LSB Industries has crunched some numbers, talked to potential customers, and come to the conclusion that its make-or-break point for blue ammonia is $600 a ton FOB. If it can get below that mark, it’s all systems go for the Oklahoma-based fertilizer maker.
“That’s a level where we could get appropriate off-takes to get comfortable to move forward,” said CEO Mark Behrman.
LSB is eyeing a world-scale blue ammonia facility complete with an export terminal on the Houston Ship Channel, in partnership with Air Liquide and Vopak Moda. The CO2 emitted during manufacturing will be sequestered via carbon capture, utilisation, and storage technology. Moving ahead with the El Dorado CCS project and Houston facility would turn about two-thirds of LSB’s ammonia blue from grey. FOB prices for grey ammonia out of the US Gulf were put at ~$510 around the end of 2024.
Unfortunately, LSB Industries isn’t quite there yet. Behrman is working with partners on “different configurations” to bring the capital and operational costs down to the necessary levels to underpin the project. Where things stand today, nothing is transactional, and LSB will sit on the sideline, he said.
“We do think there’s a possibility; otherwise we wouldn’t spend the time to really go through this, but we’re not there yet,” Behrman added. “We will continue to have conversations with partners and off-takers until it makes sense to move forward. We won’t take the risk to build a plant and hope they come.”
The CEO hopes to provide an update on the situation in April.
Whether grey, blue, or green, ammonia will always be a generic molecule. The big hope for LSB and rivals like CF Industries, OCI and Yara is that the more sustainable varieties will command a premium price to the commodity “grey” one. To begin with, they will be looking for a contractual price, an indexed type of arrangement that allows the pass-through of gas and power costs while providing an appropriate return to finance new facilities.
LSB’s conversations with possible customers were based on stated volumes and long-term contracts of 7, 10, or even 12 years. The below $600 price point is based on the current cost of capital, but the indications from other companies are for continuing hikes in this area.
A lot of the off-takers that LSB is talking to are European, providing a reliable sounding board on sentiment. There are underlying concerns around shifting policy amid election results, alongside pushback on inflation and overall costs. From a customer perspective, the economics are front and center at challenging times like these. Some expect the Jan. 1 introduction of the EU’s carbon border adjustment to be pushed out by one or even two years, which could delay blue ammonia.
“I would like to think that people are doing it for the environmental benefit of it, and I don’t want to say that people aren’t,” Behrman said. “But the reality is that all this is financially based. If you can’t use it to keep costs flat and make more money, ultimately most people aren’t going to do it. It would be hard for most people to go to their shareholders and say: We’re going to make less money because we want to be good environmental stewards.”
“We are a big believer in the energy transition and that the demand will materialize over time. What that timing is is really the wild card here,” Behrman said.