N Plants Come Online

OMAHA (DTN) -- As one new nitrogen fertilizer-producing facility has already begun production and another will soon start producing, more nitrogen is just beginning to enter the market. Fertilizer industry experts say this additional supply should help to lower global nitrogen prices and will have a large effect on the balance of U.S. nitrogen fertilizer imports and exports in the coming years.

While farmers who are close to these new facilities may not see much of a decrease in nitrogen prices, the region in which they live could see economic advantages from these new facilities.

NEW PRODUCT PRICING

The "Big Three" of nitrogen expansion projects are CF Industries' new facility in Donaldsonville, Louisiana; CF's expansion of their existing Fort Neal, Iowa, plant; and the new OCI N.V. (and its subsidiary Iowa Fertilizer Company) project near Wever, Iowa. Donaldsonville began producing fertilizer this spring while the Fort Neal and Wever projects are still in the construction stage but both are nearing completion.

CF Industries attempted to purchase OCI and its Wever facility in August 2015 but this plan fell apart due to the U.S. Treasury curbing tax inversion deals earlier this year. According to a May CF Industries press release, the reason for the failed deal was because "the Treasury announcement on April 4, 2016 materially reduced the structural synergies of the combination."

Despite rumors that the Wever plant was already producing nitrogen fertilizer, Jesse Harris, spokesperson for the Iowa Fertilizer Company, told DTN in an email earlier this week that construction of the plant is continuing and is now more than 97% complete.

"The plant is deeply in the pre-commissioning phase for both ammonia production and downstream products with production scheduled to begin late in the fourth quarter of 2016," Harris wrote.

The facility will produce anhydrous ammonia, UAN solutions and granular urea, he said. In addition, the plant will also produce diesel exhaust fluid. Once the facility is completed it will produce 1.5 million to 2 million tons of fertilizer products annually.

David Asbridge, NPK Fertilizer Advisory Service president and senior economist, said the Wever plant has seen some delays over the years. Originally to be opened in mid-2015, the plant may not open until the first quarter of 2017, he speculated.

While farmers in southeastern Iowa and western Illinois will certainly have transportation advantages with nitrogen fertilizer being produced so close them, Asbridge doesn't believe there will be a price discount for those in the region.

"The nitrogen market is a global market and so more nitrogen supply could help to lower the global price some but probably not locally," Asbridge said.

This additional supply could push U.S. total ammonia production up 1.2 million tons, total urea production 4.1 million tons and total UAN production 3.4 million tons by 2020, he said. The additional supply of U.S. production in recent years has increased total nitrogen fertilizer production from about 15 million tons in 2010 and closer to 20 million tons expected in 2018.

FEWER NITROGEN IMPORTS

Asbridge said U.S. nitrogen fertilizer producers will be careful not to flood the market with this new supply. What they will do, however, will severely affect both nitrogen imports and exports.

More reliance on domestic supplies will reduce risks of traffic snarls and political upheavals that can happen when our agriculture production depends so heavily on fertilizer imports from as far away as Russia and China, other experts say. Since 2000, the U.S. has imported about half of its nitrogen fertilizer needs, subjecting the fertilizer chain to volatile price risk between orders and deliveries. For example, it takes 60 days or longer for Black Sea fertilizer to make the trip to the Upper Midwest. Now deliveries can be days away, not months.

In general, U.S. nitrogen fertilizer imports are expected to decline in the coming years and exports will increase thanks to the additional supply of nitrogen. The form of nitrogen to see the largest changes with imports and exports is UAN, Asbridge said.

In 2015, the U.S. imported 3.5 million tons of UAN and exported about a half a million tons, Asbridge said. By 2017, the U.S. is expected to move to be a balanced or perhaps even net exporter of UAN, meaning it will export more than it imports.

With urea, imports could be cut dramatically while exports could rise slightly. Last year, the U.S. imported about 8 million tons of urea and exported 300,000 tons. By 2020, urea import numbers could be cut in half to closer to 4 million tons and exports could climb to a half of million tons, Asbridge said.

Ammonia imports could decline slightly in the coming years as well, he added.

"I think the biggest effect of this new nitrogen production is the displacing of imports, almost like a relief valve," he said. "Both UAN and urea imports are already sharply lower compared to past years."

OTHER ECONOMIC BENEFITS

While there may not be a home field advantage on nitrogen fertilizer prices for the farmers of southeastern Iowa and west central Illinois, the people of this region could see other economic benefits of hosting the facility.

Tina Hoffman, marketing and communication director for the Iowa Economic Development Authority (IEDA), told DTN that the economic impact for Lee County, where the plant is located, will be important for an area where a lack of jobs is a major issue. Wever is an unincorporated community in northeastern Lee County about 10 miles southwest of Burlington.

"Lee County has the highest unemployment percentage in the state with 9.1% from 2009 to 2011," Hoffman said. "We are bringing 165 permanent jobs that will pay $20.82 an hour including benefits there."

During the construction process, Lee County's restaurants and hotels have seen an uptick with an influx of construction workers. In addition, transportation jobs in the region will see a positive impact once the plant opens as nitrogen fertilizer will be shipped, at least in part, by truck, she said.

Hoffman also points to the Iowa Farm Bureau which estimated the Wever fertilizer plant will save an estimated $740 million annually because of lower transportation costs and added competition with more of the fertilizer produced within the state.

BUILDING CHALLENGES

Despite the rosy economic outlooks, it has not been an easy road building a large Midwestern fertilizer facility.

Critics in Iowa have been vocal about the amount of money IEDA has given the Iowa Fertilizer Company. The project received $1.6 million in incentives, the largest award in state history. The incentives are in the form of an $805,000 forgivable loan and an $805,000 loan at a zero-percent interest rate with a five-year term, Hoffman said.

If minimum requirements for the award are not met by the company, the incentive money could be returned to IEDA. In her experience, however, most companies meet their minimum requirements, she said.

Other issues also crept to the surface during the building process.

Building costs were initially estimated to be around $1.4 billion but because of increasing construction costs the true cost for building the plant could be closer to $1.8 billion.

In the spring of 2015, over 1,000 construction workers were laid-off when a subcontractor was dismissed by the company. Then in early 2016, a subcontractor sued OCI in U.S. District Court for back pay as well as access to their tools as the subcontractor's workers were physically blocked from the facility.

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

(SK)

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