Incitec Pivot moves to tap into US shale gas boom
The project marks a change in strategy for the company, which has been hurt by the high dollar, local plant outages and the slump in coal.
Incitec Pivot manufactures explosives and fertiliser inputs for the agriculture and mining sectors and is reliant on gas for production.
Chief executive James Fazzino said the boom in shale had enabled a "step change" in US gas prices.
"[The plant] takes our North American business and any future expansions back to US gas economics," he said. "This is vital to this project because 80 per cent of the cost of making ammonia is gas."
Incitec Pivot shares were at six-month lows on Wednesday, after analysts downgraded their forecasts before the company's half-year results next month. The company will use debt and cash flows to finance the plant, with production scheduled to begin in 2016.
Mr Fazzino said construction of the plant, at Cornerstone Chemical's brownfield site in Waggaman, Louisiana, could begin in six weeks.
He said he was confident US gas prices would remain competitive despite new export projects.
"The US has got 25 years of gas at current prices. LNG is not going to move the dial," he said.
RBS Morgans analyst Belinda Moore said the project was expected to generate strong returns in the long run, but immediate headwinds would weaken results.
Incitec Pivot shares fell 5¢, or 1.7 per cent, to close at $2.84.
Frequently Asked Questions about this Article…
Incitec Pivot plans to build a new ammonia plant in the US at a cost of about US$850 million (A$820 million). The project shifts part of the company's production to North America to take advantage of lower US gas prices driven by the shale gas boom.
The company says the shale gas boom has delivered a ‘step change’ in US gas prices. Because roughly 80% of the cost of making ammonia is gas, moving production to US gas economics can significantly reduce input costs and improve competitiveness.
The plant is planned for Waggaman, Louisiana, on Cornerstone Chemical’s brownfield site. Incitec Pivot’s chief executive said construction could begin in about six weeks from the announcement.
The company intends to use a mix of debt and its own cash flows to finance the project. Production is scheduled to begin in 2016, according to the announcement.
Shares were trading at six‑month lows around the announcement after analysts downgraded forecasts ahead of the company’s half‑year results. Incitec Pivot shares fell 5 cents, or about 1.7%, to close at $2.84. RBS Morgans analyst Belinda Moore said the project should generate strong long‑term returns but that immediate headwinds would weaken near‑term results.
Incitec Pivot manufactures explosives and fertiliser inputs for the agriculture and mining sectors. The company is heavily reliant on gas for production, with gas accounting for around 80% of the cost of producing ammonia, a key fertiliser input.
Yes. Chief executive James Fazzino said he was confident US gas prices would remain competitive even with new export projects, noting that the US has about 25 years of gas at current prices and that LNG exports are "not going to move the dial."
The company has been hurt by a strong Australian dollar, local plant outages and a slump in coal, which contributed to weaker near‑term performance. Analysts also warned of immediate headwinds that could weaken short‑term results even if the US plant delivers long‑term returns.
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