Rentech Nitrogen Partners LP, Los Angeles, said Jan. 4 that it has secured a bridge loan of up to $40 million from its majority owner, Rentech Inc., and has entered into a fixed price engineering and procurement contract with Black & Veatch so that the expansion project can continue on schedule (GM Dec. 19, 2011, p. 1).
The project is expected to increase ammonia production capacity by about 23 percent to 70,000 st/y, and includes an additional 20,000 st ammonia storage tank at the facility in East Dubuque, Ill. The expansion will bring Rentech’s total ammonia capacity to 370,000 st/y, and will increase onsite ammonia storage to 60,000 st. Rentech Nitrogen also has access to 15,000 st of leased ammonia storage at Niota, Ill. The additional ammonia production is expected to be sold primarily as ammonia, but will also be available for upgrade to other products.
"We believe that long-term industry fundamentals favoring strong fertilizer demand and low natural gas costs support the growth in our capacity,” said Hunt Ramsbottom, Rentech Nitrogen CEO. “Ammonia consumption in our core market of the Mid Corn Belt region exceeds supply by a factor of four. Our increased ammonia production can help address the strong demand in our market. We are focused on growing cash flow at Rentech Nitrogen. In addition to the ammonia capacity expansion and our urea/DEF capacity expansion currently underway, we are evaluating other opportunities to increase cash flow."
Work related to the expansion will result in various upgrades to the facility, including an approximately 50 percent increase in ammonia loading capacity and upgrades to controls at the ammonia and urea plants. Rentech expects the energy efficiency of its plant to improve by approximately 6 percent as a result of lower natural gas usage per ton of ammonia produced, partially offset by increased electricity usage per ton. Based on relative current market prices for natural gas and electricity, Rentech expects its energy cost per ton to remain largely unchanged; however, the lower natural gas usage will reduce the company’s exposure to increases in natural gas prices going forward.
Capital expenditures for the expansion are expected to total approximately $100 million, of which approximately $20 million relates to the construction of the additional on-site ammonia storage tank. The project is projected to generate a return on investment in excess of 20 percent given the current environment and expectations for pricing of products and costs of natural gas. The project is anticipated to be completed by the end of calendar year 2013.
Significant work on the expansion project has been completed to date, including a feasibility study, Front-End Engineering and Design (FEED), final air and construction permits, and commencement of construction of certain long lead-time items.
Rentech Nitrogen is currently negotiating with lenders to arrange debt financing for the entire cost of the project, and expects to syndicate and close a term loan within the next several months to fund the continuation of the project and keep it on schedule, so that the expected downtime for final tie-ins for the expansion project coincides with planned downtime for the plant turnaround in late 2013. The $40 million bridge loan with Rentech Inc. provides an interest rate of LIBOR plus 5.5 percent through May 31, 2012. Interest on the bridge facility will accrue. Should the bridge loan remain outstanding after that date, the interest rate would increase in accordance with the terms of the loan agreement.