Yara International ASA (Oslo, Norway) has shelved plans for the full-scale development of renewable hydrogen projects at its production sites in Porsgrunn, Norway, and Sluiskil, the Netherlands, as part of a wider review of its assets portfolio.
The project cancellations follow a separate recent announcement by Yara of the potential permanent closure of an ammonia unit at Tertre, Belgium, with the site to shift its remaining production toward premium nitrate fertilizers and industrial nitrogen chemicals.
The fertilizer producer has, however, outlined its intent to progress growth projects in markets that meet its requirements for the “highest returns and clear strategic fit,” including a carbon capture and storage (CCS) project at Sluiskil and US low-carbon ammonia.
Despite posting significantly improved earnings for the third quarter ended Sept. 30 that easily beat consensus, the company stated today, Oct. 25, in a results presentation that an ongoing prioritization of its portfolio with a focus on “strategic fit, future competitiveness and shareholder returns” had led to the “shelving of low-value projects,” with the firm citing as low-value examples its plans for full-scale green hydrogen production at Porsgrunn and a green hydrogen project at Sluiskil.
The asset portfolio review is covering both production and markets, according to the presentation.
Yara’s key requirements for growth projects going forward include “strong double-digit returns [and a] funding plan,” with “concrete margin potential driven by firm regulatory changes, such as ETS and CBAM,” according to the presentation.
Its future asset base will be focused on sites with “competitive scale and feedstock, access to key markets, profitable decarbonization opportunities, operational flexibility and sustainable strong returns,” it said in an outlook as part of its quarterly results. “Sound funding and risk-adjusted project returns above 10% are key requirements for all growth projects. For the US ammonia projects currently under evaluation, final investment decision is targeted for second half 2025,” it said.
Sustainable profitability in core operations and value-accretive growth opportunities are “both critical to enable a fit-for-future Yara,” the company said in a statement, adding that while it has “successfully navigated recent volatility by focusing on operational continuity, recent returns have been below satisfactory levels.” Yara is taking action to improve profitability, including a stricter prioritization toward core operations and high-return assets, and scaling back noncore and lower-return activities, it said. This includes the assets review, aimed at prioritizing and optimizing its portfolio, it said.
Yara previously announced a cost and capital expenditure reduction program in the second quarter of this year, targeting a reduction of its fixed costs and capex by $150 million for each by the end of 2025.
Fertilizer demand outlook
Yara said in its outlook today that urea pricing is “currently demand-driven, yielding positive production margins also for swing producers,” while demand fundamentals in the nitrogen market “remain supportive,” with 10-year consumption growth trending at 1.9% per year.
Although citing Chinese export policy as a key uncertainty factor remaining on the supply side, Yara said that the “peak of global urea capacity additions is behind us, with industry consultant projections showing supply growth from 2024 and onwards significantly below trend consumption growth. Combined with strong demand fundamentals, this indicates a tightening supply-demand balance in the coming years.”
Yara said that based on current forward markets for natural gas as of Oct. 15 and assuming stable gas purchase volumes, the company’s projected gas costs for the fourth quarter of this year are estimated to be in line with the prior-year period, with the first quarter of 2025 estimated to be $60 million higher year over year.
In the third quarter, the firm’s global weighted average gas cost was $8.7 per MMBtu, increasing slightly from $8.5 per MMBtu in the year-earlier quarter. Yara’s European weighted average gas cost was $11.2 per MMBtu, rising from $10.9 per MMBtu in the prior-year quarter.
Yara produced 1.87 million metric tons (MMt) of ammonia in the quarter, up from 1.72 MMt last year, with its production of nitrogen fertilizers and industrial products, excluding bulk blends, rising to 5.29 MMt from 5.06 MMt. The company’s total delivered volume of ammonia, nitrogen fertilizer and industrial products fell 3%, however, to 8.15 MMt, from 8.43 MMt in the year-earlier quarter, driven by decreases in Europe, the Americas as well as Africa and Asia, it said.
Third quarter EBITDA, excluding one-off items, of $585 million was up 47% year over year from $396 million, with net profit jumping to $286 million from $2 million and beating analysts’ consensus estimate of $115 million as provided by S&P Capital IQ. Sales dipped, however, to $3.65 billion, from $3.88 billion, missing consensus of $3.73 billion. The improved earnings mainly reflected “improved margins with higher phosphate-rock upgrading margins, more stable potash prices, and improved third-party product sales margins in Brazil,” it said.
Yara delivered an “all-time high production performance and strong premiums this quarter, a testament to the robustness of our operations and the value of our core business,” said Svein Tore Holsether, president and CEO. “Returns are improving, and I am confident that we will succeed with the necessary changes to ensure sustainable profitability and increase shareholder returns through our sharpened focus on our core operations and value-accretive growth,” he said.
Potential Tertre plant closure
On the proposed closure of its ammonia plant at Tertre, Yara announced on Oct. 15 that its management had informed workers representatives of its intention to close the unit and shift its production toward more competitive products. The facility at Tertre “is facing challenging market conditions, in combination with high and volatile energy prices and high maintenance costs, resulting in prolonged financial distress over recent years. In addition, more stringent environmental regulations and the need to accelerate decarbonization are increasing the pressure on Tertre’s ammonia production,” it said in the announcement.
Yara’s full-year 2023 financial results included a $220 million impairment on the Tertre plant.
The proposed changes at the plant would enable Yara to continue serving its European customers and “prepare for the decarbonization of the site,” it said. Ammonia would be supplied to Tertre from the company’s other production sites to produce up to 600,000 metric tons per year of premium nitrate fertilizers and 250,000 metric tons per year of high-value industrial products, it said. It would also transition to the use of low-emission ammonia in the future, it said.
If the proposed closure is implemented, production volumes would be reduced and about 115 employees could potentially be dismissed, it said. The site currently has more than 300 employees.
The Tertre plant presently produces ammonia, nitric acid and fertilizers.
In June this year, Yara announced it had started producing green hydrogen and ammonia via a demonstration unit located at its Herøya plant in Porsgrunn, Norway. The 24-megawatt (MW) demo plant has a nameplate capacity for about 10,000 kilograms per day of hydrogen, enough to produce 20,500 metric tons per year of ammonia, which can be converted to 60,000-80,000 metric tons per year of green fertilizer, it said.
Yara has previously stated a goal of decarbonizing its Herøya complex completely within five to seven years. The complex has a total ammonia production capacity of 500,000 metric tons per year.
In 2022, Yara decided to go it alone with the so-called Hegra project at Porsgrunn after its two equal partners Aker Clean Hydrogen and Statkraft exited for strategic reasons. The project envisaged the eventual removal of 800,000 metric tons per year of CO2 emissions and the full electrification of the plant at Herøya, which would then be able to offer green ammonia and fertilizers. Yara said at the time it still considered the project “viable.”
At Sluiskil in the Netherlands, Yara has previously announced its intent to cut its annual CO2 emissions by 800,000 metric tons from the plant’s ammonia production process and signed a binding CO2 transport and storage agreement in November last year with Northern Lights, the world’s first cross-border CCS agreement in operation. The CO2 is planned to be liquefied by Yara and shipped by Northern Lights for permanent storage in subsurface geological reservoirs in the Norwegian offshore sector of the North Sea. Yara has previously estimated capex of approximately €200 million for the CO2 liquefaction project. Operations are scheduled to start in 2025.
by Mark Thomas
Source: chemweek.com
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