Incitec Pivot Ltd. (IPL), Southbank, Victoria, will cease manufacturing at its Brisbane, Queensland-based Gibson Island plant at the end of December 2022. The company said “despite extensive efforts” it has been unable to secure “an economically viable” long-term gas supply to its plant beyond its current supply contract.
“After 50 years of continuous production and re-investment at Gibson Island, IPL was disappointed it was unable to secure affordable gas for the plant,” said IPL Managing Director and CEO Jeanne Johns in a Nov. 8 statement announcing the decision.
IPL has been under pressure from a sharp rise in the price of Australian East Coast gas over recent years, and in the past has warned a production closure at Gibson Island could not be ruled out if affordable gas could not be secured. As recently as last month, the company said that international competitive gas pricing is required to continue operations at Gibson Island after the current gas contract expires
The current contract with Australia Pacific LNG started in April 2020 and expires on Dec. 31, 2022. It replaced a temporary one-year gas contract that expired on Dec. 31, 2019.
Responding to an analyst’s question at a company Business Update call on Nov. 8 following the closure announcement, Johns said the company had been looking for a gas contract to run from 2023 until 2027, given that complex manufacturing sites need to do a thorough turnaround every four years. She said the Gibson Island plant was faced with an investment of A$60 million to A$70 million that would need to be remunerated over that period of time.
Johns revealed the earnings of the Gibson Island operation are “slightly underwater” with the current gas supply contract, but by the end of the contract, it will be “slightly above water.”
IPL’s Gibson Island site is currently Australia’s sole urea producer. The site has capacity to produce 340,000 mt/y of granular urea, according to Green Markets data. It also produces ammonia and ammonium sulfate, with nameplate capacity of 300,000 mt/y and 200,000 mt/y, respectively, according to IPL’s website.
The company said urea, ammonium sulfate, and other specialty products will be sourced from its existing international import supply chains to replace these manufactured products, and that its Brisbane fertilizer distribution center operation will continue beyond the closure of the manufacturing operations.
Johns emphasized that the earnings of IPL’s distribution business are not expected to be adversely impacted by the closure of the Gibson Island plant.
She said IPL has an existing supply chain for imports to replace the supply of most of the products produced at the Gibson Island plant, including urea and granulated ammonium sulfate. But as the facility is moved to an import model, the company will discontinue its ‘Big N’ manufactured product. Johns said the latter product on an import basis given the current market and ammonia pricing does not make economic sense.
However, she said that IPL does have urea in Easy Liquids that are available as “good replacements.”
IPL’s Dyno Nobel Asia Pacific subsidiary will make alternative arrangements for ammonium nitrate (AN) production at its Moranbah, Queensland, plant that utilizes around 20,000 mt/y of ammonia currently supplied from Gibson Island.
Johns said IPL is looking at different options for that – both the import of ammonia and ammonia supply from domestic manufacturers – and is also looking at replacing the AN production at Moranbah through domestic and import options. The company is looking at use of existing storage infrastructure if it were to go down the ammonia import route. But if that was not possible, Johns said the economics would point to importing AN before investing in new ammonia import infrastructure.
The company said it currently is in advanced negotiations with third parties to source ammonia or AN to replace the volume from Jan. 1, 2023
IPL expects the financial impact of these alternative arrangements for the Moranbah plant to range between A$5-A$10 million per year.
IPL’s wholly-owned subsidiary, Incitec Fertilizers Pty Ltd. (IPF), this past May inked a 20-year offtake agreement with junior producer Perdaman Chemicals and Fertilisers Pty Ltd. with a commitment to take up to 2.3 million mt/y of granular urea from Perdaman’s proposed urea plant at Karratha on Western Australia’s Burrup Peninsula (GM May 7, p. 1). But the agreement is subject, among other conditions, to the Perdaman plant being built, and first production is not expected before the first quarter of 2025.
Johns told participants at the Business Update call that the Perdaman supply contract “would be a good substitute in time” for some of the imports IPL currently source internationally. She is hopeful there will be more certainty on the Perdaman plant in the coming months, but added that the facility is not yet fully approved.
IPL said the cash costs of closing the Gibson Island plant would be about A$83.5 million, including employee redundancies and costs associated with plant decommissioning. The decision to close the production facilities is expected to impact up to 170 employees.
The company will write down the value of assets by about A$102.5 million, representing the cost of the last turnaround and other maintenance. But proceeds from land sales could range from A$0-A$45 million, depending on final decisions about future use opportunities, including the use of the site for a green ammonia plant.
In addition to the cost of the alternative ammonia sourcing arrangements for Dyno Nobel Asia Pacific, the impact of the Gibson Island manufacturing closure on IPL’s earnings from January 2023 will include zero earnings contribution from the site’s domestically manufactured products. Stranded Corporate and insurance costs are expected to be about A$10 million per year.
“Despite the decision to cease manufacturing with natural gas at Gibson Island at the end of 2022, the feasibility study into industrial-scale production of green ammonia at the site will be progressed to potentially re-purpose the facility,” said Johns.
IPL announced last month that it will partner with global green energy company Fortescue Future Industries Pty Ltd. (FFI) on a feasibility study into industrial-scale production of green ammonia at the Gibson Island fertilizer manufacturing facility (GM Oct. 15, p. 1).
The building of a new water electrolysis facility at the Gibson Island site to produce around 50,000 mt/y of renewable hydrogen, which would then be converted into green ammonia for Australian and export markets, is being investigated, the company said.
“By investigating the re-purposing of Gibson Island, we can make use of the existing manufacturing plant infrastructure, our established production capabilities, and our highly skilled workforce,” said Johns.
Preliminary results from the feasibility study are expected to be available at the end of this year.
In an associated development, IPL said on Nov. 5 it had signed a Memorandum of Understanding (MOU) with Singapore’s Keppel Infrastructure Holdings Ltd. and Singapore-based investment company Temasek to investigate the feasibility of producing green ammonia in Queensland and New South Wales (NWS) for export.
IPL said the three parties will work closely with the Queensland and NSW governments to explore the feasibility of essential infrastructure, licenses, and approvals to facilitate the production and export of green ammonia.
“Both our Kooragang Island, NSW, site and a potential greenfield site in Gladstone, Queensland, have the advantage of being nominated by the Australian government as locations identified as clean hydrogen hubs under Australia’s ‘National Hydrogen Strategy,'” IPL said.