- DTN Headline News
Global Fertilizer Outlook - 4
Thursday, December 18, 2014 3:55PM CST

By Russ Quinn
DTN Staff Reporter

SAVANNAH, Ga. (DTN) -- Global demand for nitrogen is strong, but challenges such as oversupply and geopolitical risk could darken skies for fertilizer producers, according to Alistair Wallace, senior consultant for nitrogen for CRU Fertilizers, based in London.

"More crop acres and increased application rates across the world have pushed total nitrogen fertilizer demand from 81 million metric tons in 2000 to 105 mmt in 2010, to 116 mmt in 2014," Wallace said. "It is expected to be 128 mmt by the year 2019."

Speaking at the 2014 Fertilizer Outlook and Technology Conference this fall in Savannah, Ga., Wallace said nitrogen demand is on the increase thanks to a growing world population that needs more food.

World population (and thus nitrogen consumption) was a fairly flat line from 1750 to 1950, but since then, both have increased dramatically, Wallace said.

Fertilizer producers responded to the increased nitrogen demand by building more world capacity in the last 10 years than in the previous 25 years.

Increased urea supply between now and 2019 will come from China, North America, the former Soviet Union, Africa and Latin America. In fact, capacity growth is now outstripping demand. Beginning in 2014, capacity is expected to be more than consumption through 2019, he said.

"It almost feels like the world is drowning in a sea of nitrogen," Wallace said.

NORTH AMERICA EXPANSION

North American nitrogen production is set to increase from under 15 million tons a year in 2010 to an estimated 20 mt a year in 2018. North American nitrogen demand is set to increase as well, going from 21 mt in 2010 to a forecast 24 mt in 2018.

CHS, Inc. is taking advantage of the Northern Plains oil and natural gas supply by building a nearly $3 billion nitrogen fertilizer plant near Spiritwood, N.D., according to Brian Schouveiller, senior vice president for ag business North America for CHS, during a presentation at the 2014 DTN/The Progressive Farmer Ag Summit.

Currently, the U.S. imports about 7.2 mt of urea, the vast majority from the Middle East/North Africa. In 2016, U.S. production will overtake imports as several nitrogen plants around the country come online, he said. "By adding fertilizer capability, we will eliminate much of these imports over time," Schouveiller said.

The U.S. is competitive against the global marketplace at current natural gas prices. From a simple cost of production, the CHS facility would be at about $124 a ton, compared to the Middle East/North Africa, which averages $80 a ton. Yet, once transportation from that region is factored in, domestic natural gas has a price advantage over the 70-day shipping cost to upper Midwest. All of these costs related to energy should be coming down in the future.

Iowa Fertilizer Company is building a nitrogen fertilizer plant near Wever, Iowa. The plant is near 75% complete and the facility is on track to operate in the fourth quarter of 2015, according to the company.

Once completed, the plant will have a yearly capacity of more than 1.5 mt and will produce urea, UAN and ammonia, as well as diesel exhaust fluid (DEF).

CF Industries began $3.8 billion in nitrogen capacity expansion projects in 2012, which include new ammonia, urea and UAN plants in Donaldsonville, La., and a new urea and ammonia plants at the Port Neal Nitrogen Complex in Sergeant Bluff, Iowa. According to the company, the plants are progressing on time and on budget. The plants at Donaldsonville are expected to come online in the latter half of 2015, and the remaining plants are set to operate in 2016.

"When complete, these projects will increase CF Industries' overall nitrogen production capacity by 28% to nearly 17 mt," Bert Frost, CF Industries senior vice president, sales, distribution and market development, said in an email to DTN.

Potash Corp has increased production capacity at three of its U.S. ammonia plants: Augusta, Ga., was completed in August 2012; Geismar, La., saw its capacity expanded in February 2013; and Lima, Ohio, is set for its expansion works to be completed by September 2015, according to the company. These expansions have pushed the company's ammonia capacity from 3.5 million metric tons in 2012 to an estimated 4.0 mmt in 2016.

Other nitrogen plant expansions are in the works. Farmers of North America is looking for seed capital investment to build a facility in Saskatchewan, Canada, according to their website.

Northern Plains Nitrogen was launched in 2013 with the goal of building a 2,400-ton-a-day ammonia plant near Grand Forks, N.D. The project is projected to cost $2 billion and set to begin operation in 2018, although according to the company's website, NPN cannot complete the project without significant new financial partners, which the company is seeking.

Weak nitrogen prices and inflation have slowed the nitrogen capacity building boom. Capital cost escalation has resulted in costlier investments for new plants, Wallace said.

He used the Fort Neal, Iowa, CF Industries expansion efforts as a prime example. In 2002, an expansion cost $1.0 billion. By 2012, costs rose to $1.7 billion and in just two more years in 2014 the costs climbed to $2.0 billion.

CF in a statement said the expansion projects were budgeted at $3.8 billion, which included an expectation of construction cost inflation.

SUPPLY DISRUPTIONS

While it seems the world will have plenty of nitrogen fertilizer in the coming years, there are problems with supply disruptions today, Wallace said. The conflict between Russia and Ukraine has interrupted the flow of nitrogen fertilizer out of that region. Urea availability has fallen to 40% of what was seen in 2012, and ammonia supplies have been down 25%.

Ukraine is home to 3% of the global ammonia capacity, which is about 200 mmt a year, he said. The nation also produces 7% of the 19- to 20-mmt-a-year ammonia market being traded internationally.

Because of these disruptions of Ukraine's supply, the urea price is falling in the region. The Black Sea price of urea is now less than the value of its ammonia.

China's huge capacity for producing nitrogen is driving the global nitrogen market and could limit the impact of Ukraine's supply trouble.

China has seen a steady growth in the urea it produces over the last eight years. Just under 60 mmt a year of urea was produced in 2006, and that number jumped to 80 mmt tons a year in 2014. By 2019, urea production could climb to just under 100 mmt a year.

China's export duty has been revised considerably lower. The tax has been cut to 15% after it was 40% at one time, he said. The nation is now the global swing producer with much spare capacity, and events in the country's nitrogen market will determine the medium-term futures of all nitrogen values, Wallace said.

"This spare capacity is huge for China on the world market," Wallace said. He said they could be producing an extra 3 mmt to 4 mmt in total within the next five years.

Russ Quinn can be reached at russ.quinn@dtn.com

(ES/AG/CZ)


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