US CF Industries new blue ammonia plant will not be at Donaldsonville, could cost $2bn

HOUSTON (ICIS)–US fertilizer producer CF Industries said it is pursuing its blue ammonia production project with global ammonia marketer Mitsui along the US Gulf Coast as a greenfield rather than undertake the effort at their Donaldsonville facility in Louisiana as it wants some space between the two operations.

The two companies announced the project earlier this week. In its quarterly earnings conference call, CF Industries said it is estimating will cost approximately $2bn to build, but its exact location has not been revealed.

“One of the reasons why it’s going to be a greenfield instead of a brownfield is we do want a little bit of geographic separation from the Donaldsonville facility for reasons like we had last year with Hurricane Ida when it came through and basically took the entire facility out for three weeks,” said Tony Will, CF Industries CEO.

“I think the combination of having a geographically separate location to produce blue ammonia combined with the blue and green ammonia project at Donaldsonville give us some continuity of supply regardless of weather events like that such that we can enter into very reliable, long-term supply agreements for production of low and zero carbon ammonia with counterparties.”

Will said the focus on blue ammonia as opposed to what he characterised as a “full-blown fertilizer plant with upgrades and everything” highlights the view of CF and Mitsui that this is an area which is emerging now and will get very strong in the future.

“We think that, particularly given that the US does not have a structured regulatory cost of carbon today, but most of the rest of the world or much of the rest of the world does, that an export-oriented facility where we can move those tons into the international marketplace and really leverage the skill set and capabilities that Mitsui brings as a partner is critically important and will serve us really well,” Will said.

The new facility will produce blue ammonia by leveraging carbon capture and sequestration processes to reduce carbon emissions by more than 60% compared to conventional ammonia.

CF Industries will have 52% and Mitsui will have 48% ownership of the intended joint venture in which the parties will have proportional capital investment and economic returns.

Under the agreement Mitsui and CF Industries have secured an exclusive right to acquire a site in the US Gulf Coast region suitable to construct an export-oriented blue ammonia production facility. The parties are concluding selection of a technology provider for the blue ammonia production capacity.

Under the terms Mitsui will lead the marketing and distribution for the blue ammonia into Asia while CF will be responsible for plant operations and maintenance.

CF said it is undertaking a front-end engineering design (FEED) study, which typically requires approximately 9-12 months to complete, to get a better handle on the cost of the project.

“Just based on our recent experience, both at Donaldsonville and Port Neal, adjusting for inflation that’s taking place, it wouldn’t surprise me if we, for a greenfield facility, we’re in the neighbourhood of $2bn plus or minus for this,” Will said.

“But remember, it’s basically a 50-50 investment for both of us. And it’s paced out over five years. So think about that from our perspective as even though the money doesn’t go out the door ratably like that, but you’re talking about $200m/year in terms of capital over the next five years.”

He said it is a significant investment but it’s a tab the producer can easily cover.

“Given the fact that we generated $2.8bn of free cash flow in the last 12 months, it’s imminently affordable and not a crazy amount, and I feel really good about the prospects for that plant having a fantastic return profile for shareholders.”

In the announcement the companies said they expect to make a final investment decision on constructing the blue ammonia production facility in 2023.

Construction and commissioning typically takes four years so the new project would be expected to begin production in 2027 at the earliest.

In addition, CF said it expects to produce up to 2m short tons/year of blue and green ammonia at its existing facilities beginning in 2024.