UPDATED: 07/23/2017 — see Change Log

OWNER: Dyno Nobel LA Ammonia LLC (Incitec Pivot Limited)
PROJECT: Brownfield ammonia plant[memberful does_not_have_subscription=”1314-ammonia-industry-annual-subscription,1311-ammonia-industry-monthly-subscription,3338-ammonia-industry-30-day-subscription”]

COST (reported): $850 million
JOB CREATION (reported): 65 permanent, 1,200 peak construction — see Job Openings [LINK]
START-UP DATE (reported): 2016

CAPACITY	USGS[1]	COMPANY[2]	PERMIT[3]	ADJUSTED[4]
Ammonia	[none given]	800,000 mtpy	[Membership required]	[Membership required]
Units: stpd, stpy, mtpd, mtpy = short/metric tons per day/year. [1] United States Geological Survey (USGS) Mineral Yearbook, Nitrogen gives capacity in metric tons per year, calculated as “engineering design capacity adjusted for 340 days per year of effective production capability,” rounded to three significant digits. Source: most recent year, Table 4: Domestic Producers of Ammonia, http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/. [2] Company announcements. Sources: linked below. [3] [Membership required]. Sources: linked below. [4] [Membership required]. See Methodology.

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SUMMARY STATUS: Operational
The Waggaman ammonia plant started up in 2016. Construction began in December 2013, they held a “dedication ceremony” in late September 2016, and announced “successful completion of the performance testing process” and “take over [of] management and operation” in October 2016. The project claims to have come in on budget, although construction saw major cost overruns. On the site of Cornerstone Chemical’s Fortier plant, “WALA” sells its ammonia to Cornerstone and merchant traders, as well as making Dyno Nobel self-sufficient for ammonia in the US. In 2017, Cornerstone was sold to a new owner.

COST: $850+ million, originally $850 million
JOB CREATION: 65 permanent, 1,200 peak construction — see Job Openings [LINK]
START-UP DATE: Q3 2016, originally “mid- to late 2016”
LIKELIHOOD: Done — see Methodology

CAPACITY	USGS[1]	COMPANY[2]	PERMIT[3]	ADJUSTED[4]
Ammonia (Dyno Nobel)		2,300 mtpd 800,000 mtpy	2,780 stpd	920,520 mtpy
Urea (Cornerstone)				248,000 mtpy
Units: stpd, stpy, mtpd, mtpy = short/metric tons per day/year. [1] United States Geological Survey (USGS) Mineral Yearbook, Nitrogen gives capacity in metric tons per year, calculated as “engineering design capacity adjusted for 340 days per year of effective production capability,” rounded to three significant digits. Source: most recent year, Table 4: Domestic Producers of Ammonia, http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/. [2] Company announcements / KBR project profile. Sources: linked below. [3] Louisiana DEQ, revised Title V Permit, 01/20/2015. Sources: linked below. [4] Adjusted Capacity is in metric tons per year assuming operations for 365 days per year; ammonia capacity based on permit; urea capacity from Agrium Fact Book 2016 [PDF]. See Methodology.

FEEDSTOCK: Natural gas
END PRODUCTS: Ammonia (Dyno Nobel), Acrylonitrile, Melamine (Cornerstone)

RESEARCH NOTES:
In October 2016, Incitec Pivot (IPL) announced the completion of its $850 million brownfield ammonia plant, which will be operated by its US subsidiary, Dyno Nobel, on Cornerstone Chemical Company’s Fortier site.

Incitec Pivot Limited (ASX: IPL) today announced the successful completion of the performance testing process for its ammonia plant at Waggaman, Louisiana. IPL will take over management and operation of the ammonia plant on 19 October (US time).

The project remains within the original budget of US$850 million.

The ammonia plant is expected to operate at an average of around 80 percent of capacity over the coming twelve months as it ramps up to full annual production rates.
Incitec Pivot press release, 10/19/2016

According to a corporate Market Update in late August 2016, the plant had already produced “More than 25,000 short tons of ammonia,” and reached a production-high of 2,320 short tons in a day, which is just over 90% of nameplate capacity.

At the end of September 2016, they held a dedication event, with the Louisiana governor and company execs from Dyno Nobel and Incitec Pivot.

“This plant is a transformational event for our Dyno Nobel business in the U.S. and for our company. It is the first ammonia plant to have been built in the state in over 25 years …”

The ammonia production facility utilizes state-of-the-art technology, and upon completion will rank among the most-efficient ammonia plants in the world. Additionally, the plant incorporates control technologies to produce the lowest air pollution of any ammonia facility to date.
Office of the Governor of Louisiana, 09/29/2016.

In March 2017, IPL published an investor presentation with detailed performance information about the plant’s first five months of operations. While the plant is still in the process of ramping up to full output, with frequent shut-downs for repairs and adjustments, it has proven that it can exceed daily nameplate capacity, producing 2,579 short tons in a day – which is just over the 2,300 mtpd (2,535 stpd) design capacity specified by technology licensor KBR. For more details on this performance, and KBR’s finances following their EPC cost overruns on this project, see my March 2017 update.

From the outset, the project had an $850 million budget; as of May 2016, the company had spent $712 million, excluding capitalized interest, of that total, for a 97% completed plant. However, as I explain below, while Dyno Nobel claims that the project didn’t go over budget (and this is true, as far as Dyno Nobel is concerned), the company protected itself from the risk of cost overruns by signing a lump-sum turnkey EPC agreement, which means that the actual cost overruns, in the region of $40 million, have been assumed by KBR.

First announced as a feasibility project in May 2012, Dyno Nobel confirmed the investment in April 2013, held the groundbreaking ceremony in August 2013, and began construction in December 2013 – for an anticipated start-up in the third quarter of 2016.

In IPL’s 2015 Annual Report, published November 2015, it provided an update, saying that the project was “approximately 90 percent complete with construction and costs on track.”

All major structures were completed, including the ammonia tank, the cooling tower, various steel plant structures and the control room. The installation and alignment of the reformers, absorber and compressors were completed and 85 percent of all piping is in place. More than 60 percent of electrical cable has been installed and the main control system was installed and is going through field check-out. The ammonia pipeline was charged and rail and barge load out facilities have been completed.

In the accompanying year-end presentation, also from November 2015, IPL discloses that the plant is expected to consume 32 mmBTU of natural gas per metric ton of ammonia produced, with a cash cost (excluding gas costs) of $47 per metric ton. Sustaining capex, the expense of keeping the plant in good working order, is estimated at an average of $10 million per year.

In its H1 2016 earnings call, in May 2016, IPL’s CEO, James Fazzino, gave another construction update:

“Louisiana is on track and on budget. I’d note there aren’t too many projects globally that you can say that about … Last night we lit the reformer, and as you know that is the front end of the ammonia plant, so that’s a fairly significant milestone.

The project is 97% complete, commissioning is in program, and we still expect beneficial operation in the third quarter of this calendar year. I’d note sometimes we’re asked what month; frankly, this is a 50-year project and I’m fairly indifferent whether it’s July, August or September. It will be sometime in those … months and we’ll take our time and we’ll get it right. But when I look at the progress, everything is going to plan …

There’s no change to our initial budget of $850 million, so that’s a good number … And importantly, when we look at the investment case it still stacks up.”

The company calls the plant “WALA” (for Waggaman, Louisiana) although, in development, it was also referred to as “Project Ibis.” IPL gives WALA’s ammonia capacity as 800,000 metric tons per year (mtpy). However, the air permit states that the capacity will be 2,780 short tons per day, or 920,520 mtpy assuming operations for 365 days. The technology is KBR’s Purifier Process, and KBR cites a capacity of 2,300 mtpd.

The ammonia will be shipped off-site via rail, truck, barge, or pipeline.

Since the start of construction, the plant’s eventual output was already completely pre-sold, until at least 2026. As IPL stated in a 2013 investor presentation, “100% volume committed to off-take arrangements from day 1 of production,” as follows:

• 300,000 mtpy to Dyno Nobel’s own explosives plants in the US, for upgrade to ammonium nitrate: to Donora, PA, by barge; to Louisiana, MO, by pipeline; and to Cheyenne, WY, by rail.
• 200,000 mtpy via on-site pipeline to Cornerstone Chemical, for upgrade to urea as an intermediate product, and melamine (capacity 80,000 mtpy) and acrylonitrile (capacity 240,000 mtpy) as end products.
• 300,000 mtpy to Trammo (formerly TransAmmonia), which describes itself as the “world’s largest independent marketer and transporter of ammonia in terms of tonnage sold in international trade.”

IPL provided an more details on contract pricing in its H1 2016 investor presentation, specifying that sales to Dyno Nobel’s other plants will be priced “at Tampa CFR spot,” but sales to Cornerstone and Trammo will be priced “at slight discount to Tampa CFR spot.”

As one of the first major new ammonia plants to be green-lit since the cost of US natural gas plummeted, WALA has some distinct early-mover advantages, foremost of which might be its lump-sum turnkey EPC contract with KBR. (KBR later shied away from offering fixed-price EPC contracts, preferring to leave the risk of price escalation to its clients – see the May 2016 update here.) The $600 million lump-sum contract gave Dyno Nobel relative immunity to the rising labor costs that have challenged so many other projects in the last few years.

In January 2017, IPL announced the “final settlement of delay damages. These damages
are in relation to the timing of handover of the plant to IPL under the lump sum turnkey construction contract,” and IPL booked income of $35.1 million, presumably paid by KBR.

In October 2016, news broke of the first lawsuits related to construction costs at Waggaman.

IPL describes the project as “fully funded through debt and internally generated cash flow” with a “15% IRR (50% above cost of capital),” and a “simple payback ~5 years.”

Dyno Nobel already runs two US ammonia plants, at Cheyenne, WY, and St Helens, OR, as well as other upgrading plants, primarily producing ammonium nitrate for explosives, but also serving industrial and fertilizer markets. The Waggaman plant will be IPL’s seventh ammonia plant worldwide.

As the company said in its Annual Report 2014, “Incitec Pivot’s strategy is to leverage dislocations in the world’s two largest economies, being the industrialisation and urbanisation of China and the shale gas revolution in the USA.” This backward integration into US ammonia production lets the company participate in “the most attractive part of the ammonium nitrate value chain,” and “takes IPL’s US business … back to US gas economics.” In addition, the new plant ensures that IPL’s growth will be “leveraged to the depreciation of the AUD against the USD.”

By May 2016, when IPL published its H1 2016 results presentation, the company made an additional point when it described start-up at Waggaman as a “Transformative step in evolution from Australian fertiliser cooperative to global diversified industrial chemicals business.” An accompanying pair of pie charts illustrated WALA’s hypothetical impact on IPL’s EBIT; it appears that WALA will be responsible for roughly 30% of IPL’s future earnings.

The site owner and operator, Cornerstone Chemical Company, also invested $175 million in “upgrades and infrastructure expansion,” which brought the total project cost to $1.025 billion.

The Cornerstone site, known as the Fortier Manufacturing Complex, was first developed by American Cyanamid in 1953, when it built a 300 stpd ammonia plant; other products originally produced on the site included acetylene, hydrogen cyanide, acrylonitrile, ammonium sulfate, and sulfuric acid (Cornerstone is now the “leading merchant producer in the Gulf of Mexico region” of sulfuric acid).

In 1983, the old ammonia plant (then 680 stpd capacity) was idled and later replaced with a 400,000 mtpy plant. In 1993, Cytec Industries (the spun-off chemicals arm of American Cyanamid) entered a 50-50 joint-venture with La Roche Industries, called Avondale Ammonia, to own and operate the ammonia plant. In 2000, La Roche went bankrupt and, in 2001, Cytec bought out its 50% of the 400,000 mtpy ammonia plant for $800,000 – only to close the plant: Cytec needed half the capacity but didn’t want to have to sell the other half, because of the “difference between the economics of producing ammonia and the cost of offshore ammonia.”

In 2011, the private equity firm HIG Capital purchased the Fortier site from Cytec, and renamed it Cornerstone Chemical Company. In July 2017, HIG announced that it would sell Cornerstone to Littlejohn & Co, subject to the usual closing conditions, and the transaction is expected to close in August 2017. According to the press release, “the Cornerstone team’s strategic vision and solid execution has resulted in an outstanding investment outcome and … Cornerstone has a very bright future.”[/memberful]

View larger map with all ammonia plants.

ADDRESS: 10800 River Road, Waggaman, Louisiana 70094, United States

WEBSITE: http://www.dynonobel.com/
WEBSITE: http://www.incitecpivot.com.au/
WEBSITE: http://www.cornerstonechemco.com/manufacturing-complex

REGULATORY SOURCES:

• USGS: Minerals Yearbook, Nitrogen [RECENT / ARCHIVE]
• Permit Documents: Louisiana DEQ document search (search AI #184235 for Dyno Nobel / AI #1357 for Cornerstone Chemical) [LINK]

NEWS SOURCES:

• 07/20/2017: HIG Capital press release: H.I.G. Capital Announces the Sale of Cornerstone Chemical Company [LINK]
• 07/07/2017: Incitec Pivot investor presentation: Company Overview [PDF]
• 03/02/2017: Incitec Pivot investor presentation: Company Overview and Update [PDF]
• 01/18/2017: Incitec Pivot press release: Update regarding Waggaman Louisiana ammonia plant [PDF]
• 10/27/2016: KBR press release: KBR Announces Completion of Landmark Dyno Nobel Ammonia Plant [LINK]
• 10/19/2016: Incitec Pivot press release: Completion of performance testing and handover of Louisiana ammonia plant [LINK]
• 10/07/2016: Louisiana Record: Dyno Noble, Louisiana Ammonia allegedly failed to pay for completed work [LINK]
• 09/29/2016: Louisiana Governor’s Office press release: Gov. Edwards, Incitec Pivot, Dyno Nobel and Cornerstone Chemical Dedicate New Ammonia Production Plant in Jefferson Parish [LINK]
• 08/26/2016: Incitec Pivot presentation: Market Update [PDF]
• 06/15/2016: ICIS: Cornerstone resumes operations at US melamine plant [LINK]
• 05/10/2016: Yahoo Finance: Edited Transcript of IPL.AX earnings conference call [LINK]
• 05/10/2016: Incitec Pivot press release: IPL Profit Report Half Year 2016 [PDF]
• 05/10/2016: Incitec Pivot presentation: IPL 2016 Half Year Results Presentation [PDF]
• 04/08/2015: KBR article: A series of “firsts” highlight KBR’s Landmark Dyno Nobel Ammonia Project [LINK]
• UNDATED: KBR project profile: Dyno Nobel Ammonia Plant (Project IBIS) [PDF]
• Fall 2013: Sulfuric Acid Today, news article: Synergy is the key for Cornerstone Chemical Company [PDF]
• 08/05/2013: Louisiana Economic Development: Incitec Pivot, Dyno Nobel, Cornerstone Chemical Break Ground On $1 Billion Industrial Project In Jefferson Parish [LINK]
• 04/17/2013: Louisiana Economic Development: Incitec Pivot, Dyno Nobel And Cornerstone Chemical Announce More Than $1 Billion Project In Jefferson Parish [LINK]
• 04/17/2013: KBR press release: KBR to Provide Integrated Technology, Engineering, Procurement and Construction Services for World-Scale Grassroots Ammonia Plant [LINK]
• 05/23/2012: Louisiana Economic Development: Dyno Nobel Announces Feasibility Study For $800 Million Project In Jefferson Parish [LINK]