Nitrogen fertilizer industry in transformation Two decades in review - PowerPoint PPT Presentation

Nitrogen fertilizer industry in transformation “Two decades in review and journey ahead” Dr Dimitrios Dimitriou Senior Business Advisor Middle East Energy & Chemicals Advisory

Megatrends and Fertilizers

There are five major socio-economic driving forces  Rapid urbanisation  Climate change and resource scarcity  Shift in global economic power  Demographic and social change  Technological breakthroughs 3

Combined population and GDP growth fertilizer consumption growing ~10 times since 1960’s FERTILIZERS 6

Implications for the fertilizer industry Fertilizer industry: 1.Urbanization results in less land available for agriculture. 2.Production of energy using hydrocarbons directly competes with producing hydrogen/nitrogen based fertilizers. A change in energy policy might free-up reserves for fertilizer production? 3.A growing population driven by birth rates and aging dramatically increases overall demand for food. 4.Demand for (higher quality) food increases dramatically with population rich countries (China and India) becoming more wealthy (increase in GDP per capita). 5.Digital technology solutions are appearing to help farmers increase efficiencies which may push down demand (e.g. digital soil mapping, precise agriculture, accurate weather forecast etc.) 6. Environmental implications of fertilizers production and use drive regulation and fertilizer production (eg. green ammonia) and crop technology (eg. nitrogen fixation) 7

The journey

Industrial nitrogen production has increased 85 times since WWII Timeline of ammonia industry development 19 th century 1946-2018 1913-1934 1910-1913 From 1 plant in 1913 to >1000 ammonia and urea plants in 2018 First ammonia synthesis commercial plant 1946 2018 1910 1913 1934 2010 3 million tons 251 million tons 0.35 million tons <1 million tons 2 million tons 165 million tons 2% Haber Bosch >99% Haber Bosch 64% Haber Bosch 9

Some key trends over past decades – Global Supply, Demand and trade Urea 300000 100% 200000 Operating Rate Thousand tons 50% 100000 0 0% 2000 2005 2010 2015 2020 Production Consumption Capacity Operating Rate Historic Prices vs Oil World Trade Urea 25000 600 120.0 20000 15000 500 100.0 10000 Thousand tons 400 80.0 $ per barrel $ per ton 5000 300 60.0 0 200 40.0 -5000 -10000 100 20.0 -15000 0 0.0 -20000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2000 2005 2010 2015 2020 North America South America Western Europe Ammonia Arab Gulf Urea Arab Gulf Brent Oil C&E.Europe Middle East Africa India China Other Asia Pacific 11

Some outcomes of overuse 12

Some key trends in China Supply, Demand and Trade Urea, China 100000 120% 110% 90000 100% 80000 90% 70000 80% Thousand tons Operating rate 60000 70% 50000 60% 50% 40000 40% 30000 30% 20000 20% 10000 10% 0 0% 2000 2005 2010 2015 2020 Production Consumption Capacity Operating Rate Supply, Demand and Trade Urea, India 45000 120% 110% 40000 100% 35000 90% Thousand tons 30000 80% Operating rate 70% 25000 60% 20000 50% 15000 40% 30% 10000 20% 5000 10% 0 0% 2000 2005 2010 2015 2020 Production Consumption Capacity Operating Rate 13

Some key trends in North America Basins Gas Supply, Demand and Trade Urea Oil 25000 120% BAKKEN 100% 20000 80% Thousand tons Operating Rate 15000 60% 10000 40% MARCELLUS 5000 20% BARNETT 0 0% 2000 2005 2010 2015 2020 Production Consumption Capacity OpRate EAGLE FORD PacWest Consulting Partners Cash Cost Margins Development Natural Gas prices vs Oil 15

Some key trends in the Middle East Supply, Demand and Trade Urea 35000 100% 90% 30000 80% 25000 70% Thousand tons Operating rate 60% 20000 50% 15000 40% 30% 10000 20% 5000 10% 0 0% 2000 2005 2010 2015 Production Consumption Capacity Operating Rate Urea Trade from Middle East 25000 Cash Cost Margins Development 20000 15000 Thousand tons 10000 5000 0 -5000 -10000 -15000 -20000 2000 2005 2010 2015 2020 Middle East urea exports 16

Some key trends over past decades – New applications DEF Demand by region Biodiesel Demand by region 3000 8000 7000 6000 Thousand tons 2000 Thousand tons 5000 4000 1000 3000 2000 1000 0 0 2000 2005 2010 2015 2000 2005 2010 2015 North America South America Western Europe North America South America Western Europe C&E.Europe Middle East Africa India China Other Asia Pacific C&E.Europe Middle East Africa 17

Some key trends over past decades – New products North America 18% South America 0.3% Western Europe 4% Eastern Europe 0.2% Middle East 1% Africa 0.1% Asia Pacific (including China) 77% 4 million tons in 2017 (growing at >5% CAGR) 18

Nexant views - past  Fertilizer overuse and environmental impact!  Shale gas development and significant decoupling of natural gas prices in the US from crude oil  Competitiveness position of US producers improved significantly  Producers in KSA enjoy a strong advantage on a cash cost basis due to low gas cost, but limited gas resource for new projects and threat from other exporters rising  China become a large net exporter of urea threating global market – net exports recently declined; supply and demand side reforms.  India and SEA main importing markets  Africa in focus: under application, large resources and population growth  From a buoyant market in until mid 2010’s to an oversupplied market today 20

The road ahead?

Some key trends to follow? 22

Nexant views - future  Consistent long term growth due to rising population but at lower rates due to fertilizer over-application, regulation and nutrient stewardship in major consuming markets  New products/new markets and new strategies for players in effort to create and capture value  Digitalisation impacting demand and supply?  India emerging as a key producer?  China further capacity rationalisation, growing environmental drive and lower exports;  Middle East continued position as low cost, volume exporter but competitive threat rising; need for new business strategies!  Protectionism impacting market - Government changes can lead to trade tensions  Policy developments are a major driver of future fertilizer supply and demand  China, fertilizer consumption growth has been capped and supply decreasing  India, the government is considering options to improve the effectiveness of its fertilizer subsidy scheme and become self sufficient  Africa emerging a major consuming and producing centre? 23

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