AMMONIA UREA - WHAT'S YOUR BUSINESS STRATEGY?

The ammonia and urea industry is changing significantly as new markets for biofuels and NOx abatement emerge whilst some existing markets are challenged. Restructuring has resulted from feedstock cost rises in some parts of the world whilst substantial new investment has occurred in others. Capital and logistics cost rises have altered business decisions. Price volatility has rocked the industry but despite this upheaval and uncertainty, growth has continued apace.

A key driver of this frenetic activity has been the cost of feedstock. High gas costs in the traditional production centres of North America and Western Europe have put producers in these regions under severe pressure. In response, major developments in plant capacities are being made in the regions with access to low cost natural gas. These regions usually have relatively low local market demand for natural gas. Access to low cost gas and technology allow the construction of plants with large capacities and such large plants can take advantage of economies of scale and produce low cost ammonia and urea. The recent surge in capital costs, though, is impacting the industry significantly.

Ammonia and urea producers have to compete with other potential gas monetization options. Nexant has strong experience in all these sectors.

Ammonia Versus Other Stranded Gas Monetization Options

(2010, Middle East, Medium Oil Scenario)

Ammonia is the largest volume chemical produced from hydrocarbon feedstocks and is a key intermediate for fertilizers such as urea, ammonium nitrates, ammonium phosphates and compounds as well as a variety of industrial applications including synthetic resins (urea-based), synthetic fibres (acrylics and nylons), polyurethanes, explosives (ammonium nitrate-based) and refrigeration.

Population growth is a key driver for increased fertilizer consumption, with economic growth also contributing. Both have resulted in increased protein (meat) uptake and higher consumption of fruit and vegetables in countries such as China and other rapidly developing nations. Greater demand for meat results in higher grain consumption as feed, which in turn boosts fertilizer use in agricultural production. The increased demand for vegetables and fruit has been met by using more fertilizer per hectare, so boosting production. Biofuels (e.g. ethanol derived from corn) are also gaining importance due to high fossil fuel prices and environmental legislation. Growing crops for biofuels is contributing to nitrogen fertilizer consumption.

Ammonia Demand by End Use, 2006

Most current global production of ammonia is based on natural gas feedstock, with the remainder coming from technology based on coal, fuel oil, naphtha, etc. Gas-based producers have enjoyed the most favourable production economics for some time, and most new ammonia capacity under consideration is based on gas. Access to low priced gas feedstock has therefore lead to the concentration of new plants in Latin America, the CIS, the Middle East, and some parts of Asia. High oil and gas prices have led to a number of coal-based projects emerging, particularly in China but also elsewhere.

Ammonia demand is primarily driven by urea consumption, which is mainly a function of fertilizer demand. Therefore, the highest rates of urea consumption growth is in regions where agriculture remains a major sector in national economies such as South America, Central and Eastern Europe and Asia. However, the absolute size of markets in the industrialised regions remains significant, and imports into these locations are expected to increase.

Urea Trade Flow Pattern, 2006

(million tons N)

Western Europe is a good example. Over the last few years urea consumption has slightly decreased in this region, the main reason being new European Union policies to reduce food over-supply via set-aside and to combat water eutrophication that occurred due to over-application of fertilizers. As a result net consumption of fertilizer decreased in recent years. However, urea consumption is expected to revive due to growing demand for first generation biofuels (bio ‑ ethanol and bio-diesel), driven by the EU Renewable Fuels Directive which sets a target of 10 percent usage by 2020. Nexant is very active in the biofuel sector, and has a good understanding of existing first generation biofuels and also of the second generation biofuels poised to emerge. Another developing application for urea is in AdBlue, a urea solution which is used to catalytically reduce diesel emissions and so enable the automotive sector to achieve NOx emission reductions. This is being driven by the need to comply with increasingly stringent environmental legislation.

These are dynamic and exciting times for the ammonnia and urea industry that bring with them a wealth of opportunities for existing and prospective players in the market. To succeed in capitalizing on these opportunities, it is crucial to understand the drivers and mechanisms that are shaping the changes in this industry.

First Generation Biofuels Processes

Nexant’s wealth of experience in the ammona and urea sectors, combined with our wider global presence in the upstream oil & gas, refined products, biofuel and petrochemical industries, provides us with a unique overview of all factors influencing the development of the ammonia and urea businesses worldwide. This new program seeks to distill the core issues and insights from our accumulated expertise to provide subscribers with a good understanding of not only the fundamental drivers but also likely future strategic direction of the industry. We believe this will be an invaluable source of insight and strategic business analysis for executives and managers at all levels of the business.

Nexant's Unique Blend of Capabilities

For further details please contact Graham Hoar at: + 44 (0) 20 7950 1562 or email: ghoar@nexant.com