north america - gpca fertilizer convention · | steering the fertilizer industry through...

North America –

Challenges for financing fertilizer projects

Pejman Djavdan

CEO Stamicarbon

| Steering the Fertilizer Industry through Challenging Times

Stamicarbon: the world market leader in urea technology

development and licensing

Orascom

Construction

Industries,

USA

KIMA,

Egypt

Azomures,

Romania

Duslo AS,

Slovakia

Koch

Nitrogen,

USA

CF

Industries,

USA, 2

projects

Socar,

Azerbaijan

Turkmenhimiya

Turkmenistan

BCIC,

Bangladesh

Hulunbeier,

China Linggu,

China

Erdos,

China

Hengang

Huahe,

China

Boda Shidi,

ChinaAgrium

Borger, USA

Dakota

Gasification

Company,

USA

Phosagro

Cherepovetz,

Russia

Petrobas,

Brazil

Huajin,

China

Multple

projects

in Iran


A quick review…

How the North American Fertilizer Market Changed

1998-2010

• Imbalance and shortage of energy security

• Due to high feedstock cost of $11/MMBTU, producers mothballing and idling capacity

2010 and forward: a new era for nitrogen investments

• Shale gas boom; natural gas prices dropped to approx. USD 2/MMBTU.

• Favorable market conditions: high value agricultural market and sustainable growth within fertilizer and

industrial segments.

• Producers margins, increased from 11% in 2000 to almost 50% late 2014 on the back of Midwest

(premium) nitrogen prices and low feedstock cost.

• Urea import requirement of 8 MT in 2015

0

1

2

3

4

5

6

7

8

9

10

1984 1988 1992 1996 2000 2004 2008 2012 2016

US

D / M

MB

TU

Gas Price (Henry Hub)


USA still imports about 8 million tons of urea

Strong growth in supply, but continuing net imports 2015 urea trade and product mix

Urea

Ammonia

Nitrogen Solutions

Others

West Coast Import

1.2 MT; mainly China

Canada Import

1 MT

Mississippi: logistics up to

USD 80/t

Atlantic Import

0.7 MT; mainly FSU

Gulf Coast Import

4.3 MT; mainly Trinidad &

Middle East

Total Nitrogen import: 8.5 MT N.

Note: Anhydrous ammonia losing position due to legislation


CF Industries,

Donaldsonville, Louisiana

• Urea technology: Stamicarbon

• Ammonia technology: TKIS

• Contractor: TKIS

• Urea capacity: 3500 mtpd

• Pool Condenser design

• Products: ammonia, urea

granular, nitric acid, UAN

• Awarded: 2012

• Onstream date: 2016 Q1

CF Industries,

Port Neal, Iowa


• Ammonia technology: TKIS



• Pool Condenser design


granular

• Award year: 2012

• Onstream date: 2016 Q4

Six new urea plants start production in 2016-2017- all use Stamicarbon technology

Iowa Fertilizer Co.,

Iowa

Agrium Borger,

Texas

Dakota G.C.,

Beulah, North

Dakota

Koch Nitrogen.,

Enid, Oklahoma


Dakota G.C.,

Beulah, North Dakota


• Contractor: IHI

• Capacity: 1000 mtpd

• Pool Reactor design

• Products: urea granular/DEF


• Exp. onstream date: 2017 Q3

OCI, IOWA Fertilizer Co.,

Wever, Iowa


• Ammonia technology: KBR

• Contractor: Tecnimont-TKIS




granular, nitric acid, UAN


• Exp. onstream date: 2017 Q1


CF Industries,

Port Neal, Iowa

Agrium Borger,

Texas

CF Industries.,

Donaldsonville,

Louisiana

Koch Nitrogen.,

Enid, Oklahoma


Koch Nitrogen.,

Enid, Oklahoma


• Contractor: KBR



• Products: urea granular/DEF


• Expected onstream date: 2017

Q4

Agrium, Lone Star.,

Borger, Texas


• Contractor: KBR



• Products: urea granular


• Expected onstream date: 2017

Q3


CF Industries,

Port Neal, Iowa

OCI, IOWA

Fertilizer Co.,

Wever, Iowa

CF Industries.,

Donaldsonville,

Louisiana

Dakota G.C.,

Beulah, North

Dakota


Realized projects: what were the success factors?

The economics of most

projects have mainly been

driven by:

• Inherent logistic advantage of

production in the Midwest

• Low NG price

• Favorable local supply –

demand balance

• Favorable financial schemes


IOWA FERTILIZER COMPANY (OCI), IOWA CF PORT NEAL, IOWA

Project scope Ammonia, urea (granular), UAN and Diesel Exhaust Fluid

(DEF)

Ammonia and urea (granular)

Sponsor Part of OCI N.V., a leading global nitrogen fertilizer and

construction company

CF Industries (NYSE: CF), North

America's largest producer

Off-take Short / long-term supply contracts and in-house marketing

organization

Long-term supply contracts and a well

developed marketing and distribution

network

EPC Tecnimont SpA. and TKIS TKIS

Technology KBR Inc. (ammonia), Stamicarbon (urea melt) and TKIS

(granulation, Nitric Acid and Ammonium Nitrate)

TKIS (ammonia, urea granulation) and

Stamicarbon (urea melt)

Equity App. $572 million App. $1.7 billion

Debt Issued $1.18 billion of non-AMT tax exempt bonds1 Corporate finance based transaction

Unique

features

• Project financing, where bonds have a senior lien on

Project revenue, mortgage on the project and a pledge

of project contracts, assets and various reserves

• The first new nitrogen fertilizer production facility to be

constructed in the US in more than 20 years

• Part of CFI's $3.8 billion plan to

increase its fertilizer production

base

Conclusion:

• Successful projects in view

of entrepreneurship and

first mover advantage:

secure long term offtake

arrangements, favorable

EPC contracts and debt

facilities.

• Moreover leveraging on

local trading experience.

1. AMT: Alternative Minimum Tax, a minimum liability a taxpayer would be required to pay after eliminating deductible items.

Realized projects: what were the success factors?


Why the US cash cost position remains attractive

Price premium Midwest!

USA cash cost position: still healthy margins per ton

Global Floor Price

CAPEX 0

200

400

600

800

1000

1200

2012 2013 2014 2015 2016

US

D p

er

ton

Declining trend of ammonia capex per ton in USA

Conclusion: The North American cash cost

curve shows a very healthy and competitive

cost position. Even sustainable exports of urea

outside North America feasible. New initiatives

planned in Louisiana.


Six new plants in USA…what does it mean for

supply/demand?

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2015 2016 2017 2018 2019 2020 2021

Kt

pe

r a

nn

um

Production Import Demand

Strong growth in supply but continuing net imports

still room for at

least 2 new

urea projects

Conclusion: North America remains

an attractive area for investments in

view of local favorable S/D dynamics

and premium nitrogen prices in the

Midwest.


Selection of latest projects under developmentAll projects use Stamicarbon urea technology

CHS, North Dakota

Cancelled



• Products: ammonia/urea

granular

Magnida, Idaho

On hold

• Contractor: to be defined



granular

Eurochem, Louisiana

On hold

• Contractor: Tecnimont

• Capacity: 3500mtpd


granular

Main Projects

Project Development delays mainly caused by:

• Increased EPC cost

• Dependence on debt financing

• Short term low urea prices

Cronus, Illinois

Financial close

• Contractor: Tecnimont



granular and DEF

MFC, Indiana

Financial close



• Products: ammonia,/urea

granular/ nitric acid/UAN

and DEF

IFFCO, Quebec

Feasibility phase

• Contractor: Tecnimont/DF


• Products: ammonia / urea

granular


Global 25MT production announced ‘16-’20:80% already under construction, so likely to enter the market through 2019

23.2 25.4

0

10

20

30

40

50

2015 2019 (F)

Europe / CIS

0.2 2.4

-10

10

30

50

2015 2019 (F)

Sub Saharan

28.732.9

-10

10

30

50

2015 2019 (F)

MENA

10.115.0

0

10

20

30

40

50

2015 2019 (F)

North Am.

4.4 6.5

-10

10

30

50

2015 2019 (F)

Latin. Am.

Feedstock cost (MMBTU)

0 .5 3 6+

Grassroot >2019

Grassroot ≤2018

41.949.2

0

10

20

30

40

50

2015 2019 (F)

APAC (excl. China)

74.9 70.6

0

50

100

2015 2019 (F)

China

In line with CRU

Project awards driven by self-sufficiency, export oriented, efficiency- and economy of scale.


Rebalancing of urea supply-demand balance?

Oversupply projected to increase

until 2017. Global capacity

additions to fall significantly in

2018 and beyond, falling with -

60% vs 2013-2016. Declining

oversupply expected as of 2018

(All time average 5%)

226

253

184203

172191

6.3%6.9%

8.1%7.5%

6.8%5.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0.0

50.0

100.0

150.0

200.0

250.0

300.0

2015 2016 2017 2018 2019 2020

mt/

a

Oversupply as % of potential supply

Potential Supply: 2.0%

Installed base

Potential supply

Demand

Demand CAGR: 2.1%


Ongoing project development: what’s holding them back?

OBSERVATIONS

• Majority of realized projects corporate finance while ongoing

projects are mainly based on project finance

• Over supply leads to lower urea prices

• Requirement of higher equity participation, while share of debt

financing becomes less.

• Newcomers depending on traders in terms of offtake

arrangement

• Low fertilizer prices and increased EPC cost lead to challenges

on bankability.

CASE STUDIES

Midwest fertilizer corporation, Indiana

• Scope: ammonia, urea granular, nitric acid, UAN and DEF

• Technology-EPC: Stamicarbon, TKIS (ammonia) and TKIS (EPC)

• Sponsor: Fatima Group Pakistan and others

• Off-take: in progress

• Estimated project cost: app. 2.7 billion

• Financing: project finance structure, based on allocated USD 1.25

billion of tax-exempt bonds authority

Cronus chemicals, Illinois

• Scope: ammonia, urea granular and DEF

• Technology-EPC: KBR-Stamicarbon and Tecnimont

• Sponsor: Cronus Chemicals (JV ACTA Fertilizer and Nokta Yatirim

Holdings) and others

• Off-take: in progress

• Estimated project cost: app. 1.9 billion

• Financing: in progress


Key Take Aways

• Still room for at least two large projects to become self sufficient and potential exports outside North America.

• North America represents a solid competitive cost position due to low feedstock cost, a high value fertilizer

market, premium local market prices and import requirement.

Road to success: Starting to invest now!...second wave of first mover advantage

1) Global capacity additions to fall significantly in 2018 and beyond, resulting in a declining oversupply as of late 2018 with

forecasted more favorable fertilizer prices.

2) Completion of current projects in execution is expected by end of 2017 which creates more EPC capacity being available

for projects to provide LSTK services.

3) Leveraging on your strong credibility, reputation and experience of world class producers and marketeers.

4) Stamicarbon can facilitate ongoing initiatives by bringing complementary competencies and services.

Thank You!www.gpca.org.ae

north america - gpca fertilizer convention · | steering the fertilizer industry through...

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