Incitec Pivot Ltd. (IPL), Australia’s largest fertilizer maker, plans to build a $850 million ammonia plant in Louisiana to take advantage of low natural gas prices and government policies to support manufacturing in the U.S.
The 800,000 metric-ton-a-year project at a site along the Mississippi River will be funded with debt and cash, the Melbourne-based company said today in a statement. Houston-based KBR Inc. has been hired to build the plant and first output is expected in the third quarter of 2016, it said.
A boom in the production of gas from shale in the U.S. has driven prices down, revitalizing chemicals companies and prompting talk of domestic energy self-sufficiency. Shale is helping to spur a U.S. industrial revival, BHP Billiton Ltd. (BHP) Chief Financial Officer Graham Kerr said last week in Sydney.
“The key driver of this investment is gas,” Incitec Chief Executive Officer James Fazzino told reporters today on a call. “The U.S. actually has an energy policy that says, ‘Let’s keep the gas and give priority to domestic manufacturing and jobs.’”
Gas futures in New York are trading at more than $4 per million British thermal units this week after falling to less than $2 in April 2012 and touching a 10-year low. Prices may range between about $4 and $6 per million British thermal units in the next decade even if exports expand, the American Gas Association said this week.
“Shale gas has enabled a step-change in U.S. gas prices, which is vital in this project because 80 percent of the cost of making ammonia is gas,” Fazzino said today. “We see the risk on U.S. gas prices is for them to go down.”
The investment in the project, the seventh ammonia plant operated by Incitec globally, is going ahead because of support from the state of Louisiana and U.S. energy policy, he said.
“What’s clear in the U.S. is that manufacturing is a priority,” he said. The U.S. is the world’s largest import market for ammonia, according to a company presentation.
Since 2000, about 3.3 million tons of new capacity has been needed every year to meet global demand for ammonia, used in explosives and fertilizers, according to the presentation.
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