All Posts from January 26, 2024

Sunoco to Buy NuStar Energy for $7.3 B, Accelerate Ammonia Expansion Opportunities

Ammonia, Asia, Carbon, Featured, Gulf Coast, The Netherlands, U.S.

Dallas-based Sunoco LP (SUN), one of the largest independent fuel retailers in the US, announced on Jan. 22 that it has agreed to acquire pipeline and fuel storage company NuStar Energy LP, headquartered in San Antonio, Texas, for about $7.3 billion in an all-stock deal that is expected to close in the second quarter.

Sunoco fell 7% at 11:01 a.m. on Jan. 22 in New York after plunging as much as 9.7%, while NuStar surged as much as 19%, according to Bloomberg.

“There’s a strong argument to be made that SUN is being opportunistic in buying refined products assets when others are uninterested for what will be a stable to gently declining market over time in gasoline,” said Gabe Moreen, a Managing Director at Mizuho.

The acquisition would expand Sunoco’s crude oil transportation and storage. NuStar’s assets, which include pipelines and terminals for ammonia, oil, chemicals, and other fuel-related products, are mainly in the Midwest and West Coast.

The deal comes just over a week after Sunoco reshuffled some of its assets, selling 204 convenience stores to 7-Eleven for $1 billion and agreeing to acquire liquid fuels terminals in Amsterdam, Netherlands, and Bantry Bay, Ireland, for an amount that has yet to be announced.

Sunoco said the deal will allow it to diversify, increase its ability to use more of its own terminals, buy up a key part of its supply chain, and allow it to optimize fuel supply cost. It will also allow Sunoco to expand its presence across more of the US, the company said.

Recent oil and gas deals have faced regulatory hurdles. Occidental Petroleum Corp. reported on Jan. 21 that the Federal Trade Commission (FTC) has asked for more information on its proposed acquisition of CrownRock LP. Last month, Chevron Corp. and Hess Corp. received a second request from the FTC for additional information on their planned $53 billion deal. But Sunoco executives say they don’t expect the NuStar proposal to face significant antitrust issues.

“I think if you take a look at the combined assets of our organizations, they’re very complementary, and that there’s very little geographic or market overlap that you may typically see in mergers that have historically been of interest to the commission,” said Scott Grischow, Sunoco Senior Vice President, Finance, and Treasurer, in a Jan. 22 analyst call.

NuStar has 9,500 miles of pipeline and 63 terminals, while Sunoco is the largest US independent fuel distributor with 42 product terminals, serving motor fuel to approximately 10,000 convenience stores, independent dealers, commercial customers, and distributors located in more than 40 US states and territories.

Sunoco CEO Joseph Kim told analysts that the company would be able to accelerate expansion opportunities within the NuStar Ammonia System’s 2,000-mile ammonia pipeline. The company sees the potential due to the growing low carbon ammonia capacity, which benefit the pipeline and storage and export out of its St. James, La., facility.

“In fact, projects have been announced for construction in the US for low carbon ammonia production totaling about 38 million tons per year that will be in service between 2025-2030,” NuStar CEO Brad Barron told analysts in a Nov. 2 earnings call.

Barron said that because NuStar’s system runs through the Midwest down to the Gulf Coast, where the vast majority of the announced production capacity will reside, and because of NuStar’s decades of experience in ammonia transport, the company is ideally positioned to become the premier low carbon ammonia provider in the US and to provide export service to Asia, Europe, and other markets.

Barron said the company does not have to expand pipeline capacity but just add connections. Going forward he expects additional volumes from new demand, with firm space on the line garnering a premium. NuStar expects to announce a project with a large global ammonia producer in early 2024. The company spent $25 million for expansion in the segment in 2023.

NuStar is expected to connect a 14-mile ammonia pipeline to OCI Global NV’s Iowa Fertilizer Co. (IFCO) in Wever, Iowa, as early as this month (GM May 5, 2023). The 2,000 pipeline spans seven states from Louisiana, north along the Mississippi River to Missouri, and then northwest and east, to Nebraska and Indiana.

NuStar’s is the only US ammonia pipeline after Magellan Midstream Partners LP’s 1,100 mile line from Borger, Texas, to Mankato, Minn., gradually closed a few years ago (GM March 19, 2021; Aug. 9, 2019).

Sunoco’s general partner is owned by Energy Transfer Operating LP, a subsidiary of Energy Transfer LP. NuStar rejected a takeover attempt from Energy Transfer in 2018. When asked during a conference call on Jan. 22 how the latest NuStar proposal fits with Energy Transfer, Sunoco executives said the deal should be thought of as a Sunoco acquisition.

Sunoco expects $150 million of annual run-rate synergies by the third year following close. It said the deal is immediately accretive, with 10%+ accretion to distributable cash flow per LP unit by the third year following close.

NuStar common unitholders will receive 0.400 Sunoco common units for each NuStar common unit, implying a 24% premium based on the 30-day VWAP’s of both NuStar and Sunoco as of Jan. 19, 2024. Prior to closing, NuStar will make a cash distribution of $0.212 per common unit to its common unitholders.

Ag, Enviro Groups Ask Feds to Investigate Koch/OCI Deal

Featured, Nitrogen

Some 18 agricultural and environmental groups on Jan. 22 sent a letter to the US Federal Trade Commission (FTC) and the Department of Justice (DOJ) urging them to “thoroughly investigate, and, if evidence warrants, to take action against” Koch Industries’ planned $3.6 billion acquisition of OCI Global’s Iowa Fertilizer Co. (IFCO), announced in December (GM Dec. 22, 2023).

“IFCO was built with substantial local, state, and federal investment, with its proponents citing the opportunity to challenge Koch Industries’ dominance in fertilizer markets,” said the letter. “Should the acquisition be allowed to proceed, taxpayers will have effectively subsidized the expansion of Koch’s control over a critical and heavily concentrated sector of our agricultural economy.”

The groups noted that the plant was proposed in 2012 and it was anticipated to decrease fertilizer costs for farmers by introducing competition into the highly consolidated fertilizer industry.

“The promise of jobs and a stable, domestic source for nitrogen enabled the plant to garner the largest tax incentive package in Iowa’s history: $133 million in local giveaways, another $112 million in state giveaways, and an estimated $300 million in federal tax giveaways,” the letter said.

“The unrestricted federal funds left the door open for Koch Industries to purchase the company just six years after the plant opened,” the letter continued. “While we would harbor grave concerns about any acquisition that further consolidates an agricultural sector as concentrated and as critical as fertilizer, those concerns are much more serious given this deal involves hundreds of millions in taxpayer dollars.”

The groups noted that FTC and DOJ’s recently updated merger guidelines containing language pertinent to the proposed acquisition. One guideline is that “Mergers Raise a Presumption of Illegality When They Significantly Increase Concentration in a Highly Concentrated Market,” and another is “Mergers Can Violate the Law When They Entrench or Extend a Dominant Position.”

“Fertilizer is one of the most highly consolidated sectors in American agriculture, with the top four firms collectively controlling 75% of fertilizer markets,” the groups said in the letter. “Koch Industries is in fact one of these four fertilizer firms, in addition to being one of the largest privately held companies in the country.”

The letter was signed by 20/20 Vision, American Economic Liberties Project, American Grassfed Association, Campaign for Family Farms and the Environment, Family Farm Defenders, Farm Action, Farm and Ranch Freedom Alliance, Food & Water Watch, Iowa Citizens for Community Improvement, Institute for Agriculture and Trade Policy, Institute for Local Self-Reliance, National Family Farm Coalition, National Farmers Union, Open Markets Institute, R-CALF USA, Revolving Door Project, Sooner Food Group, and Union of Concerned Scientists.

USDA Awards $207 M in Grants; Fertilizer Projects Take $50 M

Featured, U.S.

USDA on Jan. 22 announced it is investing $207 million in domestic fertilizer and renewable energy projects. Fertilizer Production Expansion Program (FPEP) projects will receive $50 million and include seven projects in seven states, while Rural Energy for America Program (REAP) projects will take $157 million with money going to 675 projects in 42 states.

Biogas Corp. received the largest award of $32.3 million, which will be used to purchase and install a new anaerobic digestion facility in Monroe County, N.C. The new facility will produce 50,000 st of organic fertilizer and ammonium sulfate annually. It will also generate 55,000 megawatts of clean energy per year to be purchased and distributed through Duke Energy Carolinas. This project is expected to create 19 additional positions. 

UPL NA Inc. will receive $4 million to acquire a seaweed extraction facility in Kingstree, S.C., which will produce and distribute 131,041 gallons of seaweed bio-stimulant fertilizer per year. The project will create nine positions.

California Safe Soil LLC gains $3.98 million to expand an existing dry fertilizer facility in McClelland, Calif. The expansion is expected to create 10,000 st of organics annually to produce 1 million gallons per year of H2H ™ liquid fertilizer. Nine positions will be created.

ARE Properties will receive $3.96 million to build a fully automated fertilizer facility in Sydney, Neb., designed to manufacture custom products based on the results of plant tissue and soil samples. All equipment in the facility will run on natural gas with the long-range strategy to retrofit the facility for alternative energy sources.

Town & Country Supply Assoc. is granted $3 million to expand its Billings, Mont., facility. The expansion includes an additional 27,000 square foot product processing and storage facility and the construction of two railyard tracks for railcar storage. The expansion will increase the domestic availability of conventional fertilizers. Eight jobs are expected to be added.

Heliae Development LLC will receive $2.3 million to increase production capabilities to support the manufacturing of a new algae-based soil amendment and seed treatment. Production will increase from 8,000 gallons per week to 10,500 gallons per week. The project will help the company expand into nine western states.

Bandana Ag Inc. will use $800,999 to expand an existing dry fertilizer facility in Kevil, Ky. The expansion is expected to yield 17,000 st of dry packaged fertilizer annually. Two positions will be created.

The announcement was made by Secretary Tom Vilsack at the 105th annual American Farm Bureau Federation convention in Salt Lake City.

“President Biden and USDA are ensuring farmers, ranchers, and small businesses are not only a part of the clean energy economy, but directly benefitting from it,” he said. “The investments announced will expand access to renewable energy infrastructure and increase domestic fertilizer production, all while creating good-paying jobs and saving people money on their energy costs that they can then invest back into their businesses and communities.”

President Biden committed up to $900 million through the Commodity Credit Corp. for FPEP. Since the start of the Biden administration, USDA has invested more than $166 million in 40 projects nationwide to boost domestic fertilizer production through FPEP (GM Oct. 20, 2023; July 7, 2023; March 17, 2023).

USDA has also taken steps to support producers in leveraging these tools through nutrient management assistance and climate-smart management practices. During that same time, USDA has invested more than $1.6 billion through REAP in 5,457 renewable energy and energy efficiency improvements that will help rural business owners lower energy costs, generate new income, and strengthen their resiliency of operations.

FPEP was created to combat issues facing American farmers due to rising fertilizer prices, which more than doubled between 2021 and 2022 due to a variety of factors. It provides grants to independent business owners to help them modernize equipment, adopt new technologies, build production plants, and more.

USDA said the funding is to help boost domestic fertilizer production, strengthen competition, and lower costs for farmers. USDA said FPEP is part of a broader effort to help producers increase production and address global food insecurity.

North Dakota Commission Awards $125 M Fertilizer Loan

Ammonia, Carbon Dioxide, Featured, Green Ammonia, Hydrogen, Natural Gas, U.S.

The North Dakota Industrial Commission on Jan. 24 awarded $125 million in forgivable loans for new fertilizer production projects (GM Jan. 19, p. 1), with $75 million going to Prairie Horizon Energy Solution LLC and $50 million to NextEra Energy Resources Development LLC.

The Commission has three members – Governor Doug Burgum, Attorney General Drew Wrigley, and Agriculture Commissioner Doug Goehring.

The N.D. Clean Sustainable Energy Authority (CSEA) on Jan. 23 recommended that the Commission split the award. The fertilizer must be made from hydrogen produced by electrolysis of water. CSEA’s Technical Committee gave Prairie Horizon a rating of 41.75 out of 50, with NextEra’s receiving 39.13. Both projects were called “feasible with conditions.”

Prairie Horizon’s $2.2 billion project would be in Dickenson and produce 419,750 tons of ammonia per year. Some 73,000 tons of ammonia production would come via electrolysis and be green. The project would also use natural gas, with that ammonia being blue. Capturing and storing carbon dioxide is also part of the plans.

Prairie Horizon is a collaboration between Marathon Petroleum Corp. (MPC) and TC Energy, both of which are a part of the Heartland Hydrogen Hub (HH2H), which was selected by the US Department of Energy for up to $925 million to produce low carbon hydrogen, decarbonize regional supply chains, and create clean energy jobs across Minnesota, Montana, North Dakota, South Dakota, and Wisconsin (GM Oct. 13, 2023).

NextEra’s $1.293 million facility would be in the Spiritwood Energy Park near Jamestown, producing 100,000 tons per year of green ammonia. Power would come from wind generation. NextEra is already heavily involved in the state, having invested $3.7 billion in North Dakota wind projects with another in the planning stages.

NextEra has been eyeing a possible fertilizer plant in the state for some time (GM June 2, 2023). It has signed a Memorandum of Understanding (MOU) with CF Industries Holdings Inc. for a joint venture to develop a zero-carbon-intensity hydrogen project at CF’s Verdigris Complex in Oklahoma (GM April 28, 2023), and it is also invested in clean technology developer and junior ammonia producer Monolith, Lincoln, Neb., which has plans to produce 275,000 mt/y of ammonia in Nebraska (GM July 15, 2022).

Both Prairie Horizon and NextEra’s projects would be built with an eye toward eventually constructing a “bolt-on” urea plant.

The companies have a month to decide on whether they will take the loan, according to the Bismarck Tribune. If one declines, the entire amount will be offered to the other company. The loan will become forgivable, or a “grant” once the project is commercially viable, with that definition still to be finalized.

There was no new information as to CSEA’s review of Catalyst Midstream (USA) LLC’s request for $10 million in funding to build a $960 million, 1 million ton per year blue ammonia project in Berthold (GM Jan. 19, p. 1).

North Dakota already has one nitrogen plant. Dakota Gas Co., a subsidiary of Basin Electric Power Cooperative, Bismarck, produces 1,100 st/d of urea at its Great Plains Synfuels Plant near Beulah (GM May 25, 2018). It also has ammonia capacity of 110,000 st/y and ammonium sulfate at 400,000 st/y. Diesel exhaust fluid (DEF) is produced there as well.

Germany Hit by Another Rail Strike; K+S, BASF Impacted

Featured, Germany

German rail freight and passenger services suffered six more days of disruption this week after a train drivers union rejected a third pay offer from state-owned rail operator Deutsche Bahn AG and asked freight train drivers to halt work from 6 p.m. local time on Jan. 23 until Jan. 29.

The Gewerkschaft Deutscher Lokomotivführer (GDL) union also asked passenger train drivers to strike from 2 a.m. on Jan. 24, also for six days. According to a Financial Times (FT)report, cited by Bloomberg, Deutsche Bahn as of Jan. 24 was still able to operate a skeleton service, with about one in five long-distance trains running.

The extended strike follows a three-day walkout earlier this month. GDL is seeking a 35-hour working week on full pay, down from the current 38 hours, but the proposal has been rejected by Deutsche Bahn management.

A spokesperson for K+S Group told Green Markets on Jan. 25 that the rail strikes were affecting the company, as Deutsche Bahn is the company’s main rail contractor.

“But we are able to conduct some transports and/or are able to use other rail companies, or shift to truck transports,” he said. “Fortunately, we currently have sufficient storage capacity at our production sites. Therefore, from today’s perspective, we do not expect any production stoppages at our sites.”

K+S in November said it had factored the risk of possible rail strikes into its full-year 2023 EBITDA guidance (GM Nov. 17, 2023). The company warned that rail disruptions could affect the transportation of potash and salt products from its production sites to the ports. K+S as of November was forecasting a FY2023 EBITDA of €600-€800 million.

K+S also confirmed that the rail strike risk, besides other uncertainties, had been factored into the company’s full-year sales volumes projection for its Agriculture customer segment. The company in November said it was expecting sales volumes for all products in the segment to range from 7.0-7.4 million mt in 2023, down from 7.11 million mt in 2022.

BASF SE warned that the six-day strike will have more of an impact on the movement of the company’s products than previous strikes.

According to a Dow Jones report, citing a statement from Uwe Liebelt, President of European Verbund Sites at BASF, the company in normal circumstances handles about 30% of its transports by rail. Due to the strike, however, it has been forced to shift to trucks on a large scale, Liebelt said.

BASF said it had taken measures to cushion the effects of the strike on production sites and customers, but added that its operations were still recovering from adverse weather and a previous rail strike earlier in January.

According to a Financial Times report, cited by Bloomberg, the transport of raw materials between BASF’s plants in Ludwigshafen, Schwarzheide, and Antwerp as of Jan. 24 had not been affected as the company uses its own locomotives and drivers.

But BASF’s customers are affected, according to the report. Products are usually shipped from Ludwigshafen in trains operated by Deutsche Bahn’s subsidiary DB Cargo, but these are now no longer running. BASF said it was seeking to switch to trucks instead.

BASF’s employees, many of whom use trains to get to work in Ludwigshafen, are also affected, the company said. The German chemicals major declined to disclose whether run rates at any of its sites have been impacted by the strike.

Germany’s Transport Minister Volker Wissing called the strike “unacceptable,” and accused GDL of refusing to negotiate. The country’s BDI industry lobby has warned the six-day strike could trigger losses to the German economy of as much as €1 billion (approximately $1.1 billion at current exchange rates).

CHS Plans New Fertilizer Hub in Minnesota

News Briefs, U.S.

CHS Inc. on Jan. 22 announced plans to build a new 25,000 st fertilizer hub in Hallock, Minn. The new plant is expected to open in spring 2025 and will be located on the same property as the CHS canola plant.

CHS said the new hub will increase storage in the area by 20,000 st, helping to provide crop nutrients to CHS customers when they need it, where they need it.

“CHS is dedicated to investing in the cooperative supply chain on behalf of our ag retail farmer-owners,” said Rick Dusek, Executive Vice President, Ag Retail. “This new facility will help our producers grow their businesses by increasing the speed and space of our assets while connecting with the global crop nutrients supply chain.”

CVR Strike Passes Three-Month Mark

News Briefs, Nitrogen, U.S.

Some 94 members of the local United Auto Workers, Local 1391 (UAW) union were still on strike at CVR Partners LP’s East Dubuque, Ill., nitrogen plant as of Jan. 24, easily passing the three-month mark. The strike began on Oct. 18 (GM Oct. 20, 2023). CVR told Green Markets production continues at normal operations.

The UAW said a major point of contention is the maintenance of CVR’s 401K match, saying the company froze the match program in the past and did not pay a match one year, before later reinstating it. The UAW wants language to ensure that this does not happen again, claiming executives have received huge bonuses and shareholders have benefited.

“We are just another piece of equipment to them,” said one UAW member. UAW1391 said that in their most recent vote, 92% wanted to continue the strike and rejected CVR’s offer. CVR has not commented on the issues involved.

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