PotashCorp – Our Trinidad Advantage
The World of Nitrogen and Our Place in It
Two factors determine the success and sustainability of a nitrogen business: access to a long-term, lower-cost natural gas source to make ammonia and downstream products, and proximity to the primary end-user. PotashCorp, with operations in Trinidad and the US, has both.
Nitrogen Is a Regional Business
Nitrogen is widely produced and used, making it a globally fragmented business. China, Russia, India and the US are the largest producing countries. The largest private sector companies – Yara (Norway), PotashCorp, Koch (US), Togliatti (Russia), Terra (US) and Agrium (Canada) – produce only 13 percent of the world total. China is by far the largest consumer, followed by the US and India.
Widespread Ammonia Production, Limited Trade
Ammonia is the feedstock for all downstream nitrogen products and can be manufactured wherever there is accessible natural gas. A country that does not consume all its gas may choose to monetize it by converting it into a transportable nitrogen product or to liquefied natural gas (LNG), mainly for export.
Ammonia is difficult and costly to transport, and less than 13 percent trades across borders. The necessary refrigerated and pressurized rail and ocean vessels are in short supply.
Governments Invest in Nitrogen
Because governments own more than half of world ammonia capacity, investment and production decisions may be made for political reasons and can negatively impact global nitrogen markets.
The Strong Nitrogen Market Continues
In the last decade, high natural gas prices forced the permanent shutdown of 31 percent of US capacity and 21 percent of European capacity. This tightened supply, and coupled with strong growth in agriculture and industrial consumption, pushed up prices. Now, in the US, supply/demand fundamentals – and not the cost of natural gas – are driving prices.
The N Game
Cost, product availability, ease of transport, ease and safety of application, type of crop and effectiveness of seed/plant uptake influence farmers' choice of nitrogen fertilizer. Granular urea is preferred, as it contains more N than nitrogen solutions, is more plentiful due to ease of manufacture and transport, and is safer and easier to apply in a blend with phosphate and potassium. Nitrogen solutions – easy-to-use liquids that don't require timely rains to dissolve – are an effective pre-plant and side-dress source of nitrogen on certain crops at certain stages of growth. Ammonia, a hazardous material but the most efficient source of nitrogen, has a short window for successful application. Phosphate fertilizers DAP and MAP are another N source for farmers.
In 2007, the need to increase crop production and the preference for urea by large agricultural markets such as the US and India led to strong demand for this product. India purchased nearly 35 times more urea – 6.7 million tonnes – than just five years ago. With more than 15 million more acres of corn planted in the US than in 2006, demand for nitrogen solutions increased substantially.
Higher Costs Delay Greenfield Projects
Because of increased construction costs, greenfield nitrogen projects are not coming on stream in low-cost gas regions as quickly as they did during previous periods of high profitability. Several projects planned in the Middle East and Trinidad have been deferred or abandoned, extending the current positive market conditions in nitrogen.
PotashCorp: Building on Trinidad and Industrial
Because our natural gas contracts in Trinidad – a country with extensive gas reserves and a stable government – are indexed to ammonia prices, our nitrogen produced there is profitable even when US gas costs are high. Our large Trinidad operation is less than a week's sailing time from the US, the world's largest ammonia importer and our primary nitrogen market.
Our Trinidad production supplies both fertilizer and industrial markets in the US. Industrial sales are traditionally more stable. Of our US production, almost two-thirds of urea and more than 80 percent of ammonia go to industrial customers.
Nitrogen Sales and Logistics
Our North American customers buy nitrogen products from PCS Sales on the spot market and sales are made on a delivered basis. Logistics and transportation costs regionalize sales, particularly for ammonia. Imports move more easily into the US Gulf than into the interior and therefore most affect competitors close to the Gulf or the Mississippi River. We shuttered ammonia production at Geismar in 2003 mainly because of imports, but Augusta and Lima operate in interior regions and are somewhat insulated.
We lower transportation costs and ensure economical delivery of Trinidad product to the US through long-term leases on ammonia vessels at fixed prices. Ownership or major supply contracts at six deepwater US ports give us logistical strength and flexibility for these imports.
We deliver most of our US-produced ammonia via pipeline to stable industrial customers that require product quality and reliable delivery to keep their plants running efficiently.
