Terra Industries Inc. told analysts Sept. 15 at the Credit Suisse Chemical and Ag Science Conference that it would need a $150-$200 million expansion or acquisition within the next 12-18 months in order to accommodate demand for its developing NOx emission reduction business. Specifically, Terra needs to expand its urea liquor capacity to serve this growing market.
Daniel Greenwell, Terra senior vice president and chief financial officer, said such an expansion would get the company to 2014. He added that it would have to build or acquire more assets to continue to expand its market share.
To date, Terra’s wholly-owned unit, Terra Environmental Technologies, has been serving the stationary power plant segment of the NOx abatement market. Terra says it now represents 10 percent of its revenues and estimates that it has 60 percent of that market.
Terra has been gearing up for the NOx abatement market for diesel engines as a result of the 2010 Clear Air Act. The company says if demand follows the trend already occurring in Europe, there will be a significant increase in North American nitrogen demand for liquid urea, and it plans to capture a significant share of this market. “Terra alone, among North American producers, has been laying the groundwork for this market,” said Greenwell. He added that the current NOx market would be difficult for importers to enter since imported urea comes in granules that include formaldehyde, which cannot be used in the NOx catalyst system. He said this could be overcome by technology, but it would take a long time.
Greenwell believes Terra can capture roughly 50 percent of this market in diesel exhaust fluid. He said as this market matures, which he thinks it will in 2014-2015, that every year the new truck models are introduced, there will be a high penetration rate of new SCR technology, which will use this material. “We are expecting that in 2014-2015, roughly 10-15 percent of North America’s capacity will be consumed by this application. So from a commodity producers’ view, anytime you have a brand new market that consumes 10-15 percent of existing capacity, that is a very attractive proposition.” He added that the company isn’t just talking about it, but doing something, noting that it has an agreement with Daimler to supply their engines coming out of the plants with Volvo Mack.
Three gallons of urea solution will be used for each 100 gallons of diesel fuel, according to Greenwell. At this rate, he said Terra could get $400-$500 million of incremental revenue from this market.
Greenwell also discussed the high price of replacement costs for nitrogen plants, as well as CF Industries Holdings Inc.’s attempts to buy Terra. “When you look at the value of assets today that are currently operating and you weigh that against a greenfield investment, you can clearly see that it’s a good time to be buying existing assets. And hence, you have the froth in the nitrogen space right now. It’s a good time to be buying assets at today’s valuations versus when you look at the new next incremental ton of capacity that has to be built somewhere around the world.”
“North American producers are in a pretty favorable position as compared to where they have been historically,” he added. “And we’re principally focused in North America. So we believe our assets have wonderful values.”
“All of us should be for sale at the right price,” continued Greenwell. “We know that, but we’re nowhere even close to that right price…You don’t seem to see a lot of willing sellers, and they’re all just saying no.”
In related news last week, Terra announced that TET has launched a new website at www.tet-terra.com. It features content tailored to two distinct customer types – mobile and stationary. Mobile includes original equipment manufacturers (OEMs), dealers, fleets, owner/operators, and truck stops. Stationary includes power plants, large industrial applications, and stationary diesel-powered engines that use various NOx reducing reagents such as anhydrous and aqueous ammonia, urea, and urea liquor, in SCR and selective non-catalytic reduction (SNCR) systems.