The international fertilizer industry appears to be getting back on its feet after the downturn that followed the global credit crunch of 2008. Demand has picked up in all key consuming regions; capacity utilisation has improved; prices of all leading nutrients are firm and are expected to remain so for the immediately foreseeable future; and the leading producers are again reporting healthy earnings and margins. In effect, the global fertilizer industry is carrying on where it left off in mid-2008.
These factors create a very sound climate for new investment, and there is no lack of new participants who are keen to enter the fertilizer and associated raw materials industries. The list of new projects and proposals around the world continues to mount. Whether promoting greenfield or brownfield projects, potential entrants have not been deterred by the long gestation periods that are involved in converting the gleam of an idea into a positive cash flow. There are the various feasibility studies that have to be commissioned, environmental permits, negotiations with government and local interests, the rounds of roadshows to present the case to potential investors, and much else besides.
The start-point and the common denominator in so many of the brochures that are being published to appeal to investors are the FAO’s forecasts of population growth and the consequent impact on the demand for food and fibre. Global population is expected to reach 9.1 billion by 2050, compared with around 6.0 billion today, and this in turn will require world food production to rise by 70% during this period, FAO states. Food production in the developing world would furthermore need to double.
Some analysts contend that the FAO under-estimates the food production requirements, as no account is taken of any increase in agricultural production for biofuels. Another factor is the continuing advance towards higher protein diets, away from grains, which requires the intensification of agriculture. As The Population Institute observes, the projected 70% increase in food production will have to overcome rising energy prices, the depletion of underground aquifers, loss of farmland to urbanisation and the potentially adverse impacts arising from climate change. In other words, for the increase in world population to be sustained, there must be a step-change in agricultural productivity.
The International Fertilizer Industry Association (IFA) picks up the baton: fertilizers are the primary catalysts that will achieve this higher agricultural productivity, as they did in the previous decades of the original Green Revolution. The FAO forecasts translate into a steady increase in the global demand for nutrients, in the order of between 2.5-3% per year for the foreseeable future. In developing markets, that percentage may be even higher, at up to 7%/year.
The prospect of steady demand growth, sustained over the life of a project, is exactly what investors like to hear. However, in addition to the time that must be consumed in the project permitting and financing process, there are other daunting barriers to entry, the most important of which is the sheer cost of setting up the business, covering the construction of the plant and associated infrastructure, securing markets for the final product, recruiting and training the operating staff. Greenfield fertilizer projects now have a price tag in excess of $1 billion. Account should also be taken of the potential responses of established producers in the sector to preserve their status in the market. Potential investors must retain their faith as they must wait for a minimum of at least seven years - and more likely ten - before a positive cash flow emerges.
“No man is an island” and similarly, no project is entirely isolated from the context of its impact on global supply/demand balances. Thus, IFA comments that in the nitrogen sector, there are close to 65 new plants under construction or being planned to come on stream in the five years to 2014. These projects equate to a net expansion of 37.4 million t/a capacity, which would result in an annual growth rate of 4%. In the nitrogen sector overall, IFA forecasts a mounting surplus, equivalent to 3% of global supply. Could this capacity increase have a softening effect on prices? Did the financial submissions take account of this factor?
In the phosphates sector, not only are large expansion projects being developed by established producers in China, Morocco, Jordan, Algeria, Tunisia, Brazil and Vietnam, but new potential production has been announced for the near-to-medium term by potential suppliers in Australia, Kazakhstan, Russia and Namibia. Peru has just joined the ranks of phosphate rock producers, and Saudi Arabia waits in the wings. The key to whether these projects affect global market equilibrium is the securing of offtake agreements at an early stage in the development stage.
The potash scenario is the most intriguing. There have been no new entrants among the producers for fully two decades, but that has been no deterrent to potential investors. Before BHP Billiton turned its attention to acquiring PotashCorp – the world’s largest fertilizer producer – it pledged its commitment to the greenfield project at Jansen, Saskatchewan. One industry analyst estimated that BHP Billiton would not break even on its $10 billion investment until 2026. This prospect has not deterred other junior potash producers from forging ahead with their planned projects and each hopes a steal a march on the others by securing blue-chip strategic partners and coming on stream first.
Investors in fertilizer projects – like punters at the races – will meanwhile sit tight and hope.
Monday 15 November 2010
Thursday 9 September 2010
They came, they saw….
But will they conquer? The entry of the BHP Billiton fox into the PotashCorp hen-coop with a hostile bid on 17 August, valuing the company at $40 billion or $130/share, was not a surprise to industry analysts. The first speculative suggestion that the Anglo-Australian mining giant might take a look at PotashCorp had been made a full two years ago: indeed, some reports suggest that BHP Billiton had been preparing its move for fully four years.
BHP Billiton has given PotashCorp shareholders until 19 October to mull the bid on the table. Since the offer was set out, the parties involved have followed virtually a textbook pattern in such contested M&A activities: PotashCorp’s immediate riposte was the offer was unacceptably low and undervalued the company. Its shares duly began to gain value, reaching $149.50 in the week commencing 23 August. They were widely expected to make further gains that would prompt BHP Billiton to submit a fresh bid, only to slip back to $146 by Friday, 27 August. Financial analysts had earlier speculated that BHP Billiton would ultimately win the day with a revised offer of $155-160/share. Meanwhile, likewise in textbook manner, BHP Billiton adopted a poker player’s stance, indicating that no new bid was forthcoming and that it was offering a very fair price to shareholders.
The next step, again as per textbook, was PotashCorp’s reported search for partnerships with potential White Knights to stave off BHP Billiton. This was the case with the most recent contested M&A deal in the fertilizer industry, involving a three-way fight between Agrium, Yara International and CF Industries to gain control of Terra Industries. Vale of Brazil promptly denied that it had any interest in bidding for PotashCorp. While M&A stories tend to generate feverish excitement among commentators, the official stance that Vale has adopted appears plausible, as the Brazilian mining giant is currently preoccupied with absorbing the Fertifos operation in Brazil. It is also expected to spearhead the drive urged by Brazil’s President Lulas to accelerate the development of additional sources of phosphate and potash within the country. In this context, PotashCorp may seem a distraction too far.
Sinochem’s name is also mentioned as being keen to ensure PotashCorp’s continuing independence, above all from BHP Billiton, with whom the Chinese have experienced recent tense relations over iron ore contract terms. Sinochem and PotashCorp are partners in the Sinofert joint venture, in which PotashCorp holds a 22% stake. The prospect of some form of Sinochem stake in the supply of potash from Canada – its principal supplier of a resource which the country partly lacks – does have a certain merit. However, outright Sinochem ownership of PotashCorp appears unlikely as the group has recently extended itself financially through a spate of acquisitions of domestic fertilizer producers.
Could Rio Tinto mount a counter-bid? This company had itself been the target of an unwelcome take-over bid from BHP in 2008. As part of the price it paid to retain its independence, Rio Tinto sold off several assets, including its interest in the Potasio Rio Colorado potash project in Argentina and its Regina potash asset in Canada. Earlier this year, Rio Tinto CEO Tim Albanese stated that the company is interested in re-entering the potash business. He also confirmed that potash is one of the minerals that the Rio Tinto exploration team continues to evaluate. “Rio has always thought this a good mineral to be in,” he added. But is re-entry into the potash sector worth $40 billion? Rio Tinto appears to think not, at least in its public statements to date.
Another facet when a company strives to preserve its independence from an unwelcome suitor is the use of the “poison pill”. PotashCorp followed previous companies’ form by announcing a shareholder rights issue, designed to prevent anyone acquiring more than 20% of the company.
The story to date has followed textbook patterns of behaviour by the suitor and the take-over target. Ultimately, however, each M&A story is unique, reflecting such factors as the personalities of the CEOs involved, the attentions of the regulatory institutions, the possible effect on other companies in the same business, and not least, the expectations of the shareholders being courted.
BHP Billiton’s declaration that it will operate PotashCorp’s mines at full capacity if its bid succeeds has dismayed Mosaic and Agrium, which also operate potash mines in Saskatchewan and which partner PotashCorp in the Canpotex export consortium. They have identified a threat to the global market balance, whereby output is tailored with supply to ensure buoyant prices. In conjunction with PotashCorp, they could lobby Canadian regulators and politicians to block the take-over. Under the Investment Canada Act, a foreign investor is required to demonstrate that a deal brings a “net benefit” to Canada. Recognition of this threat may explain why BHP Billiton subsequently took a more conciliatory approach towards any post-acquisition production and marketing of potash.
Shareholders will have reached their decision by the 19 October deadline, but there is one more hurdle that BHP Billiton must cross before it can assume victory: the approval of the Saskatchewan Financial Services Commission. The head of the commission is getting prepared for the task ahead: “Buckle up, because it’s going to be a crazy ride,” he is reported to have told his wife. Financial and industry analysts around the world may be inclined to agree.
BHP Billiton has given PotashCorp shareholders until 19 October to mull the bid on the table. Since the offer was set out, the parties involved have followed virtually a textbook pattern in such contested M&A activities: PotashCorp’s immediate riposte was the offer was unacceptably low and undervalued the company. Its shares duly began to gain value, reaching $149.50 in the week commencing 23 August. They were widely expected to make further gains that would prompt BHP Billiton to submit a fresh bid, only to slip back to $146 by Friday, 27 August. Financial analysts had earlier speculated that BHP Billiton would ultimately win the day with a revised offer of $155-160/share. Meanwhile, likewise in textbook manner, BHP Billiton adopted a poker player’s stance, indicating that no new bid was forthcoming and that it was offering a very fair price to shareholders.
The next step, again as per textbook, was PotashCorp’s reported search for partnerships with potential White Knights to stave off BHP Billiton. This was the case with the most recent contested M&A deal in the fertilizer industry, involving a three-way fight between Agrium, Yara International and CF Industries to gain control of Terra Industries. Vale of Brazil promptly denied that it had any interest in bidding for PotashCorp. While M&A stories tend to generate feverish excitement among commentators, the official stance that Vale has adopted appears plausible, as the Brazilian mining giant is currently preoccupied with absorbing the Fertifos operation in Brazil. It is also expected to spearhead the drive urged by Brazil’s President Lulas to accelerate the development of additional sources of phosphate and potash within the country. In this context, PotashCorp may seem a distraction too far.
Sinochem’s name is also mentioned as being keen to ensure PotashCorp’s continuing independence, above all from BHP Billiton, with whom the Chinese have experienced recent tense relations over iron ore contract terms. Sinochem and PotashCorp are partners in the Sinofert joint venture, in which PotashCorp holds a 22% stake. The prospect of some form of Sinochem stake in the supply of potash from Canada – its principal supplier of a resource which the country partly lacks – does have a certain merit. However, outright Sinochem ownership of PotashCorp appears unlikely as the group has recently extended itself financially through a spate of acquisitions of domestic fertilizer producers.
Could Rio Tinto mount a counter-bid? This company had itself been the target of an unwelcome take-over bid from BHP in 2008. As part of the price it paid to retain its independence, Rio Tinto sold off several assets, including its interest in the Potasio Rio Colorado potash project in Argentina and its Regina potash asset in Canada. Earlier this year, Rio Tinto CEO Tim Albanese stated that the company is interested in re-entering the potash business. He also confirmed that potash is one of the minerals that the Rio Tinto exploration team continues to evaluate. “Rio has always thought this a good mineral to be in,” he added. But is re-entry into the potash sector worth $40 billion? Rio Tinto appears to think not, at least in its public statements to date.
Another facet when a company strives to preserve its independence from an unwelcome suitor is the use of the “poison pill”. PotashCorp followed previous companies’ form by announcing a shareholder rights issue, designed to prevent anyone acquiring more than 20% of the company.
The story to date has followed textbook patterns of behaviour by the suitor and the take-over target. Ultimately, however, each M&A story is unique, reflecting such factors as the personalities of the CEOs involved, the attentions of the regulatory institutions, the possible effect on other companies in the same business, and not least, the expectations of the shareholders being courted.
BHP Billiton’s declaration that it will operate PotashCorp’s mines at full capacity if its bid succeeds has dismayed Mosaic and Agrium, which also operate potash mines in Saskatchewan and which partner PotashCorp in the Canpotex export consortium. They have identified a threat to the global market balance, whereby output is tailored with supply to ensure buoyant prices. In conjunction with PotashCorp, they could lobby Canadian regulators and politicians to block the take-over. Under the Investment Canada Act, a foreign investor is required to demonstrate that a deal brings a “net benefit” to Canada. Recognition of this threat may explain why BHP Billiton subsequently took a more conciliatory approach towards any post-acquisition production and marketing of potash.
Shareholders will have reached their decision by the 19 October deadline, but there is one more hurdle that BHP Billiton must cross before it can assume victory: the approval of the Saskatchewan Financial Services Commission. The head of the commission is getting prepared for the task ahead: “Buckle up, because it’s going to be a crazy ride,” he is reported to have told his wife. Financial and industry analysts around the world may be inclined to agree.
Friday 23 July 2010
A major new scenario
We look in this issue how well the leading fertilizer companies are performing financially. (Financial performance – a slow return of confidence, p18.) The short answer is not too badly. Most producers managed to withstand the worst effects of the credit crunch and collapse in demand to return to profitability by the fourth quarter of 2009. That positive momentum continued in the first quarter of 2010.
Another manifestation of the improved financial climate is the resurgence of merger and acquisition activity, marked by the final resolution of the long-running battle for control of Terra. Financial analysts love a good M&A battle and they have been salivating at the thought that such activity will accelerate during the course of the year. They believe that the nitrogen sector is particularly ripe for consolidation, as fragmentation is much greater. Some analysts have been eager to suggest the names of the companies that are thought to be susceptible to take-over bids, but their speculative writings have so far turned into nothing concrete.
Of much greater interest to all market observers has been the intense interest that leading mining companies have begun to manifest in fertilizer raw materials. BHP Billiton’s acquisition of the junior mining company Athabasca Potash was concluded in January 2010 at $323 million – a sum that was seen as small beer for this, the world’s largest mineral resource company. BHP Billiton previously picked up the potash assets in Argentina and Canada that Rio Tinto had briefly held. Having sloughed off other under-performing assets, including the White Elephant of the Ravensthorpe nickel project, BHP Billiton had been widely expected to withdraw from the potash sector - one which it should be noted has yet to yield the group a single dollar of revenue.
BHP Billiton’s recent capital market presentations have placed potash to the forefront of the group’s development strategies, and the company has declared that “to create a world-class potash business will require more than a single mine.” The Jansen project is the most advanced project in BHP’s potash development portfolio and BHPhas indicated that the neighbouring greenfield projects at Boulder and Young, Saskatchewan are waiting in the wings to proceed with development. “Potash is strategically important for BHP Billiton, offering the group an avenue for significant growth and further diversification by commodity, customer and geography,” said one BHP president.
Brazilian mining group Vale has issued a similar declaration of strategic intent. Its fast-expanding fertilizer commitments embrace both the potash and phosphate sectors. The group’s chief financial officer, Fabio Barbosa, said in August 2009 that Vale’s ambition was to become a major force in the phosphates and fertilizer sector, and its interests went “further than just mining.” The subsequent months proved a veritable whirlwind as Vale spent over $5 billion in acquiring fertilizer assets, including gaining a majority stake in Fosfertil, Brazil’s largest producer. “Carnaval has come early to Brazil this year,” commented a Financial Times editorial (14 February 2010).
Vale’s rapid advance was seen as partly the result of prodding from President Luiz Inácio Lula da Silva, who had berated the country’s hitherto fragmented (and partly foreign-owned) fertilizer industry for being slow to exploit the country’s mineral reserves and raise self-sufficiency. It is clear that President Lula had the Chinese model in mind: within barely a decade, China had transformed its nitrogen and phosphate fertilizer sector from being one reliant mainly on imports to become an exporter with a global-market impact.
The FT observed that President Lula had previously exerted pressure on Vale to invest in the Brazilian steel industry in order to reduce the risk of Brazil exporting all of its iron ore output to Brazil and in consequence would have to import Chinese steel. The FT questioned whether Vale’s sudden foray into downstream fertilizers was a rational move for a company whose core activity had been iron ore or another response to political bidding. It noted that the government still retained a 40% golden share in Vale and speculated whether the Vale move was part of an official strategy to strengthen Brazil’s role as a global fertilizer producer. Vale meanwhile insists that its investment in fertilizer and associated raw material assets is market-driven, and notes that analysts are unanimous in indentifying the sector as one offering consistent long-term growth.
The Financial Times seems to have accepted Vale’s wisdom in that respect, noting also that “previous Vale bets on coal and nickel have paid off.”
The costs of entry into fertilizers and associated raw materials is high. Expect to pay around $3 billion to bring a new potash mine into production and between $1-1.5 billion for new nitrogen and phosphate facilities. This has not deterred a large number of junior mining companies from proposing new developments around the world, including such locations as offshore Namibia, Ethiopia and the Democratic Republic of Congo. These companies had announced their projects in the heady days of escalating commodity prices in 2007 and early 2008. Despite the subsequent poor climate for investment, the junior minors have not gone away: most of their projects report continuing progress with exploratory drilling programmes and feasibility studies.
Established potash and phosphate producers may view the junior miners as upstarts, as was evidenced at the recent BMO Capital Markets fertilizer conference. BMO itself noted that ”financing commitments have not materialised for any of the leading potash projects managed by the junior developers.” Representing the established potash producers, Bill Doyle swatted away any notion of intensified competition from the wave of new projects, whether promoted by a major or a junior: “People ask us about our competitors, but they are not producing,” he said. “So they are not competitors. No-one knows more about building potash capacity than we do, and we are not too worried.”
A major new scenario for fertilizers and raw materials? Or just a group of financial analysts getting over-excited? Let us return to the issue one year hence.
Another manifestation of the improved financial climate is the resurgence of merger and acquisition activity, marked by the final resolution of the long-running battle for control of Terra. Financial analysts love a good M&A battle and they have been salivating at the thought that such activity will accelerate during the course of the year. They believe that the nitrogen sector is particularly ripe for consolidation, as fragmentation is much greater. Some analysts have been eager to suggest the names of the companies that are thought to be susceptible to take-over bids, but their speculative writings have so far turned into nothing concrete.
Of much greater interest to all market observers has been the intense interest that leading mining companies have begun to manifest in fertilizer raw materials. BHP Billiton’s acquisition of the junior mining company Athabasca Potash was concluded in January 2010 at $323 million – a sum that was seen as small beer for this, the world’s largest mineral resource company. BHP Billiton previously picked up the potash assets in Argentina and Canada that Rio Tinto had briefly held. Having sloughed off other under-performing assets, including the White Elephant of the Ravensthorpe nickel project, BHP Billiton had been widely expected to withdraw from the potash sector - one which it should be noted has yet to yield the group a single dollar of revenue.
BHP Billiton’s recent capital market presentations have placed potash to the forefront of the group’s development strategies, and the company has declared that “to create a world-class potash business will require more than a single mine.” The Jansen project is the most advanced project in BHP’s potash development portfolio and BHPhas indicated that the neighbouring greenfield projects at Boulder and Young, Saskatchewan are waiting in the wings to proceed with development. “Potash is strategically important for BHP Billiton, offering the group an avenue for significant growth and further diversification by commodity, customer and geography,” said one BHP president.
Brazilian mining group Vale has issued a similar declaration of strategic intent. Its fast-expanding fertilizer commitments embrace both the potash and phosphate sectors. The group’s chief financial officer, Fabio Barbosa, said in August 2009 that Vale’s ambition was to become a major force in the phosphates and fertilizer sector, and its interests went “further than just mining.” The subsequent months proved a veritable whirlwind as Vale spent over $5 billion in acquiring fertilizer assets, including gaining a majority stake in Fosfertil, Brazil’s largest producer. “Carnaval has come early to Brazil this year,” commented a Financial Times editorial (14 February 2010).
Vale’s rapid advance was seen as partly the result of prodding from President Luiz Inácio Lula da Silva, who had berated the country’s hitherto fragmented (and partly foreign-owned) fertilizer industry for being slow to exploit the country’s mineral reserves and raise self-sufficiency. It is clear that President Lula had the Chinese model in mind: within barely a decade, China had transformed its nitrogen and phosphate fertilizer sector from being one reliant mainly on imports to become an exporter with a global-market impact.
The FT observed that President Lula had previously exerted pressure on Vale to invest in the Brazilian steel industry in order to reduce the risk of Brazil exporting all of its iron ore output to Brazil and in consequence would have to import Chinese steel. The FT questioned whether Vale’s sudden foray into downstream fertilizers was a rational move for a company whose core activity had been iron ore or another response to political bidding. It noted that the government still retained a 40% golden share in Vale and speculated whether the Vale move was part of an official strategy to strengthen Brazil’s role as a global fertilizer producer. Vale meanwhile insists that its investment in fertilizer and associated raw material assets is market-driven, and notes that analysts are unanimous in indentifying the sector as one offering consistent long-term growth.
The Financial Times seems to have accepted Vale’s wisdom in that respect, noting also that “previous Vale bets on coal and nickel have paid off.”
The costs of entry into fertilizers and associated raw materials is high. Expect to pay around $3 billion to bring a new potash mine into production and between $1-1.5 billion for new nitrogen and phosphate facilities. This has not deterred a large number of junior mining companies from proposing new developments around the world, including such locations as offshore Namibia, Ethiopia and the Democratic Republic of Congo. These companies had announced their projects in the heady days of escalating commodity prices in 2007 and early 2008. Despite the subsequent poor climate for investment, the junior minors have not gone away: most of their projects report continuing progress with exploratory drilling programmes and feasibility studies.
Established potash and phosphate producers may view the junior miners as upstarts, as was evidenced at the recent BMO Capital Markets fertilizer conference. BMO itself noted that ”financing commitments have not materialised for any of the leading potash projects managed by the junior developers.” Representing the established potash producers, Bill Doyle swatted away any notion of intensified competition from the wave of new projects, whether promoted by a major or a junior: “People ask us about our competitors, but they are not producing,” he said. “So they are not competitors. No-one knows more about building potash capacity than we do, and we are not too worried.”
A major new scenario for fertilizers and raw materials? Or just a group of financial analysts getting over-excited? Let us return to the issue one year hence.
Monday 21 June 2010
Sustainability is the priority
The popular and scientific media now have their eyes on fertilizers and the reserves and the feedstocks required to produce them. This was prompted by the eruption in early 2008 of the worldwide food crisis that paralleled the spike in commodity prices and new demands on the available crop areas to supply biofuels. Many commentators recognised the role of fertilizers in producing not only food, but fibres, feed and now fuel. In particular, production of several of the leading fertilizer nutrients involved harnessing resources that were non-renewable, and involving production processes that had an environmental impact via emissions and the use and disposal of by-products. Of further concern was the limited efficiency of plants’ uptake of those nutrients.
Particular concern began to focus on phosphorus. The Scientific American published a feature entitled Phosphorus: A Looming Crisis and introduced the concept of “Peak Phosphate,” on a par with the peak oil model. Other commentators followed in a similar vein, raising doubts on the long-term sustainability of phosphate rock production and suggesting that future supplies of phosphate fertilizers may be in jeopardy. Market volatility would ensue, and global food security would face a further threat.
The International Plant Nutrition Institute (IPNI) was prompted by these media articles to undertake a review of world nutrient reserves, drawing further on the data accumulated by the US Geological Service (USGS). In 2008, the USGS estimated that the present known economic reserves of phosphate rock total 15.42 billion tonnes worldwide, giving a reserve life of 93 years at current mining levels of around 160 million t/a. The reserve base is estimated at 46.75 billion tonnes, covering economic, marginally economic and some currently sub-economic resources. This reserve base has an estimated life of 291 years.
IPNI commented that while the USGS estimates of reserves and resources are currently the best available, they lack certainty and suffer from a shortage of reliable data. “Reserve information is at best a general approximation,” said Terry Roberts, IPNI President (Sustainability of World Nutrient Resources, Dr. Terry Roberts. Paper presented at AFA International Fertilizers Forum. [February 2010].) Based on other interpretations of the phosphate reserve and resource, the life span is far longer – up to 600-700 years.
The Peak Phosphorus theory nevertheless exercises the minds of many people in the fertilizer industry. However challengeable the notions, any factor that persuades industry executives to take a longer-term strategic approach is to be welcomed. The issue was much debated at British Sulphur Events’ Phosphates 2010 conference in Brussels, as reviewed elsewhere in this issue. Terry Roberts expresses a consensus view when he concluded that rock phosphate is a non-renewable resource that should be used as efficiently as possible. “Clearly the world is not on the verge of running out of raw materials for P fertilizer production, but the longevity of rock phosphate reserves must be scrutinised with an awareness of the reliability of the available data,” he said.
The sustainability of production of nitrogen fertilizers must also be scrutinised. This is because of the natural gas feedstock that is harnessed to produce some three-quarters of the world’s output of ammonia. In effect, reserves for nitrogen fertilizers are best approximated by reserves of natural gas. At first sight, the gas scenario is even more alarming than that for phosphates: current global gas consumption is around 3.2 tcm/year. With gas reserves currently estimated at 175 tcm, the world has sufficient gas to last around 55 years. However, as with coal in earlier years and more recently oil, natural gas exploration has been vigorous and new resources have been discovered to boost the overall forecast. The life forecast may thus be extended.
Of the other primary nutrients, potash reserves appear to be sufficient to sustain world production for at least 235 years. The USGS data on the global potash resource is not subject to the same uncertainty as phosphate rock. The reserve base has a life expectancy of over 500 years globally, with some geologists suggesting that Saskatchewan’s reserve base could extend to a full millennium. USGS has recently estimated world resources of proven, probable and inferred resources of potash at 250 billion tonnes, sufficient to last thousands of years.
The primary sulphur for agricultural use and as a raw material in the phosphate industry is the energy sector. Sulphur is a by-product, with production to a large extent involuntary, extracted from natural gas and crude oil. At current production levels, the sulphur extracted from these sources has an estimated life of 70 years. There are many additional sources of sulphur, which have not been tapped in full. Examples include extraction for coal and oil shale and an almost limitless source of S in gypsum. A global sulphur shortage is not predicted in the foreseeable future.
These factors suggest a less doom-laden scenario than some pundits and media would allow. However, the central fact remains that fertilizers are based on non-renewable resources. The industry should further endeavour to curb escalating costs of nutrient production in order to keep the final product affordable to the farmer. As Luc Maene, Director General of IFA observes, it is critical that all nutrients be used responsibly, via diligent stewardship and best management practices. IPNI and IFA are liaising with other organisations to promote and implement the 4Rs – right source, right rate, right time and right place. In this way, sustainability is set to become a part of the fertilizer industry’s DNA.
Particular concern began to focus on phosphorus. The Scientific American published a feature entitled Phosphorus: A Looming Crisis and introduced the concept of “Peak Phosphate,” on a par with the peak oil model. Other commentators followed in a similar vein, raising doubts on the long-term sustainability of phosphate rock production and suggesting that future supplies of phosphate fertilizers may be in jeopardy. Market volatility would ensue, and global food security would face a further threat.
The International Plant Nutrition Institute (IPNI) was prompted by these media articles to undertake a review of world nutrient reserves, drawing further on the data accumulated by the US Geological Service (USGS). In 2008, the USGS estimated that the present known economic reserves of phosphate rock total 15.42 billion tonnes worldwide, giving a reserve life of 93 years at current mining levels of around 160 million t/a. The reserve base is estimated at 46.75 billion tonnes, covering economic, marginally economic and some currently sub-economic resources. This reserve base has an estimated life of 291 years.
IPNI commented that while the USGS estimates of reserves and resources are currently the best available, they lack certainty and suffer from a shortage of reliable data. “Reserve information is at best a general approximation,” said Terry Roberts, IPNI President (Sustainability of World Nutrient Resources, Dr. Terry Roberts. Paper presented at AFA International Fertilizers Forum. [February 2010].) Based on other interpretations of the phosphate reserve and resource, the life span is far longer – up to 600-700 years.
The Peak Phosphorus theory nevertheless exercises the minds of many people in the fertilizer industry. However challengeable the notions, any factor that persuades industry executives to take a longer-term strategic approach is to be welcomed. The issue was much debated at British Sulphur Events’ Phosphates 2010 conference in Brussels, as reviewed elsewhere in this issue. Terry Roberts expresses a consensus view when he concluded that rock phosphate is a non-renewable resource that should be used as efficiently as possible. “Clearly the world is not on the verge of running out of raw materials for P fertilizer production, but the longevity of rock phosphate reserves must be scrutinised with an awareness of the reliability of the available data,” he said.
The sustainability of production of nitrogen fertilizers must also be scrutinised. This is because of the natural gas feedstock that is harnessed to produce some three-quarters of the world’s output of ammonia. In effect, reserves for nitrogen fertilizers are best approximated by reserves of natural gas. At first sight, the gas scenario is even more alarming than that for phosphates: current global gas consumption is around 3.2 tcm/year. With gas reserves currently estimated at 175 tcm, the world has sufficient gas to last around 55 years. However, as with coal in earlier years and more recently oil, natural gas exploration has been vigorous and new resources have been discovered to boost the overall forecast. The life forecast may thus be extended.
Of the other primary nutrients, potash reserves appear to be sufficient to sustain world production for at least 235 years. The USGS data on the global potash resource is not subject to the same uncertainty as phosphate rock. The reserve base has a life expectancy of over 500 years globally, with some geologists suggesting that Saskatchewan’s reserve base could extend to a full millennium. USGS has recently estimated world resources of proven, probable and inferred resources of potash at 250 billion tonnes, sufficient to last thousands of years.
The primary sulphur for agricultural use and as a raw material in the phosphate industry is the energy sector. Sulphur is a by-product, with production to a large extent involuntary, extracted from natural gas and crude oil. At current production levels, the sulphur extracted from these sources has an estimated life of 70 years. There are many additional sources of sulphur, which have not been tapped in full. Examples include extraction for coal and oil shale and an almost limitless source of S in gypsum. A global sulphur shortage is not predicted in the foreseeable future.
These factors suggest a less doom-laden scenario than some pundits and media would allow. However, the central fact remains that fertilizers are based on non-renewable resources. The industry should further endeavour to curb escalating costs of nutrient production in order to keep the final product affordable to the farmer. As Luc Maene, Director General of IFA observes, it is critical that all nutrients be used responsibly, via diligent stewardship and best management practices. IPNI and IFA are liaising with other organisations to promote and implement the 4Rs – right source, right rate, right time and right place. In this way, sustainability is set to become a part of the fertilizer industry’s DNA.
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