp, and Yara.
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I totally disagree with you. Particularly the comments on urea. The U.S. is not oversupplied. We import roughly 70 percent of our total urea requirements. No doubt new capacity will reduce imports, but it will not result in the U.S. becoming a net exporter. I agree with UAN. The U.S. will be oversupplied and will become a net exporter. But again, not a major exporter. With respect to ammonia, there’s no way we will become a net exports. The vast majority of the new announced capacity is upgraded with very little “marketable” ammonia.
Also, in your analysis, I’m not sure you’re factoring in the capex for new greenfield construction. Even under a more bullish scenario for product pricing, the ROI on these new plants barely makes it into the double digit range. Given the high risk and volatility in this market, investors are going to require at least a 15% return.
The other implied assumption you’re making is that U.S. natural gas cost will remain at close to current levels. That all depend on U.S. energy policy (or lack of it) which is highly uncertain.
In reading you’re write-up, I think you’re taking a lot of them out of context and/or reading something into them that is not there.
Thanks for weighing in – I have a great deal of respect for your opinions, which I know to be based on decades of experience and knowledge (http://www.npkfas.com/about).
What time frame are you looking at?
If the spread between US and international feedstock costs remains this wide in the long-term, would net nitrogen exports not make economic sense? Or is that simply too big an “if”?
I see the long-term supply/demand balance resting on a sequence of key assumptions, on which I think we disagree:
– projects’ and investors’ expectations of the future levels of natural gas prices.
– the number of potential new plants / restarts that will actually move forward.
– the extent to which the market for “marketable” ammonia will shrink as a result of today’s buyers becoming tomorrow’s producers.
I’ve not intended to quote any of the comments above out of context, but I am looking at their words, and making my interpretations, through the very specific lens of the US import/export balance. I’m looking for ways in which I think management shows its hand. I don’t think I’ve misrepresented, but I welcome all input to the discussion.
With best wishes,
Typical executive level goobledy-gook. Parse out the sentences; little of real value, great amounts of waffling, almost incoherent responses. No one wants to give away the store, to reveal any kind of competitive weakness nor particular strength.
Two points stand out after weeding thru the morass: owners are moving to increase flexibility at the plants; and companies will move product.
I do concur with your insight that comments about skilled labor, EPC companies, etc. are bogus.
I think there’s more benefit from polling the engineering firms; some of the traditional infrastructure firms are being supplanted by 2nd tier firms who are hungrier.
But as with power generation some time back, fuel/natural gas prices haven’t been exactly stable (as opposed to coal) and major commitments in fuel/resource switching can bite back. Its small wonder the companies hedge on outlook.
Reasonable gas prices in US have shifted the demand curve upward for the fertilizer plants. A number of plants are in pipeline for financial closure, however, increased CAPEX numbers have significantly lowered the returns of project investments. Ammonia Urea Complex of 1.3 MTPY capacity has capex of around 1.1 Billion USD which has increased to 1.8 Billion USD these days. For a gas availability of 3 $ / mmBTU, the returns on investment hardly touch 9%. I have a feeling that it would be a great achievement if even 40% of the projects in pipeline are materialized.
Going for a mix of Urea and UAN complex, the CAPEX numbers go even higher with insignificant effect of IRR. Under these conditions, a project based on relocation of stressed / shutdown plants can look more attractive.