F E R T E C O N SURVIVAL IN THE GLOBAL AMMONIA MARKET Threats and opportunities for a changing US industry A FERTECON study in association with Ken Nyiri AVAILABLE NOW Published May 2003 “It is a truth universally acknowledged, that an energy F E R T E C O N company in possession of a good fortune is in want of an ammonia plant” (after Jane Austen, Pride and Prejudice) The US gas price peak of 2000/01 is history and it’s time to assess the damage and look to the future. At first glance, the damage doesn’t appear too severe. US operating rates were cut in response to high gas costs and negative margins. Only a few ammonia producers decided to throw in the towel and close permanently. Imports of ammonia and other nitrogen products into the US market surged temporarily and then fell back, although ammonia imports remain higher than before the gas spike. The brief love affair of energy companies with the ammonia industry ended. Not many are enamoured with the ammonia industry now, and those that married into the nitrogen industry are looking for a divorce. “Reports of my death are greatly exaggerated” US nitrogen producer (after Mark Twain) As gas prices crashed from the peak level of $10/mmBtu down to a more acceptable $2 to $3 range, it looked like the US ammonia industry had survived and was again competitive. However, the fight was not over, as the sharp run up in gas prices in early 2003, coupled with forecasts of tight US gas markets in the future, once again casts doubt on the viability of a significant portion of the US ammonia industry. Who will survive this next round? Certainly competitive costs are important, but other factors must also be considered. Every plant is unique - it is not enough just to generalise on the future for the industry. “If it were done….then well it were done quickly” Ken Nyiri (after William Shakespeare, Macbeth) Every ammonia producer in the US needs to develop strategies to deal with an uncertain future on energy costs, end-product prices and a changing international market structure. Producers outside the US also need to review their strategies and consider the threats and opportunities presented by the changing and uncertain US market. This new report, produced by FERTECON in association with Ken Nyiri, brings together an unrivalled team of ammonia analysts with both detailed understanding of the data and hands-on experience in this unique market. This report will identify the challenges facing the US industry and examine the possible strategies for survival for producers, as well as opportunities for offshore suppliers. The inter-relationship between the gas F E R T E C O N price and the ammonia price NYMEX Gas Futures vs NOLA Ammonia Prices $12 $300 $10 $250 NOLA Ammonia $8 Price $200 $6 $150 $4 Henry Hub $100 Futures $2 $50 $- $- Calculated $(2) Ammonia $(50) Margin $(4) $(100) 0 1 2 00 01 02 03 0 0 1 1 2 2 -0 -0 -0 l-0 -0 l-0 -0 l-0 -0 n- n- n- n- pr pr pr ct ct ct Ju Ju Ju Ja Ja Ja Ja O O O A A A The plants.. North American Ammonia Plants REPORT OUTLINE F E R T E C O N The report will examine recent developments in the North American ammonia market within the context of the World market and the outlook over the next 10 years. A review of North American and World feedstock developments provides the background for a scenario analysis of the outlook for North American gas prices and worldwide feedstock costs. This analysis then feeds into an identification of the At Risk Plants in North America and looks at the Optionality for these plants. At Risk Plants – plants that are most at risk of closure. The benefits of the alternatives to Optionality – reducing risk by providing closure are analysed and the options. opportunities for ammonia suppliers to the North American market reviewed. World Market Overview • Review of Recent Developments in the World Ammonia Market • The World Market Outlook to 2012 The North American Ammonia Market • Review of Recent Developments in the North American Ammonia Market • The Outlook for North America • The Impact on World Markets Feedstocks • Review of Recent Developments Worldwide • The Outlook for the North American Natural Gas Market and the impact of: • GDP • Industrial Recovery • Power Demand • Drilling activity • Oil Prices • Volatility • Scenario Analysis for North American Natural Gas Prices and Comparison with the Outlook for Feedstock Costs Worldwide Identification of Survivors & At Risk Plants (ARPs) in North America F E R T E C O N • Methodology to Determine Candidates for Survival/Closure (At Risk Plants) under Different Gas Price Scenarios • Production Cost Comparison • Additional Factors to be Taken into Account – Vessels, Terminals, Storage, Pipelines, Infrastructure Tariffs/Subsidies, Ownership, Long-term Supply Agreements etc. • Summary of Findings Alternatives to Closure for North American At Risk Plants • Operating rates and gas costs • Hedging Gas/Ammonia • Importing Ammonia • Capturing the Spread • Upgrades • Niche Markets • Alliances Peaking Plant – plant suitable for flexible • Peaking Plant operation to match market requirements. • Asset Swaps • Tolling • Sale • Closure Ammonia Price Outlook • Factors Affecting Price • Production Costs • North American Import Potential • Price Projections Opportunities for Ammonia Suppliers to the North American Market • Potential for Increased Sales to North America • Opportunities for Joint Ventures in North American Ammonia Import Terminals and Distribution • Identification and Evaluation of Suppliers Most Likely to Benefit from Developments in North American Ammonia Industry Conclusions/Recommendations If you require further information on the report, please contact: Terry Phillips (phone +44 1892 701710, email email@example.com) or Ken Nyiri (phone 1 281 213 9020, email firstname.lastname@example.org) FERTECON F E R T E C O N an independent group of professionals dedicated to serving the world fertilizer and related industries FERTECON Limited comprises the World's most experienced team of fertilizer industry consultants. No other independent consultancy company can match the depth of knowledge and expertise of FERTECON's fertilizer industry analysts. FERTECON Limited was formed in 1978 by a group of respected industry analysts who specialised in fertilizers and related products including ammonia. The company grew rapidly and is held in the highest regard throughout the world. FERTECON Limited’s services to the fertilizer industry fall into five main categories: CONFIDENTIAL CONSULTANCY SERVICES REGULAR MARKET ANALYSIS MULTI-CLIENT ECONOMIC, TECHNICAL AND INDUSTRY STUDIES CURRENT INFORMATION DATA SERVICES FERTECON Limited’s weekly current information services are generally acknowledged as the most accurate, comprehensive and authoritative. Its monthly, quarterly and other market analysis reports provide timely, detailed foresight into developments in the World fertilizer and related industries. The company’s extensive list of clients for ad-hoc confidential consultancy studies testifies to the depth and range of its industry knowledge and the quality of its analysis and forecasts. FERTECON’s data services represent a unique resource for the fertilizer industry, unmatched by any other independent organisation. FERTECON's services on fertilizers are subscribed to by virtually all companies and government agencies involved in the World fertilizer and related industries. FERTECON’s Ammonia Team Terry Phillips (joint project leader) is a director of FERTECON Limited and is responsible for its consultancy services. He has had over 25 years’ experience in the fertilizer industry and has extensive experience of managing study work, mostly relating to the market for ammonia and downstream nitrogen fertilizers. He is experienced in all aspects of study work, including the provision of market studies, technical evaluations and financial analyses required by financial institutions and international funding agencies. Terry has extensive experience of working on fertilizer industry projects in all areas of the world and specialises in the development of natural gas resources. He has made presentations to the senior management of many major industry players on general industry developments and more specific project related work and acquisitions. Contact details: Phone: +44 1892 701710, Email: email@example.com Vivien Bright, a director of FERTECON Limited, has over 25 years of experience in the fertilizer industry. She has managed FERTECON’s ammonia services since 1979, and has been responsible for producing the weekly FERTECON AMMONIA FAX report, the monthly AMMONIA FUTURES and the quarterly AMMONIA OUTLOOK reports. She has also contributed to consultancy services. F E R T E C O N Ken Nyiri Ken Nyiri (joint project leader) has more than 30 years of experience in fertilizers with extensive experience in marketing, market analysis and strategic planning in the fertilizer industry and more recently in the energy industry. He has worked for a number of international fertilizer companies (Duke, Texasgulf, Mississippi Chemical, Freeport Minerals, Amax Inc.), in a variety of different commercial positions. Most recently, he has focused primarily on the ammonia market in North America. Ken is recognized globally as an industry expert who has published extensively and presented at international symposia. • Participated in two anti-dumping investigations before US International Trade Commission (ITC); prepared and testified in formal hearings before ITC in Washington, D.C. • Uncovered financial and operational problems with joint venture partner that saved a projected $100 million in future capital investments. • Provided research and analysis for Initial Public Offerings, Leveraged Buy Outs, antidumping investigations, acquisitions, joint ventures and mergers in the fertilizer industry. • Past Chairperson of: • The Fertilizer Institute’s Economics & Information Committee • The Phosphate Working Party of The International Fertilizer Industry Association • The Fertilizer Industry Round Table • Fertilizer & Agricultural Advisory Group, The Potash & Phosphate Institute. • Some of Ken Nyiri’s presentations concerning the ammonia markets: • “Survival” - Gulf Coast Ammonia Producers st • “The Fertilizer Industry in the 21 Century” – WEFA Spring Agricultural Outlook Conference • “The U.S. Fertilizer Manufacturer, An Endangered Species?” – Society of Mining Engineers • “The Nitrogen Outlook” – TFI Outlook Conference • “Outlook for Nitrogen” – The Fertilizer Industry Round Table • “The Fertilizer Demand Situation & Outlook” – IFA Contact details: Phone: 1 281 213 9020, email: kennyiri@ yahoo.com ORDER FORM FERTECON L I M I T E D Royal Victoria House ● The Pantiles ● TUNBRIDGE WELLS ● Kent ● TN2 5TE Telephone: + 44 1892 701710 ● Fax: + 44 20 7681 1359 Email: firstname.lastname@example.org Please invoice my company/I enclose a cheque* for $11,000 (eleven thousand US dollars) confirming my order for Survival in the Global Ammonia Market. I accept the conditions set out below. I understand that this price is only valid for orders made prior to 31 May 2003. Thereafter the full price of $12,000 applies. * please delete as applicable Subscribers in EU countries VAT registration number: Signature/Date: Name/Position Company: Address: E-mail address: Phone: Fax: TERMS AND CONDITIONS The report is being prepared by FERTECON Limited in association with Ken Nyiri. All sections of the report are for the exclusive use of the purchaser and must not be lent, hired, sold or reproduced in any way without written permission from FERTECON Limited. Circulation of the reports by subscribers is strictly limited to affiliated companies in which they have more than 50% ownership. Subscribers will receive an electronic version of the report and also two printed copies. Additional printed copies are available by arrangement. Should subscribers require a presentation or additional consulting on aspects of the report on a confidential basis, this will be available by negotiation with the authors. The early purchase price of $11,000 is only valid until 31 May 2003. Thereafter the full price of $12,000 applies.