The $1.3 billion fertilizer plant being proposed by Egypt-based Orascom Construction Industries would be the first new U.S. nitrogen plant built in decades and comes at a time when domestic production — but not demand — has dropped dramatically, industry experts said.
“We have not built a new nitrogen plant since the early 1970s, and most those still operating are 1960s vintage,” said David Asbridge, president and senior economist of NPK Fertilizer Advisory Service, headquartered in Chesterfield, Mo.
“We were self sufficient in the U.S. up until about the year 2000. Then natural gas prices took a huge jump … and killed about 40 percent of our capacity. We couldn’t compete with the cheap natural gas in the Middle East.”
Kathy Mathers, vice president of public affairs for The Fertilizer Institute, said the cost of natural gas represents 70 percent to 90 percent of the cost of producing nitrogen. Natural gas is the heat source in the chemical process that produces nitrogen.
But when U.S. natural gas prices spiked beginning about five years ago, she said it drove many domestic producers to shut down portions of their operations.
“For plants that were either low margin or no margin — what companies did was shutter those plants or dismantle them and send them to places like China,” she said.
She estimated the loss in U.S. nitrogen capacity at as much as 50 percent between 2000 and 2008.
But at the same time, she said the demand for nitrogen has not declined, resulting in a significant rise in imported nitrogen.
“The fertilizer business comes down to one thing — people need to eat,” Mathers said. “Fertilizer is not a discretionary purchase.”
Conservative figures put the fertilizer business at a $15 billion industry in the United States alone, she said, adding that “farmers have the option of getting nitrogen from anywhere in the world.”
Still, Asbridge said it is “highly unusual” to see foreign-based companies invest in fertilizer operations on U.S. soil.
“That’s not counting the Canadians; there are a lot of those here,” he said.
“Right now, we import about half the nitrogen we use in the U.S., so to come in and build a domestic plant is not that much of a risk,” he said. “The only risk they’re taking is what might happen to the natural gas prices here.”
Natural gas prices are between $2 and $2.50 per million metric British thermal units, Mathers said.
“When they spiked up, they were in the $7, $8, $9 range,” he said. “They even hit $11.”
Orascom Construction Industries wants to build a new nitrogen fertilizer plant on 318 acres of farmland along old U.S. 6 near Walcott. Orascom, based in Egypt, also is looking at three other Iowa sites — Lee County, Middletown and Clinton — as well as a site in central Illinois near Pekin.
The new plant, which would be built by Orascom’s subsidiary Iowa Fertilizer Co., would be its second U.S. fertilizer plant.
In 2011, Orascom purchased Pandora Methanol LLC in Beaumont, Texas. The plant, which was renamed Orascom Beaumont, produces methanol and ammonia.
Asbridge and Mathers said Orascom is not a major player in the U.S. fertilizer business. Neither of them was familiar with the company at all.
But on a global scale, Orascom is a leading international fertilizer producer and construction contractor. Orascom, which traces its roots to a small family-run construction business, today is one of Egypt’s largest corporations with projects and investments across Europe, the Americas, Asia, the Middle East and North Africa, the company’s website says.
It operates five fertilizer production sites in the U.S., Egypt, the Netherlands and Algeria, producing 7 million metric tons per year of nitrogen, 0.75 metric tons annually of methanol and 0.25 metric tons annually of melamine.
Orascom is active in 25 countries across the globe, employing 72,000 people worldwide, according to its website. About 13 percent of its stock is owned by U.S. investors.
“If there is an emerging market fund you are invested in, Orascom is probably in it,” Ahmed El-Hoshy, of Orascom’s corporate business development and investments, said at a Scott County Planning and Zoning meeting this week. At the meeting, the commission denied the company’s request to rezone the land from agricultural preservation to heavy industrial. The matter now goes to the Scott County Board of Supervisors.
El-Hoshy added that Orascom’s construction company, Contrack, has contracts with the U.S. Army and has worked on several projects in Iraq and Afghanistan. Contrack is based in Virginia.
The company has plans to split its construction and fertilizer businesses into two companies, a move approved unanimously by its shareholders in May. In addition to the proposed Midwest project, the company’s Fertilizer Group began production in May at a new plant in Sorfert, Algeria. It also has a proposed greenfields facility under development in Brazil.
Asbridge said he is a “little surprised” that an Egyptian company is looking at the United States for an investment.
“But with the political turmoil (Egypt) has gone through, maybe they want to expand to a more stable economy,” he said. “One thing we’re looking at is we’re a very good demand base.”
During an informational meeting held locally, Orascom officials pointed out that Iowa is attractive because of the more than 30 million acres farmed here each year. In addition, Iowa and Illinois are the two top corn producers in the country, at 33 percent of the total domestic corn production.
“Corn is the largest nitrogen-consuming crop,” Mathers said. “A plant in the Quad-Cities puts it pretty darn close to where people are going to want this fertilizer.”
She added that it has been the high natural gas prices of recent years that have kept foreign companies from making any direct investments in the United States. But now as U.S. natural gas prices flirt at and near historic lows, she said, “there is both national and worldwide interest in the nitrogen industry.”
Mathers said she is not aware of any other proposed projects, “but there is a lot of chatter about interest.”
Asbridge also thinks that the fact there have been no new nitrogen plants built since the 1970s could be tied to the nation’s energy policy.
“The uncertainty of what the government might do with an energy tax might be part of the problem,” he said. “It might have kept people from betting a billion dollars … to build a nitrogen plant here.”