True to expectations, the 81st Annual Southwestern Fertilizer Conference in San Antonio drew near record numbers July 22-25. Conference Director Pat Miller said 1,137 had registered by Tuesday, July 25, second only to last year’s total of 1,176. Miller said a record 110 suites were reserved for the conference, however, indicating a high number of companies in attendance.
In addition to providing the usual forum for fertilizer pricing and trading, the event’s Tuesday morning General Session offered a range of speakers who touched on the conference’s theme of “The Impact of Energy and Transportation.” Topics ranged from natural gas pricing forecasts to the future of ethanol and bio-fuels. The session even had an off-the-cuff 2008 election forecast from Ford West, president of The Fertilizer Institute, which drew perhaps the loudest response from those in attendance.
Mike Sylvester, with Potash Corp. of Saskatchewan Inc., spoke on key transportation issues facing the industry, including rising freight costs and fuel surcharges, the threat of terrorism, and the railroad’s stance on transporting “toxic by inhalation” (TIH) cargoes such as ammonia. Sylvester said the Association of American Railroads (AAR) in June asked Congress to relieve railroads of the common carrier obligation to transport TIH cargoes. “That’s a big deal,” he said, noting recent comments by a railroad official that if the railroad “had the ability to walk away from transporting highly toxic materials, we’d do it tomorrow.”
Long transits, bans on hazmat cargo routes through cities, tougher security laws, new permitting standards for tank car construction, and contract term changes for the transportation of ammonia are all issues facing ammonia producers and handlers. Sylvester said the industry associations must work together to address these concerns, and must find ways to reduce the ton-miles for TIH products, such as using two- and three-line hauls.
“It is a critical raw material, important to our economy,” Sylvester said of ammonia, citing its many connections to a wide range of products. “Ammonia and its derivatives have a far greater revenue and shipment impact that we can only imagine.”
Art Gelber of Gelber and Associates, a Houston-based energy consulting and trading firm, gave a natural gas pricing forecast that called for a downward trending market through pre-winter, with high speculation and the potential for market spikes. He predicted that a trend low will emerge in October at near $5 mmBtu for front month NYMEX contract tons, with price spikes to $10 mmBtu or higher possible, but not likely under current market conditions.
“We do think the gas market is basically downward trending over the next ten years,” Gelber said, noting a current supply surplus that should see 3.2 Tcf in storage by Sept. 1, compared with 2.6 Tcf on average by that date. For the short term, Gerber pointed to an August-November weather forecast calling for warmer-than-normal temperatures, and a 2006 hurricane track that appears to be well off the pace of 2005 due to cooler water temperatures in the Gulf and Atlantic. He noted that as of July 25 there have been only two named storms, compared with seven by that date last year.
Gelber characterized the natural gas market, particularly since October 2005, as volatile and parabolic, noting that commodity volatility for natural gas is at 50-60 percent all the time, compared with 30-40 percent for crude and 15-16 percent for gold and T-bills. He said the current front-month natural gas price is being held up by the 12-month strip market and by fuel oil prices, characterizing the latter as more of a psychological factor in the minds of traders.
Gerber said liquefied natural gas is the key to lower natural gas prices in the future. He said there are five existing LNG terminals in the U.S. with total capacity of 5.235 Bcf/day, along with 9.3 Bcf/d of new terminals currently under construction and 11 Bcf/d of approved LNG projects. With capacity expanding from 5.2 Bcf/d to about 20 Bcfd, Gerber said, the natural gas price may drop below $3.50 mmBtu by 2012. “That’s a lot of gas,” he said. “We think that’d be a good thing for your market.” Gerber also noted that LNG will change natural gas from a purely domestic market to a global market.
With a fireworks graphic as a backdrop, Judith Taylor of ICIC-LOR said 2006 was the beginning of a biotechnology revolution in the U.S. in the form of bio-fuels and other bio-based products. She said the Energy Policy Act of 2005 (EPACT) “opened the green door” by allocating $50 million in biomass grant funding and establishing the goal of using 7.5 billion gallons of bio-fuel by 2012 as part of the renewable fuel standard.
The key market drivers for bio-fuels in 2006, Taylor said, included high crude oil prices that forced up gasoline prices; the impact from the 2005 hurricane season, which also drove up gasoline prices; and higher demand due to an oxygenate shift away from methyl tert-butyl ether (MTBE) as an unleaded gasoline additive as U.S. refiners began a voluntary phase-out of MTBE use.
Taylor said there are currently 101 bio-ethanol refineries nationwide that have the capacity to produce more than 4.8 billion gallons annually. In addition, there are 34 refineries and seven expansions under construction, with a combined annual capacity of more than 2.2 billion gallons. “This is not an import market,” Taylor said. “It’s a big domestic market, and that’s where the future lies.”
Taylor also touched on other renewable fuel options, including soybeans for bio-diesel, sugar beets for ethanol, and biomass under enzymatic actions to produce cellulosic ethanol. She said the U.S. Department of Energy will spend about $200 million next year on research for large-scale production of cellulosic ethanol as an economically viable fuel.
“Ethanol the oxygenate is here to stay,” Taylor said, adding that ethanol and other renewable fuels have now achieved commodity status in the U.S. marketplace. “And growing renewables takes fertilizer. Welcome to the green focus on fuels.”
TFI President Ford West concluded the Tuesday morning session by calling on attendees to “take off your company hat and put on the industry hat” to protect the North American fertilizer industry. “Last year was a tough year, and we’re in a tough industry,” he said, noting competition not just between domestic producers and importers, but also at the distribution and retail levels.
West said TFI remains committed to protecting the use of ammonium nitrate for production agriculture. “In the south, it is a hell of a good fertilizer, and we’re working to save it,” he said. West also touted the success of a national advertising campaign by the Nutrients for Life Foundation. “We didn’t run it for producers or importers or distributors or retailers; we ran it for fertilizer,” he said. “Our goal is to protect the marketplace for the use of fertilizer.”
When asked what is happening in Washington, West gave what he referred to as a “seven-second sound bite,” saying there is a “better than 50/50 chance” that Hillary Clinton will be the next president. “Sorry I asked,” came the response from the questioner, which drew loud laughter from the audience.