Port Neal has started up: late, over budget, and down for repairs

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CF Industries announced this morning that its new ammonia and urea plants at Port Neal, IA, “have been successfully commissioned and started-up.”

This meets CF’s previous guidance for start-up in Q4 2016, although this is perhaps six months behind the original “mid-2016” schedule. However, it isn’t clear to what extent this announcement really represents a full commissioning, because neither plant is currently operational.

The ammonia plant, which began production in late November, has operated at approximately its nameplate capacity of 2,425 tons per day. The back end of the plant (ammonia synthesis) was recently taken offline to replace a gasket and is expected to resume production shortly … The urea plant, which was commissioned earlier this month, has produced on specification granular urea. The urea plant was also recently taken offline to replace a relief valve and is expected to resume production shortly as well.

“CF’s capacity expansion projects are complete,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc.
CF Industries press release, 12/28/2016

I can only assume that CF sent out this press release now because it wants to be seen as keeping its promises to investors – that the expansions would be complete in 2016 – despite being arguably too early to claim that they’re truly complete. I’m sure Port Neal will reach full, stable, continuous operations shortly but, whenever in 2017 that happens, CF will still have claimed completion in Q4 2016.

The final cost of the Port Neal brownfield has not yet been announced, but CF did disclose, in its Q3 2016 earnings report, that the total cost of its combined expansion projects had risen from the original $3.8 billion to a new total of $5.2 billion – including expansions at both Port Neal and Donaldsonville, LA.

This $5.2 billion number is roughly 10% more than previously announced costs.

The first 10% cost increase was announced in March 2015; another 10% increase was disclosed in November 2015; both of those increases were primarily for Port Neal. This third 10% increase wasn’t announced explicitly, but implied in the $5.2 billion total disclosed in November 2016. Although CF hasn’t yet disclosed how these total costs split between Port Neal and Donaldsonville, my estimate is that the Port Neal ammonia-urea plant has cost roughly $2.8 billion.

This is a large number – a 65% increase over the original $1.7 billion estimate – and brings the cost escalations at Port Neal very close to OCI’s troubled greenfield at Wever.

The Wever plant was originally supposed to cost $1.4 billion, but now I estimate the capex on that project at $2.966 billion, a 68% increase over OCI’s budget when construction began. However, it seems reasonable to expect Wever to be more expensive than Port Neal: Wever is a greenfield, so requires new infrastructure, and includes a UAN plant. So why is the Port Neal plant so similar in cost?

Possibly because CF took a different attitude to solving its problems during construction. The OCI plant is now entering the start-up phase, about 18 months late, having had a peak workforce of about 2,500 – and this workforce wasn’t constant, being replaced at various times when OCI changed contractors. At Port Neal, however, CF more or less doubled its expected workforce to a peak of 5,300 workers, which has clearly sped things along. OCI, admittedly, faced a raft of other problems at the site but never had as many workers as CF Industries employed at Port Neal.

Whatever the additional cost, CF’s focus has been to begin generating cash flow from its new plants as soon as possible. As the press release says, the Port Neal expansion still has “projected returns significantly above our cost of capital … and greatly increased our cash generation capability.”

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