The Middle East has been the biggest regional growth story in the fertiliser industry over the past decade or more, as production has surged driven by the supply of cheap gas feedstock.

Since 2005, the GCC’s fertiliser production capacity has risen 91 per cent to 31.7 million tonnes a year (t/y) in 2013, according to the Gulf Petrochemicals & Chemicals Association (GPCA). Most of this capacity has been added in the past three years with production increasing about 59 per cent since the start of the decade.

Two countries in the six-member bloc – Saudi Arabia and Qatar – have added most of this new capacity and, by no coincidence, they are also the largest producers of natural gas.

Nitrates versus phosphates

With gas as the region’s main source of feedstock, the GCC fertiliser sector is dominated by nitrogen-based products, primarily urea and ammonia. Today, urea makes up half of all fertiliser capacity in the GCC, with ammonia representing 37 per cent.

The only other fertiliser produced in large quantities is diammonium phosphate (DAP) in Saudi Arabia, which is set to increase with the kingdom’s current wave of phosphate-based fertiliser projects.

While 84 per cent of the region’s fertiliser produced is nitrogen-based, in terms of total nutrients, nitrates represent only 61 per cent of fertiliser consumed worldwide. The rest comprises phosphates at 23 per cent and potash at 16 per cent. The latter is mainly produced where its rare significant mineral deposits are found, such as in Canada and the former Soviet Union.

The balance in the GCC is set to shift closer to the global average over the coming years with the largest capacity expansions designed to utilise Saudi Arabia’s phosphate rock reserves, although it is unlikely potash could be produced in the Gulf without new mineral discoveries.

Phosphate reserves are a lifeline to the fertilisers sector in Saudi Arabia, which, along with Bahrain, Kuwait, Oman and the UAE, faces a gas crunch as domestic supplies struggle to keep pace with growing demand. Qatar is the sole country in the region without constraints in gas feedstock availability.

Qatar and Saudi Arabia will be the driving force behind the continued expansion of GCC fertiliser capacity. In its latest forecasts, the GPCA has predicted regional capacity to rise by 47 per cent, equating to 46.4 million t/y, by 2018 due to the $10bn-worth of projects in the pipeline.

Growth in the region’s capacity is expected to far outstrip global demand, with GCC production set to rise 10 per cent a year compared with a global demand forecast of 1.8 per cent a year growth by 2017.

Fertiliser projects

Most of these capacity increases will come from four major projects located in Saudi Arabia, Bahrain and Qatar.

Saudi Arabia is executing the largest single fertiliser project ever undertaken in the region: the $7bn Waad al-Shamal phosphate city scheme in the north of the kingdom. The project is being developed by Saudi Arabian Mining Company (Maaden) in partnership with petrochemicals group Saudi Basic Industries Corporation (Sabic) and US-based fertiliser giant Mosaic.

The kingdom is planning the project as part of its strategy to provide economic development and employment opportunities in the north of Saudi Arabia. Waad al-Shamal is unrivalled in scale and considered to be at least twice as large as any other phosphates project currently under construction anywhere in the world.

The project, due to be completed by the end of 2016, will utilise phosphate rock reserves from the nearby Al-Khabra mine to produce a variety of phophate products. The finished complex’s production capacity will include 2.8 million t/y of phosphatic and compound fertilisers and 1.1 million t/y of ammonia.

Maaden is also ramping up production at its new Ras al-Khair phosphates complex on the Gulf coast, north of Jubail. The facility uses phosphate feedstock from the Al-Jalamid mine and processing plant in the north of Saudi Arabia, which is transported by rail. At full capacity, Ras al-Khair will produce 3 million t/y of DAP fertiliser and an excess 400,000 t/y of ammonia.

Portfolio diversification

The drive to invest in phosphate projects fits with the recommendations from industry experts on how to best develop the sector.

“GCC producers must diversify their fertiliser portfolio to include more phosphate fertilisers, as this will decrease their reliance on hydrocarbon feedstock and grow their share of export markets,” GPCA Secretary-General Abdulwahab al-Sadoun told the 4th Annual GCC Fertliser Conference in Dubai in September. “Phosphate fertilisers require less natural gas to produce and are a relatively untapped resource in this region.

“With analysts predicting that Asian markets currently account for nearly 60 per cent of global phosphate demand, strategic additions in phosphate capacity here in the Gulf will solidify the favourable position GCC fertiliser producers currently enjoy.”

However, the GCC is also expanding its capacity to produce nitrogen-based fertilisers, continuing its long-term growth in urea and ammonia production.

Saudi Arabian Fertiliser Company (SAFCO), jointly owned by Sabic and the private sector, is building a fifth plant at its Jubail operations in the kingdom’s Eastern Province. The $600m project is due to be completed at the end of 2014 with a capacity to produce 1.1 million t/y of urea. The Safco project will convert 850,000 t/y of carbon dioxide (CO2) into urea. The project will help reduce energy and water usage and greenhouse gas emissions, according to the GPCA.

“Faced with constraints in the supply of natural gas, the GCC fertiliser industry is actively pursuing a number of projects to optimise energy and water resources, as well as the conservation of natural resources,” Al-Sadoun said at the conference.

Two major projects are also set to go ahead outside Saudi Arabia. Bahrain’s Gulf Petrochemicals Industry Company has completed the feasibility study on its $1.7bn Sitra ammonia and urea plant expansion. The project, which is waiting for government approval, is planned to produce 800,000 t/y of ammonia and 1.2 million t/y of urea.

Meanwhile, Qatar Fertiliser Company (Qafco) is studying a potential revamp of its Qafco 1 and 2 ammonia and urea operations in Mesaieed Industrial City, which started up in the 1970s.

Demand growth

With a significant amount of capacity set to come on stream, GCC fertiliser producers will be hoping for a strong increase in global demand over the next five years.

The Paris-based International Fertiliser Industry Association (IFA) expects fertiliser consumption to increase by 1.8 per cent a year over the next four years, led by demand for potash fertilisers. The key drivers of global fertiliser demand include population growth, the health of the global economy, urbanisation and income growth and extreme weather events, which can constrain supply.

The GCC is well positioned to meet this demand growth with the Gulf’s largest export markets, East Asia and South Asia, forecast to see the strongest increases in consumption at 26 per cent and 25 per cent respectively.

By product, potash demand is expected to grow the fastest, expanding by 3 per cent a year, to 33 million t/y by 2017-18.

Phosphate usage is forecast to rise 1.9 per cent a year to 45 million t/y, while nitrogen-based fertiliser demand is expected to grow 1.5 per cent to 195 million t/y.

“The industry has responded to the tight market conditions of 2007 and 2008, and to the prospects of sustained demand growth in the near term,” said Charlotte Hebebrand, director-general of the IFA, also speaking at the GPCA fertiliser conference.

The IFA forecasts that 220 new fertiliser units and 20 new phosphate rock mines will enter production between 2012 and 2017, if all announced projects progress on schedule. This would increase global fertiliser output by 20 per cent at a total investment of $150bn.

Key fact

Regional fertiliser capacity is forecast to rise by 47 per cent, equating to 46.4 million tonnes a year, by 2018

Source: GPCA