Abu Dhabi’s Fertiglobe well placed to deliver Europe’s need for low carbon ammonia
First shipments of low carbon ammonia to Europe signals opportunities
The joint venture between ADNOC and Netherlands’ OCI, Fertiglobe is a seaborne exporter of nitrogen fertilizer and an early mover on clean ammonia. The Abu Dhabi headquartered Fertiglobe, with a market cap of Dh47.4 billion, finds itself at the centre of the action as European fertilizer buyers turn to the Middle East for dependable supplies.
During the early months of the pandemic, the Middle Eastern fertilizer businesses battled price increases and supply chain disruptions. However, several crucial events, such as a ban on Chinese phosphate exports, storm-damaged US production, and skyrocketing natural gas prices—which led to the closure of plants throughout Europe - spurred demand for fertilizer exports from the Gulf region. Research suggests that the fertilizer industry is expected to grow at a CAGR of 5.5 per cent from 2022-28. As a result, the outlook for the fertilizer industry in the MENA region has vastly improved.
Fertiglobe’s business model focuses on nitrogen-based fertilizers, primarily ammonia and urea. Both have seen prices go up significantly. In the Middle East, ammonia prices rose from $630 per metric tonne to $1,100 in the 12 months to September. On the other hand, the urea granular price inched from $485 per metric tonne to $650. Additionally, the firm’s own sales volumes were up 7 per cent in Q2-22 vs Q2-21, driven by a 13 per cent increase in ammonia volumes and 5 per cent higher urea sales volumes, further supplementing the revenue growth.
The current economic scenario implies that there is even more opportunity to be seized.
Low carbon (blue) ammonia
While ammonia is a crucial intermediate in fertilizer production, low-carbon ammonia holds possibility of low-emission fuel. It is expected to acquire a significant market share of the fast-growing biofuels business in the future. Fertiglobe’s blue ammonia plant in the Ruwais Industrial Complex in Abu Dhabi has been showing great progress, with the first shipment sent to Germany in September amidst reduced natural gas supply in Europe.
The demonstration cargo to Aurubis is expected to be the first of many. More German companies plan to utilize low-carbon ammonia as a feedstock in their wire rod plant and test its application as a lower-carbon energy source for industrial utilization.
Financial health
Fertiglobe produced solid H1-22 performance, backed by strong earnings momentum and robust cashflows. Revenue increased by 105 per cent year-on-year to $1,471 million in Q2-2022, while net profit increased 3.7x from $119 million to $438 million. The healthy cash position allowed management to approve the H1-2022 cash dividend of $750 million. For a company that had its IPO one year ago, it has generated compelling value for the shareholder and shows potential for better prospects.