Ammonia pipeline decommission to strain logistics

Ammonia suppliers are bracing for logistical bottlenecks that could impact consumers from Texas to the Midwest as Magellan Midstream decommissions its ammonia pipeline.

Nitrogen producers in Oklahoma have leveraged the 1,100-mile (1,770km) pipeline for more than 50 years to carve out ammonia market share from the Great Plains into the western Corn Belt. But suppliers are now weighing options to mitigate flooding the market with excess ammonia in the wake of Magellan's exit from ammonia logistics.

Koch plans to construct a second urea unit at its Enid, Oklahoma, nitrogen complex and double its capacity by 2022 without building an adjoining ammonia plant. Koch aims to increase production at its existing two ammonia plants by a combined 13pc, well below the volumes needed to offset bolstered urea output — sharply reducing saleable volumes.

Argus estimates Koch's net ammonia after urea production will dip by about 57pc to nearly 364,000 st/yr. Koch is just one of three major producers that fed into the Magellan system. Agrium, a company that has since merged with Nutrien, curtailed its ammonia injections into the pipeline from Borger, Texas, after expanding urea capacity in 2017. Net ammonia from Borger can vary each year depending on market demand between ammonia and urea.

Total net ammonia availability from the three facilities that inject into the pipeline is estimated to contract by 37pc after Koch's expansion. But Koch, Nutrien and CF Industries also compete with LSB Industries and CVR Partners in the Southern Plains' ammonia market, which is poised to add strain to regional truck market.

Sources have reported thin truck availability for several seasons during peak applications, and competition between producers and distributors will heighten and drive shipping costs higher in future cycles. Although net ammonia availability is anticipated to fall, Argus estimates long-haul truck shipments will more than double to nearly 500,000 st/yr after accounting for regional direct application demand.

CF has the most logistical flexibility to redirect excess ammonia previously allocated for the Magellan pipeline to regional terminals. The producer, which injected ammonia from its facility in Verdigris, Oklahoma, can barge downriver to supplement exports from its Donaldsonville, Louisiana, plant — which could help relieve the Southern Plains' truck market ship — as well as truck displaced volumes to its Garner, Iowa, terminal.

In the long term, lower net ammonia coupled with the decommissioning of Magellan's pipeline should provide price support to the western Corn Belt, which is typically at a discount to the eastern region.

The bottleneck in the Southern Plains' truck market could enable east Corn Belt distributors to ship more ammonia to the west Corn Belt to meet direct application demand. That shift would come as net supply in the Southern Plains dwindles and shipment from Oklahoma production sites becomes increasingly challenging without the Magellan pipeline.

Direct application ammonia demand along Magellan's infrastructure is estimated at about 1.7mn st/yr, with nearly 46pc concentrated in Iowa, according to the Association of American Plant Food Control Officials (AAPFCO). Iowa consumers can also source from the NuStar pipeline and Canada.

Iowa distributors could also source ammonia from start-up Greenfield Nitrogen to offset lost volumes from Southern Plains producers. The company is aiming to build a 120,815 st/yr ammonia plant in Garner, Iowa, by 2020 to supply farmers and retailers within a 100mi radius.