Rabobank reports U.S. set to become urea self-sufficient

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U.S. nitrogen fertilizer capacity has boomed in recent years as natural gas costs have decreased. According to a new report from Rabobank – A Shale Tale: The aftermath of the U.S. Nitrogen Fertilizer Boom - the U.S. nitrogen fertilizer market is now reaching a point of saturation, as announced capacities are expected to come online in the next few years. Market saturation, increasing fixed and variable costs for production make further capacity additions in the short term unlikely. However, the recent rapid capacity expansion could see the U.S. become self-sufficient in urea—a key nitrogen fertilizer—as soon as 2017. In the long term, further increases in U.S. nitrogen fertilizer capacity should not be ruled out.

“Lower natural gas costs meant U.S. fertilizer producers were able to realize their dream of converting low cost inputs into higher priced outputs,” states Rabobank analyst, Suzanne Pera. “As a result, the U.S. is set to move away from being a net importer of urea and is en route to self-sufficiency, which is set to have sizeable impact on global urea markets.”

The U.S. nitrogen fertilizer industry faces production cost challenges. The recent abundance of cheap natural gas may be offset by LNG exports as the U.S. takes its first steps towards exporting part of its shale gas reserves to other regions, such as Europe. Disappointing returns on investments in shale exploration could also lead to a decrease in supply and put upward price pressure on natural gas prices in the short to medium term. The same applies to domestic demand: the long, cold winter of 2013/14 also caused natural gas prices to peak. Increasing construction costs are another challenge, and are resultant of rising costs for engineering, procurement and construction (EPC) contracts. Similarly, attracting investment to secure plant financing is under pressure as a result of increased capacity supply outweighing demand globally, which is putting pressure on nitrogen fertilizer prices.

Nitrogen fertilizer capacity that is due to come online will first feed into domestic demand, meaning that the U.S. could potentially reach self-sufficiency in urea by 2017. If U.S. demand for granular urea imports begins to fade, producers will be forced to look for other destination markets such as Europe. Further capacity expansions in nitrogen fertilizers in the longer term in the U.S. cannot be ruled out. Even when U.S. oversupply in the medium term continues to put pressure on nitrogen fertilizer prices, producers there can still incur lower fertilizer prices and make a return on invested capacities.


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