Lower natural gas prices and the approach of the spring planting season prompted Terra Industries to restart ammonia production on March 1 at its plants in Yazoo City, MS, and Billingham, Teesside, UK.
The two plants have been shut down since Dec. 27, 2005, and Nov. 7, 2005, respectively, due to high gas costs. The Yazoo City facility also completed an extended maintenance turnaround. During the outages, Terra said it sold ammonia from its own inventories and used purchased ammonia as a feedstock to produce and sell upgraded products. However, recent gas price declines have made it more economical for the company to produce, rather than continue to purchase, ammonia to meet Billingham and Yazoo City customer demands.
Terra also said that it curtailed U.S. nitrogen solutions production last Wednesday to about 35% below capacity to direct more output to meet merchant ammonia sales requirements and ensure minimal inventories of both products by July 1.
Terra operates five ammonia facilities in North America: Port Neal, IA, (370,000 short tons/year of ammonia production capacity); Vertigris, OK (more than one million short tons/year); Woodward, OK (440,000 short tons/year); Courtright, ON (480,000 short tons/year); and Yazoo City, MS (500,000 short tons/year). As of March 1, all of the facilities will be back up and running.
"We've been running them all at somewhat reduced capacities throughout the winter," said Terra spokesman Joe Ewing. "Woodward was shut down and then brought back up last month. Yazoo City has been down and will be coming back up March 1. The others have been running at various rates. But for general purposes, an ammonia plant can't run below about 85% of capacity or it loses a lot of efficiency.
"Natural gas obviously is the key to whether we can put our product in the marketplace at a profit," he said, noting that it takes about 33 MMBtus of natural gas to produce one short ton of ammonia. "The cost of gas makes up about 90% of the cost of production. In North America we use about 100 million MMBtu/year of gas at full capacity so every dollar change is about $100 million cost to us.
"You know, 10 years ago a dime change over a month was significant, but now dollars can be done in a couple days. The situation is the same if not more volatile in the UK than it is here," he said.
Terra also owns a 50% stake in an ammonia plant (720,000 short tons/year) in Trinidad and is planning to build another facility there of similar size. The company reported a loss in the fourth quarter after natural gas prices spiked following the hurricanes and ammonia markets did not compensate for the increases.
"The first three quarters of last year we had been fairly profitable and now that gas is coming back down we're hopeful that things will look better for the rest of the year," said Ewing.
"We still think [fertilizer] demand will be off 3-5% this year," he said. "We said that earlier this year because corn prices had been depressed compared to the previous year. Since that time corn futures have rebounded to about $260/bushel for December futures and that's encouraging for the farmers. Corn is the primary consumer of nitrogen fertilizer in the U.S. We think demand still will be off but will be at the low end of our estimate."
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