PotashCorp Thrives on Trinidad Advantage
Offering More in the Nitrogen World
We produce 60 percent of our ammonia in Trinidad, which has extensive natural gas reserves and a stable government. Our US production is earmarked primarily for industry.
Low-Cost Natural Gas, Market Proximity Keys to Success
For many producers, natural gas makes up approximately 90 percent of the cash cost of producing a tonne of ammonia. As a result, long-term access to lower-cost gas is a key determinant of sustainable success in the nitrogen business. China, the world’s largest ammonia producer, mainly uses gas made from coal.
Because ammonia requires costly pressurized railcars and refrigerated rail and ocean vessels for shipping, only 12 percent of global production trades across borders. Proximity to the end-user, therefore, is a second key factor in nitrogen success.
Low-Cost Gas Regions Potentially Impact Markets
All downstream nitrogen products are produced from ammonia, which can be manufactured wherever there is accessible natural gas. A country that does not consume all its natural gas may monetize it by converting it into a transportable nitrogen product or to liquefied natural gas (LNG), mainly for export.
Nitrogen Is Widely Produced and Used
Because natural gas is found in many regions of the world, the nitrogen business is subject to more volatility than potash and phosphate. With production in more than 60 countries, it is also more fragmented. China, Russia, India and the US are the largest producing countries. The largest private sector companies – in order of size: Yara, Terra, PotashCorp, Koch, Agrium and Togliatti – total only 13 percent of world ammonia capacity. China, the US and India are the largest consumers.
Governments Are Significantly Involved
With governments in control of more than half of the world’s ammonia capacity, investment and production decisions may be made for political reasons, negatively affecting global nitrogen markets and trade.
Nitrogen Markets Were Volatile
Higher global energy prices, significant Chinese taxes on urea exports and tight supply/demand fundamentals pushed nitrogen prices and margins to record heights during the third quarter of 2008. Markets softened considerably later in the year as the global economic crisis, uncertainty and falling prices caused buyers to defer purchases of fertilizer and other major inputs, and industrial demand slowed. Prices for all nitrogen products fell precipitously as a result, and producers around the world reacted by curtailing high-cost capacity.
Nitrogen Offers Farmers Choices
Farmers choose a nitrogen fertilizer by considering cost, product availability, ease of transport, safety and ease of application, type of crop and effectiveness of seed/plant uptake.
Ammonia is the most efficient source of nitrogen, although it has a short window for successful application. Urea (granular or prilled) is the most widely applied form. It contains more N than nitrogen solutions, is easy to manufacture and transport and therefore more readily available, and is safer and easier to apply in a blend with P and K. Nitrogen solutions, which are easy to use and do not need moisture to dissolve, are an effective pre-plant and side-dress source of nitrogen on certain crops at certain stages of growth. Farmers can also apply phosphate fertilizers DAP and MAP as a nitrogen source.
PotashCorp, Emphasizing Trinidad and Industrial
We believe our nitrogen assets are among the best in the world, built on the two strengths that are necessary to sustained success in this business.
Our production in Trinidad benefits from long-term, lower-cost natural gas contracts indexed to ammonia prices. It is profitable even when gas prices in the US are high, since prices for nitrogen products typically rise at the same time. If ammonia prices fall, our indexed gas costs in Trinidad also fall, providing margin protection even in poor market conditions.
Our large operation in Trinidad is less than a week’s sailing time from the US, our primary nitrogen market, where we sell to both fertilizer and industrial buyers.
Our US production at Augusta and Lima is targeted mainly at industrial markets, traditionally more stable. Industrial customers buy more than half of the urea and more than 80 percent of the ammonia we produce for sale in the US.
Nitrogen Sales and Logistics
PCS Sales sells our nitrogen products to North American customers on a spot or contract basis. Sales – particularly of ammonia – are generally regional due to logistics and transportation costs. Imports move more easily into the US Gulf than into the interior, where Augusta and Lima are located, and therefore affect our competitors close to the Gulf or the Mississippi River more than us.
Long-term leases of ammonia vessels at fixed prices enable us to lower transportation costs and ensure economical delivery of Trinidad product. With ownership or major supply contracts at six deepwater US ports, we have logistical strength and flexibility for these imports.
Most of our US-produced ammonia sales are delivered by pipeline to industrial customers that require reliable delivery for most efficient operation.
