All Posts from July 23, 2007

Coffeyville fertilizer operations back to full rates; refinery expected to restart in September

Featured, News

The fertilizer production facilities of Coffeyville Resources Nitrogen Fertilizers LLC have resumed operation at full rates after startup procedures were initiated on July 13, a company spokesman said last week. Steve Eames told Green Markets that the company would resume ammonia shipments to its customers at midweek, and UAN shipments would commence shortly thereafter.

Coffeyville also announced on July 18 that operations at its refinery are expected to resume by mid-September. Both the refinery and the nitrogen facility were shut down on June 30 when the rain-swollen Verdigris River overtopped nearby levees and flooded the complex and the town of Coffeyville (GM July 9, p.1). While the refinery was inundated with water ranging in depths from two to six feet, Eames said the fertilizer operations are located on higher ground, and as a result experienced flooding ranging from four feet in some areas to none at the plant’s air separation facility.

Coffeyville Resources Refining & Marketing LLC also announced on July 19 a Residential Purchase Program, under which the company will offer to buy residential properties in the city that were most affected by the flood and subsequent spill of more than 71,000 gallons of crude oil from the refinery. The program is voluntary for homeowners, who will be given the option to sell their residential property at a price based on the market value prior to the flood. Coffeyville Resources estimates that it will offer to purchase 300 residences under the program.

The company said it and the City of Coffeyville “believe this program will speed recovery efforts within this flood affected area and will help families reestablish their lives.” Coffeyville Resources said an announcement would be made early next week showing the residential area of the city that qualifies for the program, and will also provide further details on the purchase price mechanism to be used. Those seeking more information about the Residential Purchase Program can call 1-800-958-5380.

The company cited a list of repairs that were completed to bring the fertilizer plant back on line, including replacing or repairing 30 percent of all electric drives in the entire plant; repairing 60 percent of the plant’s motor control centers, with the scope of work ranging from cleaning to complete replacement; refurbishing 100 percent of distributive control systems and programmable logic controllers, which included component replacement, cleaning, and reprogramming; and repairing the main control room, including the removal of silt, replacing lower walls, repainting, and refurnishing. Repairs to rail and truck loading tracks were expected to be complete by the middle of the week, allowing first shipments to customers as regional rail lines return to more normal operations.

“With this rapid return to production and because of the seasonal nature of our business, we expect to meet all commitments to our customers,” said Kevan A. Vick, executive vice president and general manager for Coffeyville Resources Nitrogen Fertilizers. Added Jack Lipinski, Coffeyville Resources CEO, “Our gratitude goes out to all our employees, contractors and vendors working together to safely bring our operations back to normal. This kind of teamwork, as well as the strong backing we have received from our business partners, customers and our sponsors, is invaluable.”

Regarding the refinery, Keith Osborn, executive vice president and general manager, said the company was fortunate that preliminary estimates indicated “no major damage to our large, engineered equipment and processing units.” The refinery did sustain damage to a large number of pumps, motors, and control equipment, however, which Osborn said would require “extensive repairs.”

While the quick fertilizer startup was good news for the company, last week also brought the announcement from several law firms that additional defendants have been added to a class action lawsuit over the flood-related oil spill from the refinery.

Parker Waichman Alonso LLP, Hutton & Hutton Law Firm LLC, Neblett, Beard & Arsenault, and Becnel Law Firm LLC announced on July 16 that Coffeyville Acquisition LLC – an entity described by the firms as principally owned by Gold- man Sachs Group Inc., its subsidiary J. Aron & Company, Kelso & Company and/or its affiliates – was named as a defendant in the suit. Also named were CVR Energy Inc.; Coffeyville Group Holdings LLC; Coffeyville Refining and Marketing Inc.; Coffeyville Resources Crude Transportation LLC; Coffeyville Resources Terminal LLC; and Coffeyville Resources Pipeline LLC.

An earlier announcement from the firm Hutton & Hutton said damages in excess of $75,000 per class member were being sought in the suit (GM July 16, p.1). Another class action suit, Western Plains Alliance LLC v. Coffeyville Resources, is also seeking claims of more than $75,000 per class member. Eames told Green Markets earlier that the company has adequate insurance, but cannot divulge details of its coverage.

Coffeyville Resources owners Goldman Sachs and the Kelso Funds have been seeking to sell $375 million in stock in the company under the name CVR Energy Inc. The New York Stock Exchange approved the listing June 28, according to a recent SEC filing. Coffeyville Resources said it could not comment on the status of the IPO last week, as it is under a quiet period mandated by the Securities and Exchange Commission.

EPA said on July 14 that no alarming levels of hazardous chemicals have been found in the air or water in Coffeyville. Local reports quoted Rich Hood, a regional public affairs director for EPA, as saying, “The overall bottom line is there is nothing in any of the tests that we’ve seen that should send people screaming for the exits.”

While noting that people should stay out of the water as much as possible due to high levels of fecal matter, EPA said that tests from July 2 to July 5 for pesticides, PCBs, and metal and organic contaminants found no pesticides or PCBs, and no metals at concentrations that would pose a short- or long-term health effect.

“Some organic contaminants, normally found in refined petroleum products, were detected in one sample, but at concentrations that would not be expected to pose a health hazard,” an EPA statement said. The agency also said that air samples from July 2 through July 9 showed acceptable or declining contaminant levels.

Yara posts record 2Q due to high fert prices, low energy costs

Featured, News

Higher fertilizer prices, lower energy costs, improved production performance, and a strong Brazilian market all helped propel Yara International ASA’s second quarter to record results. The company reported net income after minority interest of NOK 1,422 million (NOK 4.85 per share), compared with NOK 1,041 million (NOK 3.42 per share) in the 2006 second quarter.

Revenue and other income for the quarter totaled NOK 13,775 million, compared with NOK 12,200 million in the year-ago quarter. Second-quarter operating income came in at NOK 1,329 million, compared with NOK 924 million in last year’s second quarter.

“Yara made good progress in the second quarter, delivering strong results and new growth initiatives,” said Thorleif Enger, president and CEO. “We have taken steps to acquire Kemira GrowHow and establish an important joint venture in Libya. A JV will also be established with Praxair to further develop our industrial gas business.”

EBITDA for the second quarter was NOK 2,222 million, also up from last year’s NOK 1,682 million due to higher fertilizer sales volumes and higher urea prices, good nitrates and NPK prices, and increased margins for industrial products. In addition, the company said oil and gas costs in Europe decreased considerably as several supply contracts were revised, increasing Yara’s exposure to hub-priced gas. The company said hub-priced gas prices were substantially lower than oil linked product prices during the quarter.

“Competition in the European natural gas market is increasing due to new supply and increased liquidity at trading hubs,” said Enger. “Yara is taking advantage of this development and has secured increased flexibility in several European gas contracts.”

Yara said the second quarter saw strong demand-driven pricing for upgraded nitrogen fertilizer prices, and demand continued to be supported by strong prices for grain and other agricultural products. The company experienced increased prices for all products compared with last year, with urea prices leading the charge. The company said production performance was also strong, with increased sales from the Burrup plant, which was only partially in operation during last year’s second quarter.

Yara’s fertilizer deliveries increased 8 percent in the second quarter to 5.2 million mt, which the company said reflects favorable market developments in Brazil, characterized by early purchases and a strong market for corn and soybeans. Yara Brazil completed its merger with Fertibras in June, and is now the second largest fertilizer company “in a market fuelled by strong demand for corn from the U.S. ethanol industry and good prospects for its sugar cane industry, despite lower sugar prices,” the company said.

European fertilizer deliveries were down compared with a strong second quarter last year, Yara said, following drought in Germany and lower pre-season sales in the UK and Germany. The company said it maintained its market share in Western Europe despite these factors.

Yara said it expects the strong demand-driven fertilizer market to continue, noting that global grain stocks are low and a further drop is forecast by the end of the 2007/08 season. Yara also noted that grain prices remain at historically high levels despite some recent softening, suggesting solid farm profitability and fertilizer demand in the coming season.

Emissions from abandoned FMC plant prompt EPA action

News

One of the capped waste ponds at the abandoned FMC Corp. elemental phosphorus plant next to the J.R. Simplot Company phosphate fertilizer complex west of Pocatello, Idaho, is emitting phosphine gas, prompting the U.S. EPA to take emergency measures to monitor it.

The adjacent FMC and Simplot properties are on the Eastern Michaud Flats Superfund site, which covers 2,530 acres. In 1976, the Idaho Department of Health & Welfare conducted a groundwater monitoring study down from the plants, showing elevated levels of arsenic, lead, and cadmium above federal drinking water standards. Further sampling during the 1980s confirmed the results, and the site was listed on the National Priorities List in August 1990.

EPA conducted an informational meeting at Pocatello City Hall on July 12 to explain the status of FMC Pond 16S, which it determined was the most immediate concern after it inspected the property following the FMC plant’s closure in December 2001. The pond is generating a very high concentration of toxic and flammable gases under its cap, said Greg Weigel, EPA project manager.

FMC observed the phosphine gas in February 2006. The following June and September, a temporary monitoring point noted intermittent smoke at very high levels, ranging from 100,000 to 300,000 parts per million. In November, FMC sealed temporary monitoring covers, Weigel said.

In November and December, EPA’s analytical data confirmed very high concentrations of phosphine, hydrogen cyanide, and hydrogen sulfide. In December, EPA ordered FMC to characterize the gas generation problem under the Pond 16S cap and conduct ambient air and cap leak detection monitoring.

It also told FMC to design, build, and operate a gas extraction and treatment system to reduce gas concentrations under the cap to safe levels. Since April 2007, FMC has built and is operating a mobile gas extraction and treatment system onsite. It has submitted a preliminary design analysis for a larger extraction and treatment system.

Soil gases near the pond also were detected last May and June, indicating that a high concentration of phosphine gas continues to be generated in Pond 16S, but phosphine and other toxic gases were not detected in the ambient air.

Starting the week of July 16, Simplot was to install new wells to develop a final groundwater extraction system to capture water from its gypsum stack and continue to investigate the area’s hydrogeology. EPA officials said groundwater flowing from the Simplot and FMC plants toward Batiste Springs contains phosphorus and arsenic.

In June, an EPA official said Simplot is the main source of phosphorus entering the Portneuf River, discharging 1,200 pounds of it into the river each day. Too much phosphorus can lead to accelerated plant growth, algae blooms, and low dissolved oxygen that can kill fish. A Simplot official said the company is working to reduce by 80 percent its phosphorus discharges into the river.

TFI fert pricing brochure cites impact from global demand, natural gas prices, and ethanol

News

The Fertilizer Institute (TFI) on July 12 released its fertilizer prices brochure, Supply & Demand, Energy Drive Global Fertilizer Prices, which was developed as a tool for better understanding the dynamics affecting fertilizer prices. Average prices paid by U.S. farmers reached the highest level on record in April of this year, TFI said, and the brochure cites global demand, increased demand for corn used in ethanol production, and natural gas prices as the primary drivers behind fertilizer prices.

“Fertilizer is a world market commodity, and being that the United States is a net importer of fertilizer, our nation’s farmers must compete against farmers from around the world for fertilizer,” said TFI President Ford B. West. “In addition, farmers in the United States planted 92.9 million acres of corn – a 19 percent increase from the 78.3 million acres planted last year – putting upward pressure on fertilizer demand and prices.”

The brochure states that world nitrogen demand grew by 14 percent, phosphate demand grew by 13 percent, and potash demand grew by 19 percent from fiscal year 2001 to 2006, with China, India, and Brazil listed as the three largest contributors to the growth in world nutrient demand.

The U.S. fertilizer market is being driven by the demand for ethanol, the brochure states. The annual capacity of the U.S. ethanol sector stood at 5.6 billion gallons in February 2007, and ethanol plants under construction are expected to add another 6.2 billion gallons of capacity. TFI said USDA statistics show U.S. ethanol production could easily reach 11 billion gallons by 2011.

U.S. ammonia production costs have risen 172 percent since 1999 due to the extreme price increase in natural gas, the brochure says. As a result, the U.S. fertilizer industry, which typically supplied 85 percent of farmers’ domestic nitrogen needs from U.S. based production during the 1990s, now relies on net nitrogen imports for half of new nitrogen supplies.

TFI is making the brochure available to its members for use at state and regional meetings with state legislatures, local councils, and others. The document can be viewed on TFI’s website at www.tfi.org.

Terra executes agreement for Beaumont sale

News Briefs, Western Cornbelt

Sioux City, Iowa-Terra Industries Inc. announced July 18 that it has executed an agreement with Eastman Chemical Company giving Eastman an exclusive and irrevocable option to purchase all the assets of Terra’s Beaumont, Texas, facility. Eastman may exercise its option to purchase the Beaumont facility on or before Oct. 1, 2007. Should Eastman elect to exercise its option to purchase the Beaumont assets, that transaction would close on or before Jan. 1, 2009. The Beaumont facility has the capacity to produce annually 225 million gallons of methanol and 255,000 tons of ammonia, and includes methanol and ammonia storage capacity. On Dec. 31, 2003, Terra sold its sales contracts and rights to the full output of its Beaumont methanol plant through 2008. Under the terms of that agreement, Terra ceased production at the Beaumont facility on Dec. 1, 2004. As a result of this option agreement, Terra determined that the value of its Beaumont property is impaired. Terra expects to record an estimated $27 million impairment charge to net income ($42 million before income taxes) for the quarter ending Sept. 30, 2007. The impairment charge reduces Terra’s investment in the Beaumont property to approximately $47 million.

Mosaic gets postponement of mining permit vote

Florida, News Briefs

Bradenton, Fla.-Mosaic obtained a delay in a planned vote by the Manatee County, Fla., Commission on a local permit to mine its 2,200-acre Altman Tract after the county’s staff indicated it would reject the proposal. Mosaic spokesman David Townsend said the county’s staff had concerns about potential damage to high-quality wetlands and possible conflicts with the county’s comprehensive plan. Townsend said the company needed additional time to address those concerns. The vote had been planned for July 19. A new date was not scheduled, but would likely take place sometime before Labor Day, Townsend said. Mosaic has struggled to get final approval of the project. Previously, it settled disputes with Charlotte County to the South and with the local water authority. Approval of the permit, which was begun in 2000, would be the final step in the long process.

Ag, energy segments push CHS to record earnings

News Briefs, Northern Plains

St. Paul, Minn.-Propelled by strong results from all business segments, CHS Inc. reported record earnings of $237.8 million on revenues of $4.7 billion for the third quarter ending May 31, 2007, compared with $136.6 million and $3.7 billion, respectively, for the third quarter of fiscal 2006. Nine-month results for the company also showed record earnings of $456.4 million on revenues of $12.2 billion, compared with $331 million and $10.4 billion for the same period in fiscal 2006. CHS said the favorable earnings were led by its energy and ag business segments, which include grain marketing, crop inputs, and retail operations. Earnings for the ag business segment totaled $77.1 million for the quarter and $108 million for the first nine months, compared with $49.7 million and $67.2 million, respectively, for the comparable periods last year. Earnings also increased over 2006 levels for the company’s processing businesses, at $5.2 million for the quarter and $47.9 million for the first nine months. In addition, CHS said it recorded solid returns from joint venture partners Ventura Foods LLC and Agriliance LLC. CHS announced last month that it would acquire the Agriliance wholesale crop nutrients business, while its joint venture partner Land O’Lakes Inc. assumes ownership of the operation’s wholesale crop protection products unit (GM June 25, p. 1). The two companies have also announced that they are exploring the repositioning of Agriliance retail operations (GM July 16, p. 1).

Ag Aviation Association requests CDL exemption

News Briefs, Northeast

Washington, D.C.-The Federal Motor Carrier Safety Administration (FMCSA) announced that it has received an application for an exemption from the commercial driver’s license (CDL) requirements from the National Agricultural Aviation Association (NAAA), a trade association that represents more than 1,300 members in 46 states. NAAA requested that commercial motor vehicle drivers working with agricultural aircraft operators be exempt from the required knowledge and skills tests and be eligible to receive a restricted CDL. NAAA also requested an exemption to allow these restricted CDL holders to transport fuels used to power agricultural aircraft engines if hauled in quantities of 1,000 gallons or less. NAAA argued that relief from the CDL regulations will relieve a current economic hardship and will provide parity in the CDL regulations compared to other, nearly identical farm-related services. NAAA said it is asking for the exemption “primarily to expand the labor pool of available drivers,” claiming that qualified CDL drivers are more likely to take year-round jobs than the seasonal employment offered by aviators during the aerial application season. NAAA also said that the evidence provided in its exemption request demonstrates that the level of safety achieved under the exemption would be equal to or greater than the level of safety that prevails without the exemption. FMCSA is requesting public comment on the NAAA application for exemption. Comments must be received on or before Aug. 6, 2007, and can be submitted via email at http://dmses.dot.gov/submit/; by fax at 1-202-493-2251; or by mail at Docket Management Facility, U.S. Department of Transportation, Room W12-140, 1200 New Jersey Ave. SE., Washington, DC 20590.

Terra protests part of Verdigris property tax

News Briefs, Southern Plains

Claremore, Okla.-Terra Industries officials say their protest of a portion of the property taxes on Terra’s Verdigris, Okla., nitrogen plant just amounts to a “friendly disagreement” with local officials. “We want to be a good corporate citizen and pay our fair taxes,” said Joe Ewing, Terra’s vice president for investor relations, “but we want to make sure we’re fairly valued and pay the proper amount.” Ewing said that between $200,000 and $300,000 is involved and that the issue is the way the property is valued; local press reports said Terra is taking Rogers County to court. County Assessor Melissa Anderson reportedly advised the county commission that she is hiring Price, Waterhouse, Cooper LLC for an appraisal of Terra’s Verdigris plant. “It’s a unique property,” Anderson was quoted in the press as saying. “The loss of revenue if we don’t do our job could be tremendous.” Ewing told Green Markets that Terra has already paid most of its property taxes – reported in the press as $985,928 – leaving only the smaller portion in dispute.

Scientists predict large ‘dead zone’

News Briefs

Washington, D.C.-A team of scientists from The National Oceanic and Atmospheric Administration (NOAA), the Louisiana Universities Marine Consortium, and Louisiana State University is forecasting that the “dead zone” off the coast of Louisiana and Texas this summer – an area of low or no oxygen that can threaten marine life – has the potential to be the largest since shelf-wide measurements began in 1985, and significantly larger than the average size since 1990. The NOAA-supported modeling effort, released on July 17, predicts this summer’s “dead zone” in the Gulf of Mexico may be as large as 8,500 square miles, an area about the size of New Jersey. The forecast is based on nitrate loads from the Mississippi and Atchafalaya rivers in May, and incorporates the previous year’s conditions. Since 1990, the average annual hypoxia-affected area has been approximately 4,800 square miles, but measured 6,662 square miles in 2006, NOAA said. One of the study’s researchers said the riverine flow in May 2007 contained 35 percent more nitrogen than in May 2002, which he said “may be due to more intensive farming of more land, including crops used for biofuels, unique weather patterns, or changing farming practices.” The researchers say the LSU model is the most accurate based on past performance, but is still in the experimental stages, and additional research is required before it becomes an operational forecast. The fertilizer industry has long questioned how much of a role fertilizer use plays in the Gulf hypoxia zone. Earlier this month, The Fertilizer Institute submitted 14 pages of comments to EPA on its Draft Science Advisory Board (SAB) Hypoxia Report, in which TFI claimed that the poor correlation between nitrogen and/or phosphate fertilizer use and the size of the Gulf hypoxic zone indicates “a more complex problem than simply nutrient over-enrichment,” and that the report should take into account all sources of nutrients and their ability to be controlled (GM July 9, p. 10). TFI also argued that fertilizer use efficiency is at an all-time high, and estimated that U.S. farmers since 1980 are applying 41 percent less nitrogen and 53 percent less phosphate per bushel of corn produced. TFI said progress has also been made in conservation practices such as wetland and riparian buffer creation and restoration.

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