All posts by hlancey@bloomberg.net

Chemical Security Deal Eludes Lawmakers After CFATS Lapse; TFI Urges Renewal

Lawmakers are struggling to find a path forward on expired chemical security standards despite stark warnings from homeland security officials and industry groups, according to a Sept. 7 report by Bloomberg Government.

The Chemical Facility Anti-Terrorism Standards (CFATS) easily gained a two-year extension by the House of Representatives with only one vote in opposition, but it lapsed in late July after Sen. Rand Paul (R-Ky.) objected to a fast-tracked reauthorization measure.

Senators returned from a month-long recess this week and haven’t figured out how to resolve the issue, though Paul on Sept. 6 said conversations continue. Paul is the top Republican on the Homeland Security and Governmental Affairs Committee.

Sen. James Lankford (R-Okla.), who co-sponsored legislation to renew CFATS, suggested that holding another hearing could help address Paul’s concerns. The Kentucky senator has complained that the chemical security measures are unnecessary and that the effort to renew them was rushed.

Paul said insurance companies require chemical facilities to have adequate security and that the regulations would be a barrier to entry for smaller companies as the larger ones could afford a large compliance staff. However, in July he offered to approve the extension if his amendment to create a Duplication Scoring Act was added. It would assure that all legislation in the future would have to be assessed as to whether it duplicates an existing law.

Kentucky had 65 high-risk chemical facilities operating in the state as of July, according to the Cybersecurity and Infrastructure Security Agency (CISA), which runs the CFATS program. It said an attack on a chemical facility could cause as much damage as a nuclear blast.

Paul’s objection to CFATS isn’t the only problem for supporters. Sen. Ron Johnson (R-Wisc.), who has questioned whether the program is effective, said “it’s fine and dandy having it expired.” He wouldn’t say whether he would try to block a reauthorization if it comes up again in the Senate.

Sen. Gary Peters (D-Mich.), who leads the homeland panel, declined to discuss the specifics of any conversations he’s had with Paul and Johnson on chemical security. He emphasized, however, that “we’re going to try everything we can to try to get it done because it’s critically important from a national security perspective.”

The wrangling on Capitol Hill comes as industry and administration officials warn of serious risks from the program’s lapse. CISA Director Jen Easterly last week said the CFATS lapse meant roughly 9,000 chemical facility employees and contractors wouldn’t undergo vetting for potential terrorist ties each month.

Easterly has also said for every month that the standards are sidelined, 175 facility security plans will go unreviewed and 160 inspections will be skipped. Without the CFATS rule, CISA also effectively has no idea who is visiting facilities or if they are stockpiling dangerous chemicals.

Safeguarding the cybersecurity and physical security of 3,242 high-risk chemical facilities across the US is one of CISA’s critical responsibilities. Congress has renewed CFATS several times since enacting it in 2007.

The agency can also no longer enforce penalties on facilities that violate its safety standards. At least one high-risk facility that was paying the agency’s $40,000-a-day fine for failing to redress concerns (after receiving a warning) has stopped paying, according to a CISA official.

Numerous others are up against a CISA deadline to come back into compliance. Representatives from some of the facilities have told CISA they will meet the standards voluntarily, the official said.

CISA has also stopped checking the names of the 490,000 people with access to the restricted areas of these facilities against a terrorist screening database. Until the rule lapsed, facilities were sending CISA an average of 300 new names each day.

Easterly also said that the program has identified more than 10 known or suspected terrorists attempting to gain access to chemical facilities. “Now we are not looking at those names,” she said in an interview with Bloomberg.

Homeland Secretary Alejandro Mayorkas said he and other top DHS officials have encountered situations “countless times” when CFATS-related oversight helped uncover dangerous plots.

The Fertilizer Institute (TFI) said it has supported CFATS since its creation in 2007. TFI said it has encouraged its members to continue complying with CFATS regulations as if the program was still being enforced.

TFI added that ResponsibleAg, an industry-led initiative committed to helping agribusinesses properly store and handle farm input supplies and to ensure they are compliant with environmental, health, safety and security regulations, has also communicated about the importance of continuing to operate within the compliance of the expired CFATS regulations.

While facilities can maintain much of the CFATS regulatory compliance in the face of expiration, some critical tools and resources are no longer available to facilities, said TFI. For example, access to the Chemical Security Assessment Tool has been removed and CISA can no longer perform inspections or provide CFATS compliance assistance, nor can it accept new names for background vetting pursuant to the CFATS Personnel Surety Program.

A coalition of industry groups, including the American Chemistry Council and US Chamber of Commerce, sent a letter to all senators on Sept. 6 urging them to revive the program.

American Chemistry Council spokesperson Scott Jensen said the groups are trying to get Senate leaders to make reauthorization a priority, and Kentucky-based members of the organization are raising their concerns to Paul’s office. Industry players generally favor CFATS over the prospect of a patchwork of state-level chemical security regulations.

“I just hope to God nothing goes wrong,” National Association of Chemical Distributors President Eric Byer told Bloomberg.

EuroChem Details Brazil Expansion; Serra do Salitre Complex 85% Complete

EuroChem Group AG achieved some 8.8 million mt/y in installed and operating fertilizer production capacity in Brazil in August and aims to reach a capacity of 10 million mt/y by 2025, according to Brazilian news outlet Valor International, citing an interview with Gustavo Horbach, EuroChem’s new Head of South America.

Construction of EuroChem’s latest project in the region, the Serra do Salitre mineral industrial complex in Brazil’s southeastern Minas Gerais state, is 85% complete. According to Horbach, part of the new plant is already in operation with full operations expected to start in early January or February 2024, depending on the receipt of some supplies.

The new facility will have a production capacity of 1 million mt/y of phosphate fertilizers comprising MAP/NP and SSP/TSP products, with the officially inauguration tentatively scheduled for April 15, 2024. According to Horbach, once fully ramped up, the facility will meet some 15% of Brazilian demand for phosphate fertilizers.

The project also includes a sulfuric acid unit and a phosphoric acid plant, as well as a 0.4 million mt storage facility for granulated fertilizer, including urea and potash.

EuroChem bought the Serra do Salitre project from Yara International ASA in 2021, when the project was 50% complete. EuroChem paid a cash consideration of some $410 million for the Serra do Salitre phosphate assets (GM Aug. 6, 2021). Horbach put the total capex for the project at $1 billion.

The acquired assets also included operating phosphate mining operations at an open pit, including a tailings dam, with an annual production capacity of approximately 1.2 million mt/y of phosphate rock. The mine has more than 350 million mt of reserves.

The group said the acquisition expansion has allowed EuroChem to reduce its dependency on third-party phosphate supplies, and also creates the potential for phosphates and complex fertilizer production in Brazil.

EuroChem’s other fertilizer assets in Brazil include a controlling stake (79.98%) in Fertilizantes Heringer SA., and, since August 2020, full ownership of Brazilian fertilizer blender and distributor Fertilizantes Tocantins (FTO) (GM Aug. 21, 2020).

EuroChem acquired an additional tranche of shares equivalent to 28.49% in Fertilizantes Heringer in late June (GM June 30, p. 26), paying around R$230 million (approximately $47.6 million at that time). It bought an initial 51.48% stake in the Brazilian company last year (GM April 1, 2022) for R$554 million, and in December launched a second public offering for the remaining minority shares (GM Jan. 6, p. 27).

Since acquiring its initial 50%-plus-one share in FTO in 2016 (GM July 8, 2016), EuroChem has added three new fertilizer blending plants to the six that were already part of the Brazilian company’s portfolio.

Nutrien Provides Update on White Springs

Nutrien Ltd.’s White Springs, Fla., phosphate complex was still in the process of coming online this week after closing Aug. 29 to prepare for Hurricane Idalia (GM Sept. 1, p. 1).

“The White Springs facility is not yet fully operational,” a Nutrien spokesperson told Green Markets on Sept. 6. “Power has been restored, however production is constrained as we conduct necessary repairs.”

Iowa Retailer Adds Meristem Product Line

O’Brien County Ag Supply, an ag retailer based in Primghar, Iowa, and crop inputs supplier Meristem Crop Performance Group LLC, Columbus, Ohio, announced on Aug. 31 that they have formed a new dealership agreement allowing O’Brien to carry the Meristem Crop Performance product line for growers in northwestern Iowa.

The O’Brien County Ag team will add the Meristem product portfolio, including Hopper Throttle™ planter box treatments, Revline® biologicals and plant growth regulators, Trutrack® drift control, Aquadraft® water conditioners and surfactants, Upshift® starter fertilizers, Homestretch® micronutrients and foliar nutritionals, and Excavator® biologicals, powered by Microbilize™.

“Meristem has a product portfolio geared to helping every farmer we serve gain a better ROI,” said Brennan Triplett, Co-Owner of O’Brien County Ag Supply with Joshua Rausch. “Our team is dedicated to providing high-quality products and superior service for our farmer-customers and we’ve worked to expand our services to include seed sales, comprehensive chemical sales, and application in conjunction with professional agronomic assistance.”

“Brennen, Josh, and their crew are well known in Iowa for helping every customer they serve make the most of every seed they plant and win consistently, season after season,” said Mitch Eviston, Meristem Founder and CEO. “We’re excited to be able to come alongside to help them serve those farmers and gain from their field experience as we add new products.” 

Triplett and Rausch formed O’Brien County Ag Supply in 2014. The company provides application services to crops at preplant and pre- and post-emergence, including crop nutrition, fungicides, and insecticides.

Russia Clarifies New 7% Fertilizer Duty

Further clarification has become available on Russia’s new duty on exports of most fertilizer products from Sept.1 until the end of 2024. As reported in last week’s Green Markets, the new ad valorem rate is 7% of the customs value (GM Sept. 1, p. 26).

However, the minimum duty per tonne in rubles will differ depending on the type of fertilizer, according to an Interfax report, citing the resolution that was signed by Russia’s Prime Minister Mikhail Mishustin on Aug. 30 and posted on the Russian government’s official website on Aug. 31.

Specifically, the duty in force will be 7% but will not be less than RUB1,100/mt (approximately $11.47/mt at current exchange rates) for nitrogen fertilizers, RUB1,800/mt ($18.77/mt) for potash, and RUB2,100/mt ($21.9/mt) for phosphate and compound fertilizers.

Water soluble phosphoric fertilizers with high production costs, such as diammonium hydrogen phosphate and ammonium dihydrogen phosphate, are exempt from the duties. This exemption was proposed to the Industry and Trade Ministry by the largest Russian producer of such fertilizers, Almaz Fertilizers LLC, according to an Interfax report, citing an unnamed industry source.

Since Jan. 1, 2023, until the new duty was implemented, the export duty on fertilizer products was zero if the customs value did not exceed the equivalent of $450/mt FOB. If the price exceeded this threshold, a duty of 23.5% was applied to the difference between $450/mt and the customs value.

The earlier export duty was aimed at collecting windfall profits amid a high global market price environment. But as global prices fell, the duty generated only around RUB6 billion in revenue in the first half of 2023, according to the report. Russia’s Finance Ministry initially had expected to collect RUB19 billion for the year.

Grupa Azoty Halts Production at Kędzierzyn

Polish fertilizer and chemicals producer Grupa Azoty SA reported an overheating incident in the boiler system at the ammonia plant of its Zakłady Azotowe Kędzierzyn S.A. subsidiary on Sept. 5, which led to the prompt shutdown of the facility.

As a result, production of fertilizers, nitric acid, UAN, urea, and OXO alcohols were temporarily halted at Kędzierzyn. As of Sept. 6, the ammonia unit was in the final phase of the cooldown procedure, and an inspection of the interior was in progress, Azoty said in a Sept. 6 statement.

The Polish group said the precise duration of the repair work can be determined once the required scope of work is fully established. The Kędzierzyn ammonia plant has production capacity of around 0.5 million mt/y, according to the Green Markets database.

Grupa Azoty Secures Waivers with Lenders

Polish fertilizer and chemicals producer Grupa Azoty SA said it has signed waiver and amendment letters with 13 financing institutions whereby they agreed to waive certain covenants laid down in loan agreements to the group and its Zakłady Chemiczne “Police” SA subsidiary.

Azoty has been seeking covenant waivers from its lending institutions since June. After reporting a group net loss of Pln555 million (approximately $132.6 million at that time) for the first quarter of 2023 (GM May 19, p. 26), Azoty said it expected to breach its debt/EBITDA ratio covenants at the end of the second quarter.

Azoty’s debt stood at 4.77x EBITDA as at March 31, 2023, according to the group’s first-quarter financial report (GM May 26, p. 26). In an Aug. 31 statement, Azoty said the waiver letters were signed on Aug. 31, and consent was given to waive the net debt/EBITDA covenant as of the end of June 2023.

“The waiver letters underscore our resilience in the face of challenges, assuring that our long-term business prospects remain unaffected,” said Marek Wadowski, Vice President of the Management Board for Grupa Azoty.

Wadowski reiterated that Grupa Azoty anticipates a surge in fertilizer demand for the third quarter, which the group expects to translate into favorable financial outcomes. All along, Azoty had repeatedly stated that its liquidity was not threatened by the covenant breach risk.

Azoty signed a cooperation and non-disclosure agreement with Polish energy group Orlen  SA (formerly PKN Orlen) in early June for the potential acquisition of its Zakłady Azotowe Puławy subsidiary (GM June 9, p. 1). The Puławy unit is Azoty’s most profitable, and its production includes ammonium nitrate and urea, as well as caprolactam and melamine.

Inpex Mulls US Clean Ammonia Plant

Tokyo-based oil and gas developer Inpex Corp. will consider building an ammonia plant in the US, as it seeks to benefit from green subsidies and lift supply of a fuel intended to help curb emissions.

The introduction of the Inflation Reduction Act in the US, which offers generous subsidies for low-emissions fuels and climate technologies like carbon capture, “really is a game changer in the area of hydrogen and ammonia, and maybe direct air capture,” Inpex President Takayuki Ueda said in a Sept. 6 interview with Bloomberg.

“We’re working actively to make some investments in the US in the area of hydrogen, ammonia,” and carbon capture, he said.

Inpex is also considering constructing an ammonia plant in Abu Dhabi. The producer envisions ammonia produced overseas being shipped to Japan to be used for co-firing, which uses ammonia or hydrogen to replace some fossil fuels at traditional power plants, and as fuel for shipping. 

Abu Dhabi National Oil Co. (ADNOC) in 2021 signed an agreement with Inpex and other Japanese entities to explore potential production in the UAE of blue ammonia, created in a process which converts hydrocarbons into hydrogen and then ammonia. ADNOC has already been shipping blue ammonia to Inpex for use in power generation (GM Aug. 20, 2021).

Inpex is closely monitoring developments in Australia, where the government has recently imposed tougher pollution controls, put a cap on some fuel prices, and threatened to limit exports to prioritize domestic needs, Ueda said. The company will consider those policy changes as it makes a decision over potentially adding a third train to its Ichthys liquefied natural gas plant in Australia from around 2030, he said. 

“Generally speaking, we have some concerns about the business environment,” Ueda said. “We’re very much hopeful that the Australian government will also deal with our concerns.”

Dutch Scrap 2030 Nitrogen Emissions Deadline

The Netherlands is easing its disputed goal of halving nitrogen emissions by 2030 in the run-up to November elections, according to Bloomberg. The target, designed to comply with European Union rules on reducing nitrogen pollution, prompted uproar among farmers who said the measures would force them out of business. 

The cabinet will now scrap the 2030 deadline as three of the four coalition parties no longer support the proposal, according to people familiar with the matter. As a result, they said it is unlikely that the bill would be approved by a parliamentary majority.  

The push to cut emissions by 2030 instead of the 2035 deadline currently set under Dutch law led to a stinging electoral defeat in March. The upstart Farmer-Citizen Movement became the biggest party in the Dutch upper house as the environmental policies from the coalition drew stiff opposition from the agricultural industry.

The reversal also comes as a recent study commissioned by the government shows that Dutch nature is even more sensitive to nitrogen emissions than previously thought. Intensive farming has devastated biodiversity in the Netherlands, the world’s second-largest exporter of agricultural products, forcing the government to impose drastic measures to comply with EU rules on reducing nitrogen pollution.  

If implemented, the government’s 2030 plan would have required cuts of as much of 95% in emissions in some provinces and forced livestock population in the Netherlands to be reduced by a third over the next eight years. Protests drew global headlines last summer as farm-owners brought their cows to the Hague, blocking roads and prompting the agriculture minister to quit.

JERA, Uniper, ConocoPhillips Sign Agreement

JERA Americas, a unit of Tokyo-based electric utility JERA Inc., has signed a Heads of Agreement (HOA) with German energy company Uniper Global Commodities SE and the US-based energy producer ConocoPhillips for the sale to Uniper of low carbon hydrogen/ammonia produced in the US.

JERA and ConocoPhillips are collaborating on the development of a manufacturing base in the US Gulf Coast that will produce hydrogen on a large scale and convert it into ammonia (GM Sept. 9, 2022). The parties expect to produce an initial 2 million mt/y of ammonia, with possible expansion to 8 million mt/y. They expect to start commercial production at the end of the 2020s.

In addition to Uniper, JERA and ConocoPhillips said in the future they would consider supplying their US ammonia to other countries outside Europe, including Japan and other Asian countries.