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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
| Steering the Fertilizer Industry through Challenging Times
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)
| Steering the Fertilizer Industry through Challenging Times
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
| Steering the Fertilizer Industry through Challenging Times
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
• Urea technology: Stamicarbon
• Ammonia technology: TKIS
• Contractor: TKIS
• Urea capacity: 3500 mtpd
• Pool Condenser design
• Products: ammonia, urea
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
| Steering the Fertilizer Industry through Challenging Times
Dakota G.C.,
Beulah, North Dakota
• Urea technology: Stamicarbon
• Contractor: IHI
• Capacity: 1000 mtpd
• Pool Reactor design
• Products: urea granular/DEF
• Award year: 2014
• Exp. onstream date: 2017 Q3
OCI, IOWA Fertilizer Co.,
Wever, Iowa
• Urea technology: Stamicarbon
• Ammonia technology: KBR
• Contractor: Tecnimont-TKIS
• Urea capacity: 2200 mtpd
• Pool Reactor design
• Products: ammonia, urea
granular, nitric acid, UAN
• Award year: 2013
• Exp. onstream date: 2017 Q1
Six new urea plants start production in 2016-2017- all use Stamicarbon technology
CF Industries,
Port Neal, Iowa
Agrium Borger,
Texas
CF Industries.,
Donaldsonville,
Louisiana
Koch Nitrogen.,
Enid, Oklahoma
| Steering the Fertilizer Industry through Challenging Times
Koch Nitrogen.,
Enid, Oklahoma
• Urea technology: Stamicarbon
• Contractor: KBR
• Urea capacity: 2200 mtpd
• Pool Reactor design
• Products: urea granular/DEF
• Award year: 2013
• Expected onstream date: 2017
Q4
Agrium, Lone Star.,
Borger, Texas
• Urea technology: Stamicarbon
• Contractor: KBR
• Urea capacity: 1800 mtpd
• Pool Reactor design
• Products: urea granular
• Award year: 2014
• Expected onstream date: 2017
Q3
Six new urea plants start production in 2016-2017- all use Stamicarbon technology
CF Industries,
Port Neal, Iowa
OCI, IOWA
Fertilizer Co.,
Wever, Iowa
CF Industries.,
Donaldsonville,
Louisiana
Dakota G.C.,
Beulah, North
Dakota
| Steering the Fertilizer Industry through Challenging Times
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
| Steering the Fertilizer Industry through Challenging Times
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?
| Steering the Fertilizer Industry through Challenging Times
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.
| Steering the Fertilizer Industry through Challenging Times
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.
| Steering the Fertilizer Industry through Challenging Times
Selection of latest projects under developmentAll projects use Stamicarbon urea technology
CHS, North Dakota
Cancelled
• Contractor: TKIS
• Capacity: 3500 mtpd
• Products: ammonia/urea
granular
Magnida, Idaho
On hold
• Contractor: to be defined
• Capacity: 2700 mtpd
• Products: ammonia/urea
granular
Eurochem, Louisiana
On hold
• Contractor: Tecnimont
• Capacity: 3500mtpd
• Products: ammonia/urea
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
• Capacity: 3500 mtpd
• Products: ammonia/urea
granular and DEF
MFC, Indiana
Financial close
• Contractor: TKIS
• Capacity: 2266 mtpd
• Products: ammonia,/urea
granular/ nitric acid/UAN
and DEF
IFFCO, Quebec
Feasibility phase
• Contractor: Tecnimont/DF
• Capacity: 3850 mtpd
• Products: ammonia / urea
granular
| Steering the Fertilizer Industry through Challenging Times
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.
| Steering the Fertilizer Industry through Challenging Times
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%
| Steering the Fertilizer Industry through Challenging Times
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
| Steering the Fertilizer Industry through Challenging Times
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