Qatar - Increasing competition in the fertilisers market

01 June 2008
Qatar’s status as a world leader in fertiliser production is already established. When the Qafco-4 urea train came on stream at Ras Laffan in April 2004, Qatar Fertiliser Company (Qafco) became the largest single-site producer of urea in the world.

A joint venture of state-owned Industries Qatar and Norway’s Yara International, Qafco exports ammonia and urea to more than 35 countries, encompassing Southeast Asia, North America, Australasia and Southern Africa.

In 2007, Qatar accounted for just under 25 per cent of world urea production, second only to Saudi Arabia, according to figures from Fertecon, a UK-based fertiliser consultant.

Iran has plans to bring on new production that may soon reduce Qatar’s share of the market to almost 20 per cent. But when Qatar’s next train, Qafco-5, comes on stream, the emirate will surpass all its rivals. Qafco-5 will be the largest train yet, boosting Qafco’s ammonia production by 73 per cent to about 3.8 million tonnes a year (t/y).

When it starts up, Qafco will become the world’s largest single-site producer of ammonia, with exports of the product set to jump from about 450,000 t/y to more than 1 million t/y.

The expansion will boost urea production too, increasing annual output by 43 per cent to 4.3 million tonnes, all of it for export.

“When Qafco-5 comes on line, Qatar will temporarily be the biggest urea producer in the world,” says Barry Bain, managing director at Fertecon.

With Saudi Arabia’s expansion plans just a year behind, and Iran planning an ambitious series of capacity increases, however, Qatar’s pre-eminence is likely to be shortlived.

Financing problems

The Qafco-5 project itself has not been without problems. In October 2007, Qafco was forced to drop plans to use a bond to finance the project because of unfavourable conditions in the credit market.

Following an agreement in December with several international, Middle East and local banks, and Italian export credit agency Sace, the $1.6bn debt element is now being met using bank loans, with $1.6bn to be provided by Qafco from existing equity and cash flow from its operations.

It has also been hit by increasing construction costs, which in 2007 alone led to a 20 per cent rise in base costs for downstream infrastructure projects. The main construction work on the project was originally awarded in 2006 in two parts - to Germany’s Uhde and CB&I of the US - but issues over the pricing model for the contracts resulted in both being cancelled.

The engineering, procurement and con-struction contract is now being carried out by a consortium of Italy’s Snamprogetti and Hyundai Engineering & Construction Company of South Korea.

Adverse market conditions may have slowed Qatar’s drive to increase its fertiliser capacity, but it has not dampened its appetite for more.

“Things don’t stop with Qafco-5,” says Bain. “They have a planned expansion programme. As soon as one project is being built they start looking at the next one. It is an area in which they will continue to expand.”

Qafco is already planning a sixth train at Ras Laffan. “We will continue to expand in the future,” says Khalifa al-Sowaidi, managing director of Qafco.

“We might have the sixth urea train added by 2013. Others close to the market believe that it is more likely to be closer to 2020 before the sixth train is operational, but there is no question of Qafco’s ambition.

“There is an excellent market for fertiliser production at the moment,” says Al-Sowaidi. “There is no danger of overcapacity - in fact there is a danger of undercapacity.

“There is a shortage of food because of biofuels, which means that demand for fertiliser is very high. We are selling everywhere: the US, Thailand, South Africa, Australia and Brazil.”

Nor is Al-Sowaidi concerned that the moratorium on new infrastructure projects using gas from the country’s North field, which will not be lifted before 2010 at the earliest, will affect Qafco’s plans, insisting they have already been approved by Doha.

“I don’t know when the moratorium will be lifted, but we are in the plan,” he says.

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