EuroChem thinks big

EuroChem’s Louisiana greenfield looks like it’s becoming a big project – much bigger than previously disclosed.

Capex: more than $3.5 billion.
Construction schedule: to start 2016, rolling through 2022.
Annual capacity: ultimately, more than 3.5 million metric tons of product.

If all its plans are realized, this will become one of the biggest nitrogen plants in North America, second only to CF Industries’ Donaldsonville complex, by ammonia capacity.

The company hasn’t announced any of this yet, or made an investment decision, but you can read full details of its plans in my Research Note for EuroChem’s Edgard plant. These details come from its air permit application – of course, there’s a world of difference between what gets permitted and what gets built.

On the general question of whether a new ammonia plant will actually be built, I hear two points of view with equal persistence:

  • US Fertilizer Industry perspective:
    None of these plants will be built. We don’t need them.
  • International Fertilizer / Oil & Gas Industry perspective:
    Natural gas supply price = x. Fertilizer demand price = y. Solve for profit.

To me, it comes down to derisking: how safe you can make the investment.

Last week, EuroChem announced the purchase of Bentrei Fertilizer Company, a fertilizer distributor in Tulsa, OK. EuroChem already has its own, established trading arms in the US, Mexico, and Brazil (among others on every continent), but this corn-belt acquisition seems like a smart way to start derisking the Louisiana project, because it gives EuroChem greater confidence that it can capture a domestic market for the fertilizer they’ll produce at Edgard.

Given the scale of the Edgard complex, perhaps Bentrei is just the start of EuroChem’s empire-building.

But derisking involves having a good back-up plan too, and EuroChem, with its fleet of panamax vessels, seems to have its eyes wide open for the export market.

Here’s a telling quote, from EuroChem’s air permit application, about the changing US market, from the perspective of the Russian ammonia producer:

“EuroChem already imports into the U.S. around 610 thousand [metric] tons of urea and 660 thousand tons of UAN on an annual basis. With that said, market concentration and development of domestic capacities requires increased competitiveness in fertilizer production and distribution, which can be achieved by moving production closer to the end consumer …

Locating production in proximity to the consuming markets, thereby achieving the ability to quickly and timely deliver product to the farmers’ gates, will be critical to business success in the coming years. Thus, bringing fertilizer production to the U.S. to serve the U.S. market is an important aspect of the project goal.

Also, assuring the capacity and flexibility to trade on the international market, through the ability to both import and export product, is key to maintaining a sustainable business model.”

Full details, and links to the air permit documents, are in my Research Note for EuroChem’s Edgard complex.

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