The world’s rapidly growing population will provide ample space for the GCC’s fertiliser producers to pursue their ambitious growth strategies.
“As the global population is expected to reach 9.3 billion by 2050, food production will have to increase by 50 per cent in the same period,” said Charlotte Hebebrand, director general of the Paris-based International Fertiliser Industry Association (IFA), during her keynote speech at the GPCA’s Fourth Annual Fertiliser Convention late last year.
In order to meet such targets, Hebebrand stressed the need to not only increase physical arable land allotments across the globe, but also to increase the actual yield of currently cultivated land as well. Growing agriculture and farming yields will necessitate a steady supply of the essential nutrients needed by crops.
With GCC fertiliser production expected to reach 46.4mtpa by 2018, the region looks very well positioned to capitalise on growing demand for ammonia and urea in the coming decades.
According to the most recent figures released by the GPCA’s research and studies department, the GCC’s Ammonia production capacity reached 11.9 mtpa by the end of 2013, up 5 per cent year-on-year from 11.3 mtpa by the end of 2012. Urea production grew 6 per cent from 15.3 mtpa to 16.2 mtpa over the same period. Diammonium Phosphate (a phosphorous fertiliser), has seen production level at 3.4 mtpa since commencement in 2011.
“The gulf region is becoming a global hub for the production of nitrogen and phosphate fertilisers,” said Khalifa Al-Sowaidi, chairman of the GPCA Fertiliser committee and CEO and vice chairman of Qatar Fertiliser Company (QAFCO). With its access to natural gas, sulphur and phosphate feed stocks, the GCC region has seen its fertiliser production capacity grow at 13.7 per cent from 2008 to 2012.
Last year, the GCC’s ammonia production accounted for 16 per cent of the global supply and urea, 30 per cent. While the IFA expects that global production will increase 1.8 per cent per annum up to 2016, the GPCA has projected much bolder targets of 10 per cent growth per year in the region for until the same period. The region’s contribution to global supply will only continue to increase
But there have been some short term blips and industry observers point out that producers in this region must proceed wisely.
While global demand for fertilisers has grown at an average rate of 2 to 2.5 per cent, per annum over the last decade, the IFA reports that 2012 saw demand stagnate at 176.3 million tonnes, struck by a 7 per cent decline in demand from South Asia. According to Hebebrand, this was caused primarily by falling demand in India due to ‘unfavourable weather conditions’ disrupting agriculture cycles and the falling value of the rupee. This has proven to be a short-term demand fall, but also served as a reminder of how susceptible the fertiliser can be.
There are of course, other challenges which have been on the minds of this region’s chemicals companies; chief among which is the advent of shale gas production in North America. Chemical companies in North America will have access to feedstock and nutrients like nitrogen and sulphur. “When this happens, fertiliser producers in the GCC may lose ground in an important export market,” says Dr. Abdulwahab Al-Sadoun, secretary general of the GPCA.
Henry Hub natural gas prices have fallen from an average of $12.69/MMbtu in June, 2008, to $3.83/MMbtu in June, 2013. At such competitive prices, North America is looking to boost its own ammonia and urea output capacities. In coming years we may see as many as 25 new projects in North America that will add more than 10 mtpa of urea capacity alone.
But GCC producers still have time to respond. According to a Thomas Heinrich, senior analyst at Nexant, it is unlikely that all announced ammonia facilities, will come online. Gas prices in North America have begun to rebound after conventional gas plays produced lower yields than expected and interest in LNG export projects began to rise. If more North American natural gas is diverted for export, it is unlikely that prices will remain competitive for domestic fertiliser production.
Be that as it may, all the experts do agree that the GCC cannot sit still. The region’s population is expected to continue growing as its economy diversifies. This will only create more demand from other gas-based industries such as steel production, manufacturing and district cooling.
“GCC producers must diversify their fertiliser portfolio to include more phosphate fertilizers, as this will decrease their reliance on hydrocarbon feedstock and grow their share of export markets,” says Dr. Al-Sadoun. Saudi Arabia’s Ma’aden has done precisely this by acting as a diversified mining company with a 70 per cent stake in Ma’aden Phosphate Company, with Saudi Basic Industries Company (SABIC) owns the remaining 30 per cent.
