Australia’s Incitec Pivot Ltd. (IPL) said on May 5 its wholly-owned subsidiary, Incitec Fertilizers Pty Ltd. (IPF) has entered into a 20-year off-take 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.
The deal is subject to certain conditions precedent, with a primary one relating to Perdaman obtaining financing for construction of the new plant, which in turn depends on the junior producer finalizing gas supply arrangements and obtaining various environmental and other regulatory approvals for the plant.
In its statement, IPL said the conditions precedent must be satisfied within 18 months of the agreement.
IPL Managing Director and CEO Jeanne Johns said the offtake agreement provides IPF with the opportunity to secure a competitive long-term domestic supply of urea for its Australian customers and to expand sales into growing global markets.
The terms of the deal remain confidential to the parties.
In news confirming the offtake deal on its website, Perdaman Chemicals and Fertilisers’ Chairman Vikas Rambal said the signing of the offtake agreement represented a major step forward in the development of the plant. He said regulatory and other approvals are well advanced. The company is targeting first production in the fourth quarter of 2025.
IPL currently is Australia’s sole urea producer with a plant at Gibson Island plant in Brisbane, Queensland, on Australia’s East Coast. The plant has capacity to produce 340,000 mt/y of urea, according to Green Markets data. However, the producer has been dogged with gas supply issues to the Gibson Island production site, which also includes ammonia and ammonium sulfate production capacity.
Australia’s urea demand has been growing strongly in recent years, with consumption in 2019 at around 2.1 million mt, according to IFA data. Green Markets estimates consumption reached about 2.5 million mt last year. But with rising input (energy) costs hitting domestic production, the country’s urea demand has been increasingly met by imports, with 2.4 million mt imported last year, up from 1.93 million in 2019, according to Trade Monitor Data (TDM).
Perth-based Perdaman’s plans to establish a 2.14 million mt/y granular urea project have been more than a decade under development. The company signed a 20-year natural gas supply agreement with Woodside Energy for the project in November 2018 (GM Nov. 21, 2018), and inked an engineering, supply of equipment and materials, construction, pre-commissioning, and commissioning contract for the execution of the urea plant in December last year with Clough Group, Perth, and Italy’s Saipem SpA (GM Dec. 31, 2020).
Perdaman and IPL back in 2010 had agreed to a urea offtake deal for Perdaman’s then-proposed coal-gasification Collie urea plant, also in Western Australia (GM Oct. 18, 2010). Perdaman subsequently shelved the project at the location, taking it north to Karratha.
Perdaman’s Karratha project is one of a handful of urea production projects at various stages of development in Australia (GM April 16, p. 35).
Perdaman this week is reported to have drafted in corporate finance consultants EY to help put together more than $1 billion in equity to finance the construction of its planned $4.5 billion Karratha urea plant in Western Australia, according to an Australian Financial Review report citing Street Talk.
According to sources cited, EY has begun “soft sounding” investors about the $1 billion-plus equity funding. It is reported that an equity position in the planned urea plant is being offered rather than an equity stake in Perdaman itself.
The 20-year urea offtake deal with Incitec Pivot Ltd. (IPL) subsidiary, Incitec Fertilizers Pty Ltd. (IPF), announced by IPL on May 5, was the final component to be in place before the hunt for finance could begin in earnest, according to the report.
In news on its website, Perdaman said following the offtake agreement, it will now progress towards finalization of the project financing. The company confirmed that it was being advised by E&Y and Société Générale S.A, and represented by Australia’s White & Case LLP.