THE CORE UREA PROJECT
In 2016, the Australian Agri sector consumed 1.9 million tonnes of urea (nitrogenous fertiliser) and Australian production from the sole domestic plant has been static at 285,000 tonnes of capacity for many years. The balance is all imported. Urea is an essential fertiliser for Australia’s Agri industry and is not interchangeable. The urea project has a low cost base by global standards and also will create two additional significant revenue streams.
When built in Victoria, the core urea project will be:
- the largest producer in Australia;
- only the second producer in Australia
- built for a guaranteed fixed price lump sum.
- one of the lowest cost producers in the world and lowest cost producer in Australia;
- located in the logistical centre of the Victorian market which has the highest consumption of urea in Australia at over 500,000 tpa;
- able to displace all higher cost imported urea; and
- unique with a zero emissions environmental footprint.
The project offers participation in:
- A large scale agribusiness venture and investment in Australian agriculture with its proximity to the ever expanding Asian demand for quality and quantity agri derived products.
- The production of 520,000 tpa of urea (nitrogenous fertiliser).
- Proven demand for the product with major demand/supply imbalance in the Australian market place.
- The Victorian and S.E. Australian market which is the largest consuming market region in Australia. This is presently all imported.
- A significantly lower production cost than the imported urea it will replace.
- A sixty (60) year energy supply agreement which gives the project one of the lowest cost energy inputs of any producer in the world at just over A$1.00/GJ. The first 20 years also provide for a fixed cost subject only to inflation adjustments.
- A proven management and leadership team.
- One of the highest urea production operating profit margins in the world at a time of low commodity prices with a cash cost of A$172/tonne (US$129/tonne) against a midterm average global FOB price in excess of US$250/tonne. Furthermore, a logistics cost advantage of between A$100-200 per tonne also needs to be added to this.
THE ADBLUE DIESEL EXHAUST PRODUCT
Both the European Union and the United States have introduced regulations wherein a liquid additive made from urea must be used to negate the nitric oxide fumes in diesel engine exhaust systems.
This is also now a mandatory regulation in Australia and its application will grow. The product is already in use in Australia as all new imported diesel vehicles are designed and required to use it.
The product is commonly known as AdBlue and is made by the mixing of one part pure urea with two parts very strict specification demineralised water. All components to manufacture the product are present in the proposed Latrobe flow sheet including the demineralised water plant. The only capex addition will be mixing and storage tanks which are an insignificant addition to cost.
Total diesel fuel consumption in Australia in 2014 was 25 billion litres. The indicative required consumption rate of the urea additive is between three (3) and five (5) litres per hundred (100) litres of consumed diesel. This would equate to over 0.75 billion litres of the additive or an additional 240,000 plus tonnes of pure urea for Australia’s diesel engine consumption. Urea agricultural consumption for Australia in 2014 was a record 1.9 million tonnes with domestic production static at 285,000 tonnes.
However, the regulatory framework in Australia is applicable only to road transport at this stage and so consumption may not reach this peak potential. It is believed that regulation will be introduced to cover the other areas of use, i.e. remote diesel generators and mine equipment.
AdBlue will be produced in the Latrobe plant in concentrated form and transported to the various capital cities where the offtaker the company is entering into a “Take of Pay” commercial agreement with, will take possession and reconstitute the product. Each tonne of pure concentrated urea will make three (3) tonnes of AdBlue.
Indicative Cost – Revenue Detail
The basic capital production costs apart from mixing and tankage for storage are provided for in the core Latrobe project. The additional capex will be minimal. The production cost of the product on the basis of our globally low urea production cost (cash cost) of A$172/tonne/urea, on the basis of one part urea and two parts demineralised water, will equate to circa A$80.00 tonne for the additive product or $0.08/litre.
The indicative sales price currently in Australia is across a range of $0.60 – $1.00 per litre, with a wholesale price of circa $0.40 per litre.
Transportation/distribution costs in terms of bulk road freight are currently circa $0.12/tonne/km and so are negligible in terms of the initial indicative economic assessment.
Time to Market
The company is presently in discussion with an existing producer of AdBlue who presently import expensive automotive grade urea as feedstock to produce AdBlue and sell to the same company that LFL has entered into its MOU agreement with. The discussion is that LFL acquire this company to obtain early access to the market prior to introducing its own low cost base when the LFL plant starts production.
THE PURE CO2 SALES TO INTENSIVE AGRI INDUSTRY
Agriculture accounts for 48% of Victoria’s exports and is growing rapidly, primarily driven by the dairy industry which is over 85% of Australia’s total.
An emerging industry within the Victorian agri sector is the intensive production (glasshouses) of vegetables for both domestic and export markets.
Pure food quality carbon dioxide is an essential requirement in this industry to stimulate plant growth via natural photosynthesis and is injected into the closed atmospheric condition within each glasshouse.
LFL will have circa 600,000 tpa of pure food quality CO2 in excess of its needs to make its core urea product.
Whilst environmental mitigation strategies have been developed to totally offset this excess CO2 to give a net zero emission position, a market to convert this to cash is also now being developed for the normal utilisation of this CO2 in the intensive glasshouse agri sector where it is an essential ingredient.
There are an estimated 120 hectares of intensive glasshouse agriculture in Australia. This is minute by global standards. The Netherlands by comparison has in excess of 19,000 hectares of glasshouse agriculture.
A current glasshouse agri food project being built in NSW and to be commissioned this year is 16 hectares in size. It will consume 6,500 tonnes of pure CO2 per annum. This one group plan to build 20 facilities of the same size which would equate to 320 hectares. We see a potential for at least 1000 hectares of glasshouse agriculture in S.E. Australia.
The productive yield in intensive glasshouse agri production, mainly vegetable and certain fruits (berries) is in excess of ten (10) times that of open air agriculture and the use of pesticides is virtually zero. In British Columbia for example, the glasshouse agri production industry occupies 0.01% of farmland and produces in excess of 11.0% of agricultural production.
Time to Market
LFL is in current discussion with both the proponents of the 20 glasshouse unit group referred to above and is also beginning discussion with some of the world’s largest vegetable production groups from California and elsewhere, including major Chinese and local Australian groups.
Current agri consumers of food quality CO2 are being charged up to $250/tonne for the product. LFL will have circa 600,000 tpa to market. LFL has also not yet investigated the beer and carbonated drinks manufacture market in Eastern Australia. There is no extra project cost to produce the food quality CO2.
There will be uptake from day one of the CO2 production but it is not yet possible to predict the rapidity or scale of uptake. LFL is currently fostering this addition to the Victorian agricultural sector with both government and interested agri groups. LFL also has considerable excess land on its own site.