Fertilizer International 504 Sept-Oct 2021
30 September 2021
Fertilizer Industry News
Fertilizer Industry News
CANADA
BHP greenlights Jansen potash mine
BHP has finally given the go ahead for stage one of its Jansen potash mine project in Saskatchewan, Canada.
The delayed final investment decision, made on 17th August, commits the Australian mining giant to a further $5.7 billion investment to bring the project into production.
The 4.35 million t/a capacity Jansen mine is now expected to produce its first potash ore in 2027, following a six-year construction phase. The mine will then take a further two years to ramp-up to full capacity.
BHP expects stage one of the Jansen mine (Jansen S1) to generate an internal rate of return (IRR) of 12-14 percent – equivalent to a payback period of around seven years – and operate at a healthy earnings (EBITDA) margin of around 70 percent.
“Jansen is located in the world’s best potash basin and is expected to operate for up to 100 years. Potash provides BHP with increased leverage to key global mega-trends, including rising population, changing diets, decarbonisation and improving environmental stewardship,” BHP said in a statement.
Mike Henry, BHP’s CEO, said Jansen would help the company grow its portfolio of large, low cost and expandable world class assets.
“This is an important milestone for BHP and an investment in a new commodity that we believe will create value for shareholders for generations,” Mr Henry said. “In addition to its merits as a standalone project, Jansen also brings with it a series of high returning growth options in an attractive investment jurisdiction.”
He added: “Jansen is designed with a focus on sustainability, including being designed for low greenhouse gas emissions and low water consumption.”
The extra $5.7 billion investment in Jansen S1 covers the design, engineering and construction of a complete underground potash mine and all of its associated surface infrastructure. This includes a processing plant, a product storage building, and a continuous automated rail loading system. Jansen’s potash product will be shipped to export markets through Westshore in Delta, British Columbia, with the project’s new funding also covering the necessary port infrastructure.
BHP said Jansen S1 is timed to arrive at an opportune moment for new potash supply: “We anticipate that demand growth will progressively absorb the excess capacity currently present in the industry, with opportunity for new supply expected by the late 2020s or early 2030s. That is broadly aligned with the expected timing of first production from Jansen.”
BHP predicts that Jansen will operate competitively, being positioned in the first quartile of the industry’s cost curve, especially given that it expects long-term potash prices to be set by Canadian solution mines. These tend to have higher operating and sustaining capital costs than conventional mines like Jansen, as well as consuming more energy and water.
BHP has already invested $4.5 billion of capital in the Jansen project to date. This includes a $2.97 billion investment in shaft construction and associated infrastructure, plus the funding of engineering and procurement activities, and preparatory work on underground infrastructure.
BHP acknowledged that the full project would yield a much lower IRR if its investment to date was included. “This resulted in a significant initial outlay and… our approach would be different if considering the project again today,” the company said.
The construction of Jansen’s two shafts is 93 percent complete currently, with both shafts and associated infrastructure due to be finished sometime next year. BHP estimates that around half of all the engineering required for Jansen S1 has now been completed, significantly de-risking the project.
Following a fresh valuation of its potash asset base, and a new calculation of the value of its investments in Jansen to date, BHP included an impairment charge of $1.3 billion ($2.1 billion after tax) against its potash assets in its latest financial results.
The Jansen S1 mine will convert approximately 20 percent of BHP’s 5.23 billion tonnes of measured and indicated resources into potash ore reserves. The mine’s earnings potential is based on average potash price assumptions for the decade 2027-2037 supplied by CRU ($341/t) and Argus ($292/t). Sustaining capital for Jansen Stage 1 is expected to be approximately $15/t, plus or minus 20 percent for any given year.
Rival Canadian potash giant Nutrien appeared sanguine about BHP’s decision to bring Jansen into production. “It will take another decade for Jansen to have significant production,” Ken Seitz, CEO for potash at Nutrien, said in a statement. The company expects global potash demand to grow by 2-3 percent annually out to 2030.
Reuters reported in May that Nutrien and BHP were weighing up a partnership on the Jansen project, although this potential link-up was not confirmed by either company (Fertilizer International 503, p9).
BHP’s final investment decision comes at an auspicious moment for potash prices. The Brazil cfr benchmark, for example, is close to $700/t, a ten-year highpoint and a dramatic turnaround from the below $300/t levels seen at the start of this year.
BRAZIL
EuroChem buys Serra do Salitre from Yara
EuroChem Group has agreed to buy the Serra do Salitre phosphate project from Yara International. A share purchase agreement to buy the project for $410 million in cash was announced by both companies on 1st August.
Serra do Salitre is an integrated phosphates project located in Minas Gerais, Brazil. It combines a 1.2 million tonne capacity phosphate mine – and access to more than 350 million tonnes of reserves – with a one million tonne capacity phosphate fertilizer plant. This is capable of manufacturing MAP/NP and SSP/ TSP products.
The project also includes a sulphuric acid plant, a phosphoric acid plant, and a 400,000 tonne capacity storage unit for granulated fertilizers such as urea and potash.
Although Serra do Salitre is well advanced, and has been under construction since 2015, Yara estimates that further capital expenditure of around $410 million could be required to complete the project. “Salitre remains an attractive project, but as previously communicated the project progress has been impacted by Covid 19, and significant construction time and capital expenditure remains to reach completion,” Yara said in a statement.
The project’s mine and beneficiation plant are, however, already operational (Fertilizer International 502, p26) and currently producing around 500,000-600,000 tonnes of phosphate rock. This is generating positive earnings from third-party concentrate sales. The under-construction phosphate production complex, meanwhile, is now due to become operational in 2023.
Brazil is an agricultural powerhouse with a high demand for phosphate fertilizers due to the scale of crop production and its crop mix, particularly the prevalence of soybean cultivation. As a domestic producer, Serra do Salitre should be strong position to capture market share, given that the country currently depends on imports for half of its phosphate requirements. The project is also strategically located within Brazil’s agricultural heartland, where domestic fertilizer demand is strong.
“This expansion will allow us to reduce dependency on third-party phosphate supplies, and also creates the potential for phosphates and complex fertilizer production in Brazil,” said Vladimir Rashevskiy, EuroChem’s CEO. “It significantly improves our competitive position in Brazil, and enables us to leverage the extensive blending and distribution capabilities brought by the acquisition of Fertilizantes Tocantins, which we completed last year.”
Yara said the divestment was a strategic move that would allow the Norwegian fertilizer giant to focus on new priorities such as premium products and the hydrogen economy.
Once brought on-stream and fully ramped-up, Serra do Salitre will add an extra one million tonnes to EuroChem’s existing annual phosphate and complex fertilizer output of five million tonnes. EuroChem already operates two phosphate mines – the Kovdorskiy GOK facility in northern Russia and EuroChem Fertilizers in Kazakhstan. The Swiss-headquartered company currently manufactures a range of premium-quality MAP, DAP, NP and feed phosphates at several production sites in Russia and Lithuania.
Both parties expect to complete the project sale in approximately six months, subject to the necessary regulatory approvals and customary closing conditions.
EUROPE
Cost warning for EU’s ‘Fit for 55’ climate package
The EU’s new ‘Fit for 55’ climate plan will increase carbon costs and capital expenditure, according to Fitch Ratings. This would affect EU fertilizer producers as well as producers exporting into the European single market, it said.
The European Commission unveiled its ‘Fit for 55’ policy package in mid-July. In a document spanning thousands of pages, this sets out exactly how the EU plans to reach its legally-binding target to cut emissions to 55 percent below 1990 levels by 2030.
The policy package still requires the approval of the European Parliament. Nevertheless, Fitch expects the European carbon price to increase further, should the ‘Fit for 55’ pass in its current form. The EU carbon price has already risen dramatically this year – more than doubling over the last 10 months, increasing from below e25/t at the end of October 2020 to reach record levels of e55-60/t currently.
In an analysis published on 19th July, Fitch identified the EU fertilizer industry as one of several sectors which it expects to be particularly badly hit by the European Commission’s new policy package. This includes proposals to cut free carbon allocations, lower the annual emissions cap for the Emission Trading System (ETS), and introduce a Carbon Border Adjustment Mechanism (CBAM) to tax high carbon imports.
“EU domestic metals and fertilizer producers will be most affected by a steeper free annual carbon allocation reduction of 4.2% – instead of 2.2% currently – and a lower emissions cap,” said Fitch Ratings. “Carbon prices have already reached new records this year and are likely to increase further as the policies are implemented.”
As well as facing rising carbon costs, fertilizer producers will need to increase investment to decarbonise their operations and protect their market position. But companies which already have credible sustainability strategies may be able to mitigate their costs via access to attractive green financing – and could even capitalise on the policy changes by using ‘first-mover advantage’ to develop new products and technologies.
The introduction of the CBAM is designed to avoid carbon leakage by imposing costs on carbon-intensive EU imports, including fertilizers, that mirror the carbon costs for domestic products. Following the initial roll out of the CBAM from 2023 onwards, importers will be expected to start making payments from 2026 – a measure which may spur EU trading partners to consider their own carbon trading systems, suggests Fitch.
Several northern African and Russian fertilizer producers, who are among the largest fertilizer exporters to the EU, will be exposed to the CBAM, according to Fitch. Russia’s PhosAgro and EuroChem both sell just over 25 percent of their production into the EU, for example, while Morocco’s OCP exports about 20 percent of its output to the bloc. Despite this, all three companies are well positioned to absorb new carbon costs, notes Fitch, due to their very low cost bases. Nevertheless, it is likely that some costs incurred by the ‘Fit for 55’ package will be passed onto customers eventually.
The proposed expansion of the ETS to encompass shipping, meanwhile, may benefit fertilizer producers such as Yara and OCI who are currently investing in low-carbon shipping fuels such as green ammonia and green methanol.
EU industry group Fertilizers Europe was generally critical of the ‘Fit for 55’ package, saying it “falls way short of what is needed by not recognizing the need for competitiveness of European industry”. The trade body was particularly concerned that rising carbon costs for EU fertilizer producers would place them at a disadvantage to their major global competitors. It said the policy package in its current form, instead of promoting decarbonisation, actually increased the risk of carbon leakage. Despite these reservations, Fertilisers Europe said: “The European fertilizer industry supports the Green Deal’s ambition of climate neutrality by 2050 and is committed to play its part.”
“Through investments in low carbon technologies and production of green and blue ammonia, our sector can play a vital role in the decarbonisation of the economy,” said Jacob Hansen, Fertilizers Europe’s director general. “But the road to get there is very challenging and tremendous efforts and capital investments will be required to move from fossil to renewable based production”.
He added: “In recent weeks, we have seen surging prices of gas and ETS carbon costs – all putting competitive pressure on our sector. The ‘Fit for 55’ package will only add to this pressure.”
The introduction of a CBAM was broadly welcomed by Fertilizer Europe as a step towards ensuring importers were on a level playing field. But, to ensure fairness, free allowances to CBAM sectors needed to be allocated at the same level as other sectors, at least until 2030, in Hansen’s view. “[This] is absolutely crucial for the competitiveness of the fertilizer industry,” he said.
Hansen signalled that European fertilizer producers would continue to adopt a constructive approach to EU climate and agricultural policy: “We are determined to do our part in upscaling low carbon ammonia production thereby assuming the role of work horse for the hydrogen economy, and we will contribute to making agriculture more sustainable in Europe.”
NORWAY
Yara launches HEGRA decarbonisation partnership
Yara and two Norwegian partners have set up HEGRA, a new company to electrify and decarbonise its ammonia plant at Herøya, Porsgrunn, Norway.
HEGRA, an acronym standing for HErøya GReen Ammonia, is an equal partnership between Yara, Aker Clean Hydrogen and Statkraft. The decarbonisation project will be Norway’s largest climate initiative – and is aiming to reduce CO2 emissions by 800,000 tonnes annually.
The HEGRA partnership, launched in August, brings together Norway’s leading experts in ammonia, project development and energy markets. The decarbonisation project at Porsgrunn could be delivered within 5-7 years, according to Yara, subject to the availability of renewable power at the site and assuming the necessary public co-funding is also in place.
HEGRA is specifically designed to help meet the EU’s ambitious target to cut emissions by 55 per cent by 2030, as set out recently in the European Commission’s ‘Fit for 55’ climate policy package (see above).
The new venture marks the first step in developing a Norwegian value chain for green ammonia and hydrogen, according to Auke Lont, the chair of HEGRA’s board. HEGRA will help Norway achieve its climate goals and provide the country with a competitive advantage within the renewable energy and hydrogen sectors, he said.
The generation of green ammonia from renewable electricity at Herøya would enable carbon-free fertilizer production and provide a supply of zero-emissions shipping fuel. Norway’s maritime industry is looking to cut its emissions in half by 2030, with access to emissions-free fuels holding the key to reaching this goal.
Svein Tore Holsether, Øyvind Eriksen and Christian Rynning-Tønnesen, the CEOs of Yara, Aker and Statkraft, respectively, all gave their backing to the new venture and attended its launch. In a joint statement, they said HEGRA will provide Norway with a competitive advantage in the growing global hydrogen economy, establish green jobs for the future and create the basis for a future Norwegian export industry
A 2020 report by The Confederation of Norwegian Enterprise suggested that the development of a hydrogen economy could significantly increase Norway’s export industry, potentially providing a turnover of NOK 10 billion in 2030 and NOK 70 billion in 2050.
GERMANY
Kingenta sells COMPO
Private equity firm Duke Street completed the acquisition of Germany’s COMPO from Kingenta in early August. The Münster-headquartered company is Europe’s largest producer and distributor of consumer gardening products, including soil, fertilizer, plant and lawn care products.
In particular, COMPO has pioneered the use of organic products and peat substitutes in the European horticulture market. The previous owner, Chinese speciality fertilizer producer Kingenta, purchased COMPO from private equity group Triton in 2016.
“We are thrilled to complete the acquisition of COMPO, a market leader in traditional and bio-based gardening products in continental Europe – and a brand that has carved out a clear ESG leadership position with its bio products, including a full range of peat substitutes,” said Paul Adams, partner, Duke Street. The London-based private equity company has invested over e2.5bn in more than 50 companies over the last 25 years, achieving strong returns on these investments.
Stephan Engster, CEO, COMPO, said: “We at COMPO look forward to partnering with Duke Street and delivering the next chapter of our growth story. Natural and sustainable products will always remain at the heart of our business as we stay true to our values and as sustainably-conscious consumers increasingly prioritise such offerings.”
German speciality fertilizer producer COMPO EXPERT is an entirely separate company from COMPO. It is currently owned by Poland’s Grupa Azoty who purchased the business from Goat Netherlands BV in 2019.
UNITED STATES
Go ahead for UAN import probe
The US International Trade Commission (ITC) has given the greenlight for an investigation into Russian and Trinidadian urea ammonium nitrate (UAN) imports.
In a vote on 13th August, the ITC judged that there is a reasonable indication that imports of UAN from Russia and Trinidad are materially injuring the US domestic UAN industry. This decision will enable the US Department of Commerce (DoC) to continue with its investigations.
The ITC was responding to a petition on UAN imports filed with US authorities in June by CF Industries, the country’s largest UAN producer. This urged the DoC and
ITC to impose antidumping and countervailing duties on US imports from Russia and Trinidad, citing supposedly unfair natural gas subsidies and tax breaks.
In its petition, CF presented evidence supporting claims that Russia producers EuroChem and Acron, and Trinidad producer Methanol Holdings Trinidad Limited (MHTL), are dumping UAN onto the US market at margins up to 392 percent and 159 percent, respectively.
“The preliminary ITC decision is an important step towards levelling the playing field for U.S. UAN producers and their workers,” said Tony Will, CF Industries’ president and CEO. “CF Industries will continue participating actively in the ongoing investigations in order to restore fairness to our highly competitive industry and ensure that American UAN producers remain a reliable source of fertilizers for American farmers for years to come.”
Russian and Trinidadian UAN deliveries into the US market have surged in recent years and together account for close to 90 percent of total UAN imports.
Antidumping investigations remain at an early stage, however, with final determinations by US authorities typically taking one year. Nevertheless, if the US does eventually decide to impose countervailing duties on UAN imports from Russia and Trinidad, these would remain in place for at least five years.
EGYPT
thyssenkrupp to revamp Abu Qir 3
thyssenkrupp Fertilizer Technology has won a contract from Abu Qir Fertilizers to revamp the Abu Qir 3 urea granulation plant in Alexandria.
thyssenkrupp’s UFT fluid bed granulation technology will be used to increase the plant’s nameplate urea granulation capacity from 2,000 t/d to more than 2,500 t/d. A proprietary horizontal cross flow scrubbing system will also minimise urea dust and ammonia emissions by handling exhaust streams from both the urea granulation plant and the urea synthesis plant. thyssenkrupp will supply the technology license, the process design package and the necessary equipment for the project. The revamp is scheduled to be completed and return Abu Qir 3 to full capacity by 2025.
Saad Ibrahim Abu El-Maati Hassan, the chairman and managing director of Abu Qir Fertilizers, said: “With this expansion, Abu Qir Fertilizers will reinforce its position as a leading nitrogen fertilizer producer in Egypt. We chose thyssenkrupp again to use the most up-to-date technology. Their state-of-the-art process and know-how give a significant boost to our plant capacity while simultaneously lowering the power consumption per produced tonne of granular urea and reducing direct emissions at the same time.”
The 2,000 t/d Abu Qir 3 urea granulation plant was originally designed in 1996. While the revamped plant will be capable of producing 2,500 t/d of granulated urea, it could reach 2,750 t/d output due to its inbuilt design margin. thyssenkrupp’s successful UFT fluid bed technology has proved to be a popular urea granulation choice for producers, with a current market share above 70 percent of installed capacity.
RUSSIA
Acron triples Talitsky potash project investment
Acron Group is ramping up investment and speeding up construction at its Talitsky potash mine project in Russia’s Perm Krai region.
In a major step change, the company is more than tripling its capital investment in the project during 2021 and 2022, raising this from $60 million to $222 million. The company has also brought forward first production at the two million tonne capacity potash mine to 2025.
“Shafts are currently being reinforced and finished, construction of a motorway is near completion, and construction has started on the Ural 220/10/6 kV main step-down substation,” Acron said in a statement on 16th August.
Acron also revealed that it is currently tendering for equipment suppliers and contractors to fit-out the Talitsky mine, its surface complex, and external infrastructure. The project has also secured a package of Russian government support due to it positive impact on the regional economy.
Alexander Popov, Acron’s chairman, said: “In the current circumstances, we believe it is possible to accelerate construction to obtain the first batch of the product in 2025. Prior to the acute phase of the Covid-19 pandemic, we managed to dramatically improve the project’s risk profile by finalising the sinking of the shafts. Now, we can conduct construction operations both underground and on the surface at the same time.
“The project’s budget has been clarified. Remaining investments are estimated at $1.3 billion. Of this amount, approximately $700 million will be spent before the first batch of potash is produced. All of the project’s engineering and design solutions provide for further expansion of the mine’s capacity from 2.0 million to 2.6 million tonnes per annum of potash.”
UAE
Adnoc sells first blue ammonia cargo to Japan
Adnoc has sold its first blue ammonia cargo to Japanese trading company Itochu for use in fertilizer production.
The shipments were sold at an attractive premium to grey ammonia, according to Adnoc, and underscore the favourable economics for blue ammonia as an emerging source of low-carbon energy. Blue ammonia is produced in the same way as conventional grey ammonia, except that the carbon dioxide by-product is captured downstream of the process and stored.
The blue ammonia will be supplied by Fertiglobe from its 1.2 million t/a capacity Fertil ammonia plant in Ruwais, Abu Dhabi. Fertiglobe is a joint venture between Adnoc, Abu Dhabi’s state-owned national oil company, and Netherlands-based fertilizer producer OCI.
The Japanese shipments represent the first production milestone of a planned scale-up of blue ammonia production capabilities in Abu Dhabi. This is expected to include a low-cost debottlenecking programme at Fertil.
“Today’s announcement builds on Adnoc’s commitment to expand the UAE’s position as a regional leader in the production of hydrogen and its carrier fuels, meeting the needs of critical global export markets such as Japan,” said Sultan al-Jaber, Adnoc’s chief executive. “Through the expansion of our capabilities across the blue ammonia value chain, we look forward to furthering our legacy as one of the world’s least carbon intensive hydrocarbon producers and supporting industrial decarbonisation with a competitive low-carbon product portfolio.”
Masaya Tanaka, Itochu’s executive officer, said: “We are pleased that Itochu, a leading general trading company in Japan, is contributing to a low-carbon society together with Adnoc. Starting with this trial of blue ammonia for fertilizer applications, we aim to create a wide range of ammonia value chains for existing industrial applications as well as future energy use.
“By collaborating with Adnoc and Fertiglobe, we expect to initiate and enhance our industrial portfolio in the fertilizer sector while achieving our commitments towards decarbonization activities in other industries”.
Fertiglobe has partnered with Adnoc and ADQ on a project to develop a new world-scale one million tonne capacity Ta’ziz blue ammonia project at in Ruwais (Fertilizer International 503, p8). This will combine conventional ammonia manufacture with carbon capture technology. The final investment decision for the Ta’ziz project is expected in 2022, with start-up pencilled in for 2025.
