AMERICAN FALLS, Idaho — Officials planning a large nitrogen fertilizer plant here say they remain on track to break ground this summer, and they expect to save nearly half a billion dollars in construction costs thanks to lower oil prices.
Ric Sorbo, project manager of Texas-based Magnida, increased his original cost estimate for plant construction from $2.1 billion to $3 billion when competition with the booming domestic energy sector drove up construction bids.
But with lower oil prices, construction in U.S. oilfields has slowed and Sorbo estimates the broader pool of contractors hungry for work should reduce his project cost to “somewhere north of $2.5 billion.”
The plant, to be built on farm land near ConAgra’s factory, would use natural gas as a feedstock and produce more than a million combined tons per year of ammonia, urea, UAN — a solution of urea and ammonium nitrate — and diesel exhaust fluid.
Sorbo plans to enter into a seven- to 10-year contract for natural gas. At current prices, he estimates he would save $20 million per year on natural gas compared with prices anticipated in his original modeling.
Sorbo said he’s delayed the original timeline for the financial close — when all details are solidified and the project can go forward — to take advantage of declining oil and gas prices. He now anticipates financial close in the early summer.
“The reason it’s been pushed back a little bit, quite frankly, is we’re taking advantage of the downturn in oil prices we’ve seen in the last three or four months. That makes the construction companies hungrier,” Sorbo said. “And look at natural gas prices. In the last six months they’ve come down dramatically.”
Within the next two months, Sorbo said Magnida expects to select its engineering and construction company. Magnida has received competing offers from two large firms — Bechtel and KBR. He said Magnida is also continuing its conversations with banks and investors to line up financing.
A roadblock facing the project was overcome recently when ConAgra Foods reached an agreement with Magnida and rescinded an appeal of the clean air permit issued for the fertilizer plant. Details of the agreement have been kept confidential.
Magnida’s goal is to open the plant, which would employ 175 workers, by 2017.
University of Idaho Extension economist Paul Patterson said the plant may not lower nitrogen fertilizer costs but would likely displace fertilizer imports from foreign markets and stabilize prices. Reduced price volatility would facilitate budgeting for producers, he said.
Patterson said nitrogen prices appear to be comparable to last year’s levels.
“The theme of the market seems to be there’s going to be an abundance of natural gas available, which should keep prices relatively stable,” Patterson said, adding that lower commodity prices should also reduce fertilizer demand.