US swapping oil security for fertiliser insecurity and higher farm and food costs

Agrifuels do not come without a price - diversion of food products to fuel raises the cost of animal feeds and so on to meat, eggs, milk, corn syrup and products that contain, them and even the humble tortilla...as a trip to Wal Mart will confirm.

The unexpected prosperity of the Mid West corn growers has seen corn acreages rise at least 9% this year - which means higher fertiliser inputs. In the US this means high nitrogen urea fertilisers produced directly from natural gas. As natural gas use expanded for heating, prices rose and the fertilizer industry headed overseas where new plants utilising the most recent technology were built close to the source of the gas in Qatar, Saudi, Brazil, Egypt, India, Venezuela and Australia.

A typical plant is the one built by Snamprogretti (costing A$500Mn) on Burrup Peninsula north of Perth near Port Dampier using gas from extensive local gas fields which came on stream in 2003 and is jointly Australian / Indian owned and run. This site was preferred to one based in Darwin using gas from the Timor Sea - Snamprogretti (part of State owned ENI) have built over 90 urea plants around the world.

The plant will produce approximately 760,000t/yr of granular urea and 190,000t/yr of excess saleable ammonia. The ammonia production plant uses Halder Topsoe technology and the urea plant using its own technology. The Haldor Topsoe technology is used by 60% of ammonia plants being built around the world. The urea granulation is developed using the Hydro Agri process identical to another Snamprogetti plant in Venezuela.

The ammonia is produced by mixing natural gas and water with a catalyst to form oxides and hydrogen. These react with air to produce nitrogen, hydrogen and carbon monoxide. The nitrogen and hydrogen is combined to form ammonia (NH3). The carbon monoxide is converted to dioxide and used in the urea plant.

Ammonia and carbon dioxide are reacted to form ammonium carbamate. The urea is formed by dehydrating the carbamate. The urea has impurities removed and is then granulated by being sprayed onto urea granules in a fluidised bed.

The world's larger urea fertiliser plants is the Fertinitro petrochemical complex at Jose Anzoategui in Venezuela - Koch Industries the huge privately owned US oil products company has alarge interest in the plant. Costing US $1.1 billion, the plant was completed in November 2000 and is the largest nitrogen-based fertiliser unit in the world to date. The project consists of two ammonia plants and two granulated urea plants, with operating capacities of 1.2 million tonnes per year for the ammonia and 1.5 million tonnes per year for the urea. Of this, 240,000 tonnes of the ammonia and 1.5 million tonnes of the urea are intended for export. It is expected that overall production at the site will rise from 1.9 million tonnes per year to 4.6 million tonnes per year.

One of the principal advantages of the Jose site is that it has ample supplies of cheap natural gas and through more centralised control flare gas (gas extracted along with oil) cannot be burnt and wasted. Hence feeding the gas to a fertiliser plant becomes more economical.

The result is that the US and Canada increasingly rely on imports from lower cost suppliers but have seen domestic prices climb. Typically priced at US$270 a tonne in 2006 they may reach US$400 later this summer - which reflects the fact that 90% of all urea imports go into the US - from a position of self reliance ten years ago - currently there are two major sources, Qatar and Saudi who supply probably 25% of the US needs.

The major Saudi plant is the Sabic complex at Al Jubail which uses BASF / Uhde technology who have recently installed a 4th plant and their total urea output will rise to 2.6 million tonnes per annum while ammonia capacity will reach 2.3 million tpa. This increase in production has neatly coincided with an increased international demand.

QAFCO founded in 1969 and owned by the State of Qatar, now has 4 plants in operation and after recent completion of QAFCO-4 plant, QAFCO has emerged as the world’s largest single site producer of urea and ammonia with an annual production capacity of 2 Mn tons of ammonia and 2 Mn tons of urea.

So US reliance on foreign oil, through a huge switch to ethanol now relies heavily on the Middle East for nitrogen fertiliser, a low cost commodity which costs a great deal to ship and haul - to feed the nation.

Mr Chavez it appears likes to ship his to his friends in South America.