Yara estimates that it buys 10-15 per cent of the annual output of state-owned Belaruskali, one of the world’s largest producers of potassium salt, or potash, the crop nutrient that is a major foreign currency earner for Belarus.

The company said its purchase of potash from Belarus had been in full compliance with the sanctions but would still have to come to a halt.

“Other parts of the supply chain are withdrawing essential services required to enable potash exports from Belarus, as a result of which Yara has initiated a wind-down in sourcing activities,” the company said in a statement.

This included logistical and financial services companies, even where such services could be lawfully provided, a Yara spokesperson added.

“It is these practical challenges stemming from the sanctions, that have required us to evaluate alternative sources of supply,” the spokesperson said.

Western powers accuse Belarus’ President Alexander Lukashenko of rigging a 2020 presidential election and have piled sanctions on his regime, including restrictions on potash exports.

Exiled opposition leader Sviatlana Tsikhanouskaya has repeatedly called on Yara to suspend its activity in Belarus, and the company said in August it would consider the request.

Yara sources potash from nine suppliers globally, including Canada’s Canpotex and Germany’s K+S, according to a company sustainability report filed last year. Canpotex is the export arm for fertilizer companies Nutrien and Mosaic, which along with K+S operate potash mines in Saskatchewan.

“As part of our risk management work we continue to map alternative supply options to be able to respond to supply chain disruptions,” the company spokesperson said.

Beleruskali was Yara’s single biggest potash supplier, the spokesperson added.

Yara buys its potash from Belarus Potash Co. (BPC), Belaruskali’s sales arm. The Norwegian firm said it will seek to continue an industrial safety programme launched last year in cooperation with trade union representatives.

BPC did not immediately reply to a Reuters request for comment.

Global potash prices are set to rally after the U.S. imposed sanctions on BPC, piling more pressure on farmers and consumers already facing rocketing costs and a global economy navigating rising food inflation, analysts and industry sources told Reuters in December.

— Reporting for Reuters by Terje Solsvik and Victoria Klesty in Oslo; additional reporting by Polina Devitt in Moscow.

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The company cut back ammonia production at a number of sites in Europe from September through November following a jump in the price of the natural gas used in the manufacturing process, hitting its overall output in the region by 30 per cent.

Fertilizer prices have risen sharply this year, tracking higher energy costs, putting key crops at risk and adding to global food security and inflation fears, analysts say.

“The price of finished nitrogen fertilizer has risen in the quarter to a level where it has been profitable for us to start up production and, in addition, the global ammonia price has also risen,” a Yara spokesperson said.

The company said in a statement that while it aimed to keep supplying customers, it couldn’t rule out cutting back ammonia production again if necessary.

Rivals including CF Industries have also cut production.

Including maintenance and unscheduled outages, Yara’s European ammonia production was approximately 370,000 tonnes below capacity during the curtailments.

“The impact on finished fertilizer production has been limited, as unprofitable ammonia production has been replaced with sourcing from Yara plants outside Europe, and from Yara’s global ammonia trade and shipping network,” the company said.

CEO Svein Tore Holsether told Reuters last month that some capacity at Yara’s Dutch plants had already been brought back on stream.

European wholesale gas prices have surged as much as 700 per cent this year as demand recovered rapidly from a pandemic slump at a time of low storage levels and supply constraints.

As of Tuesday, the European benchmark was 570 per cent higher than at the start of 2021.

As a result of supply constraints, farmers in Europe have scrambled to buy urea and liquid nitrogen at elevated prices for fear of running short in the planting season.

Yara has the capacity to produce 8.5 million tonnes of ammonia per year worldwide, with 4.9 million tonnes of that coming from Europe.

Ammonia is an ingredient in finished products used to fertilize crops but also goes into explosives and for cleaning exhaust from diesel engines, among other applications.

— Reporting for Reuters by Victoria Klesty and Nora Buli; additional reporting by Terje Solsvik.

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“Record high natural gas prices in Europe are impacting ammonia production margins,” Yara said in a statement.

“Including optimization of ongoing maintenance, Yara will by next week have curtailed around 40 per cent of its European ammonia production capacity,” it said.

Yara said it will continue to monitor the situation, with an objective to keep supplying customers but curtailing production where necessary.

The Norwegian firm’s Canadian operations include a fertilizer import terminal in Quebec and the former Saskferco nitrogen fertilizer plant in southern Saskatchewan.

— Reporting for Reuters by Terje Solsvik in Oslo.

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The consumption of oil for transportation is one of the top contributors to global greenhouse gas emissions that cause climate change, and fertilizer producers join a growing list of companies adjusting their business models to profit from a future lower-carbon economy.

By altering the production process for ammonia normally used for fertilizer, the companies told Reuters they can produce hydrogen for fuel or a form of carbon-free ammonia used either as a carrier for hydrogen or as a marine fuel to power cargo and even cruise ships.

The shift may improve their standing with environment-minded investors as fertilizer emissions attract greater government scrutiny in North America and Europe.

But the green fuels are not yet commercial and will require significant investment to turn a profit — a reality that has the world’s largest fertilizer producer, Canada’s Nutrien, staying out of the space for now. Oslo-based Yara is seeking government subsidies to proceed.

Still, renewable ammonia represents a six billion-euro (C$9.2 billion) opportunity for fertilizer producers by 2030, according to Citibank, based on 20 million tonnes of annual sales globally for clean power and shipping fuel compared with virtually none now. Global ammonia sales currently amount to 180 million tonnes.

“We absolutely could be known more for being a clean energy company than an ag supplier,” CF CEO Tony Will said in an interview, speaking of long-term prospects for the Illinois-based company.

‘Everybody is looking for solutions’

Fertilizer plants separate hydrogen from natural gas and combine it with nitrogen taken from the air to make ammonia, which farmers inject into soil to maximize crop growth.

Production generates carbon emissions that CF says it can avoid by extracting hydrogen instead from water charged with electricity. It can then combine that hydrogen with nitrogen to make green ammonia, which the marine industry is testing as fuel.

CF is in discussions about selling green ammonia to a Japanese power consortium including Mitsubishi Corp., but buyers will break most of it down to pure hydrogen for use in transportation sectors.

“This is a market that easily can exceed what the total ammonia (fertilizer) market is,” Will said. “We’re going to grow into that over the next 20-25 years.”

Adopting green ammonia or green hydrogen to replace crude oil-based fuel would help the International Maritime Organization (IMO) meet a target to reduce emissions, and is suited to both short- and long-haul vessels.

Methanol and liquefied natural gas (LNG) are other clean alternatives.

“Everybody is looking for solutions and I think the jury is still out,” said Tore Longva, alternative fuels expert at Oslo-based maritime advisor DNV GL. “Of all the fuels, (green ammonia) is probably the one that we are slightly more optimistic on, but it’s by no means a given.”

Ammonia remains toxic and corrosive, requiring special handling on ships, Longva said.

Furthermore, combusting ammonia may produce nitrous oxide, a greenhouse gas, that ships would need to neutralize to prevent emissions, said Faig Abbasov, shipping director for European Federation for Transport and Environment, an umbrella group of non-governmental organizations. Fuel cells are another potential marine use for ammonia and hydrogen.

Still, Abbasov sees ammonia and hydrogen as the greenest and most practical shipping fuel alternatives, and cheaper than methanol.

Development of ammonia and hydrogen for shipping fuel holds decarbonization potential but is at the pilot stage for small vessels, while LNG and methanol are in use on ocean-going ships, an IMO spokeswoman said.

South Korea’s Daewoo Shipbuilding + Marine Engineering , one of the world’s biggest shipbuilders, plans to commercialize super-large container ships powered by ammonia by 2025, a spokesman said.

The plans

CF is reconfiguring its Donaldsonville, Louisiana, plant to produce green ammonia. It plans to spend US$100 million initially to enable the plant to produce by 2023, about 18,000 tonnes. By 2026, production across its network could reach 450,000 tonnes, and 900,000 tonnes by 2028, Will said.

The hydrogen it will sell may have nearly 10 times the margin of ammonia fertilizer, according to CF, making the 75-year-old farm company’s newest product its most profitable.

Yara is developing a green ammonia project with power company Orsted in the Netherlands and also has green projects running in Australia and Norway.

Unlike CF, Yara is seeking government subsidies because green ammonia costs could be two to four times higher than conventional production, said Terje Knutsen, Yara’s head of farming solutions.

“The technology behind this is not mature enough today,” he said.

Yara, which aims to cut all CO2 emissions from its 500,000 tonnes-a-year Porsgrunn ammonia plant in Norway, wants funding from the Norwegian government to switch the plant’s production process to electricity by 2026.

Norway already supports hydrogen and green ammonia through a tax exemption on electricity used to produce hydrogen, Minister of Climate and Environment Sveinung Rotevatn said in an email.

“Hydrogen and hydrogen-based solutions, such as ammonia, will be important in reducing greenhouse gas emissions in the future,” Rotevatn said.

Global ammonia production would need to multiply five-fold if it is to replace all oil-based shipping fuel, Abbasov said. But given the abundance of nitrogen in the air, potential supply is almost unlimited if production costs drop, he said.

Nutrien is looking into green ammonia, but sees high costs and insufficient prices as major obstacles, CEO Chuck Magro said.

Industry efforts underway to produce small volumes of green ammonia are largely “window-dressing,” Raef Sully, Nutrien’s executive vice-president for nitrogen.

“The reason (for Nutrien) to look at it is to position ourselves for when people are willing to pay,” Sully said.

“The problem is we’re just right at the start of development.”

— Reporting for Reuters by Rod Nickel in Winnipeg and Victoria Klesty in Oslo; additional reporting by Jonathan Saul in London.

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Terms of the deal, which involves the sale of certain assets to U.S.-based Mosaic Co., are unlikely to change significantly, one of the sources said on Wednesday, requesting anonymity to speak freely about the issue.

BNDES pushed back the vote on the fertilizer deal at a Vale board meeting last Thursday, the first person familiar with the situation said. O Globo columnist Lauro Jardim, without saying how the newspaper obtained the information, reported that day that BNDES had delayed the voting on the transaction to Oct. 20.

One of the people said Mosaic could pay about $3.6 billion for some of Vale’s fertilizer assets (all figures US$). The sale of other unspecified operations within Vale’s fertilizer unit is being negotiated with Norway’s Yara International, the first person said, without elaborating.

Both Vale and BNDES, which are based in Rio de Janeiro, declined to comment, as did Mosaic. Yara said it did not comment on market speculation.

Vale, the world’s largest iron ore producer, is disposing of assets to help meet a $10 billion debt-reduction target by next year. The strategy was devised by CEO Murilo Ferreira to help insulate the mining company against declining iron ore and nickel prices, after losing a record $12.1 billion last year.

Reuters first reported on June 17 that Mosaic was eyeing Vale’s fertilizer assets.

The transaction underscores how Brazil, the world’s fifth-largest fertilizer consumer, remains a key growth spot for fertilizer and phosphate producers. Vale estimates that demand for the products in Latin America’s largest economy is expected to grow twice as fast as global demand over the next decade.

Vale has fertilizer assets in Brazil, Peru, Argentina and Mozambique. In Canada, the company has completed a feasibility study for a potash solution mine project at Kronau, Sask., southeast of Regina, and is now reviewing the study results.

Mosaic bought distribution assets from Archer Daniels Midland in Brazil and Paraguay last year.

— Reporting for Reuters by Tatiana Bautzer and Guillermo Parra-Bernal. Additional reporting for Reuters by Rod Nickel in Winnipeg.

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Valor Economico, a Brazilian business newspaper, reported Vale could sell a minority stake in its fertilizer unit by the end of the year and suggested the Norwegian firm would be a good match for the assets.

Citing unnamed sources, Valor said the deal could yield Vale US$1.2 billion.

Yara, in an email to Reuters, also denied any negotiations were under way.

Vale is seeking to sell US$10 billion in assets over the next 18 months after taking a massive loss in the fourth quarter of 2015, but analysts have told Reuters a fire sale could destroy equity value.

Meanwhile, Yara has said it plans to increase investment in a bid to become more competitive and grow its business.

— Reporting for Reuters by Silvio Cascione.

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The company raised its estimate for 2016 capital expenditure to 17.9 billion Norwegian crowns (C$2.8 billion) from previous guidance of 14.5 billion, and predicted a decline to 10 billion in 2017 and seven billion the following year.

In 2015, Yara’s capital expenditure was 14.4 billion.

“We believe growth is key to creating further shareholder value, and sustaining and growing our competitive edge. Also, improving our relative cost position and productivity is a key priority,” CEO Svein Tore Holsether said in a statement.

“During the next six months we will establish a corporate improvement program, consisting of several initiatives aimed at reducing cost and increasing efficiency,” it added, without elaborating.

Yara’s Canadian holdings include Yara Belle Plaine — the former Saskferco nitrogen fertilizer plant at Belle Plaine, Sask., east of Moose Jaw — and a deep-water dry fertilizer terminal northeast of Montreal at Contrecoeur, Que.

Yara presented two main scenarios for its earnings per share, ranging from 35 Norwegian crowns in the first to 57 (C$8.84) in the second, and with the potential to add six to seven crowns per share by 2018 under the company’s growth plans.

Both were ahead of Yara’s reported earnings per share for 2015, which rose to 29.38 crowns (C$4.56) from 27.59 in 2014.

“The scenarios are not a prediction of future results, but are ‘what if’ examples based on selected fertilizer and energy price scenarios and Yara’s current business,” it added.

— Reporting for Reuters by Terje Solsvik.

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Oslo-based fertilizer giant Yara said Thursday it’s made a deal to buy Agrium’s West Sacramento Nitrogen Operations plant for US$27 million (C$36 million) and use the facility instead as an import terminal for finished products.

Yara, which already has N terminals in California at nearby Stockton and further south at San Diego and Port Hueneme, said the Agrium site will improve its access to northern California and its “intensive agricultural market.”

Yara described the West Sacramento site as a “strategically important asset (that) will improve Yara’s customer service, reduce truck transit times, conserve fuel and enhance overall logistical efficiencies.”

The site will also boost Yara’s storage capacity, allow it a “continuous, predictable, year-round product supply and (limit) the chances of product shortages,” the company said.

Calgary-based Agrium said in April it would put the plant up for sale in the wake of a company-wide portfolio review. The sale’s impacts on Agrium’s books were “expected to be negligible,” the company said at the time.

On average, the plant had recently produced about 200,000 tonnes of UAN (urea/ammonium nitrate) products per year, just under its 204,000-tonne capacity, Agrium said.

By comparison, Agrium’s other N solutions upgrading plant at Kennewick, Wash., about 1,100 km north, has capacity to produce about 430,000 tonnes a year.

Both the West Sacramento and Kennewick plants came to Agrium in 2000 when it bought the fertilizer business of U.S. fuel company Unocal, now part of Chevron. — AGCanada.com Network

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The stock and cash deal comes 10 months after CF’s merger talks with Yara International collapsed. It marks the largest fertilizer M+A deal since 2011 and comes as big global supplies weigh on nitrogen prices.

CF, which is assuming $2 billion of OCI’s debt, will become a subsidiary of a new holding company based in the United Kingdom (all figures US$). By moving headquarters, CF will pay a lower tax rate, which CEO Tony Will told analysts would be part of $500 million in total synergies, along with savings on operations.

CF shares in New York jumped 7.2 per cent to $66.04 and OCI’s Amsterdam-listed shares climbed six per cent to 32.13 euros.

Including CF’s U.S. expansions and OCI’s plants in the Netherlands and Iowa, CF will increase nitrogen capacity by 65 per cent over two years.

Others, however, such as Koch Industries and Agrium are also expanding capacity.

“Even after all the capacity being contemplated in North America comes online, the U.S. is still going to be importing about 25 per cent of our total nitrogen requirements,” Will said.

“The market needs all of the product.”

Asked about possible U.S. tax concerns, Will said OCI insisted the deal include a European headquarters.

Buying OCI’s Iowa plant, which is under construction, will eliminate a rival supplier to U.S. farmers, but Will said he didn’t expect significant antitrust concerns from regulators.

CF shareholders will own 72.3 per cent of the new company, which will be led by CF management. OCI will own the rest.

CF, a co-operative until going public in 2005, is also buying OCI’s global distribution business based in Dubai and its interest in an ammonia and methanol complex in Beaumont, Texas. The deal excludes OCI’s production plants in Egypt and Algeria.

OCI said last November it planned to spin off its construction and engineering business and list it in Egypt and the United Arab Emirates.

— Shubhankar Chakravorty and Rod Nickel are Reuters correspondents in Bangalore and Winnipeg respectively.

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Yara and CF said last month they were in early-stage talks about a “merger of equals” that would create a US$27 billion rival to the world’s largest fertilizer producer, Saskatoon-based PotashCorp.

CF, however, now says the two firms have “terminated their discussions.”

“Although we identified very significant operational and structural synergies, we were ultimately unable to agree on terms of a transaction that met the requirements of all our respective shareholders,” CF CEO Tony Will said in a release Thursday.

Yara last Tuesday fired its CEO Joergen Ole Haslestad, saying he was unsuitable to lead the merger talks, which would continue under its finance chief Torgeir Kvidal.

— Reporting for Reuters by Kanika Sikka in Bangalore. Includes files from AGCanada.com Network staff.

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