CF Industries Holdings, Inc. — 2024 Q1

Yes, Chris, I think that we believe, going forward, there are some significant challenges for a number of the production facilities in Europe. And our expectation is that utilization rates there will continue to be challenging. And we would expect some of those assets to permanently close. So I think that the combination of some challenges in Europe and other places in the world -- Trinidad is both running out of gas and with gas cost climbing as each of the existing contracts roll off, you've got challenges in parts of Asia and Latin America as well.

Yes. I think as you look at the first quarter, as Chris said, there was kind of 2 primary factors that impacted us. One was because we had significant outages both weather-related and other downtime. We ended up with less production of ammonia, and we have existing industrial ammonia contracts that obligate us to kind of meet those needs first.

Chris, the only additional thing I would add to what Tony said is not only that it was discrete production issues contained in Q1 but also where the product mix was and being produced. We had incremental distribution costs that went over and above the margin loss that Tony spoke about and also the $75 million approximate higher maintenance expense. So it was a pretty tough quarter from that, but all of that, as you said, is sort of in the rearview mirror and our distribution and production assets are back to their historical levels.

Joel, this is Bert. And on gas, yes, we are wide open, and we do have fixed contracts that are gas-based that will fix in the beginning of the month. And we do have [ bases ] that we've covered in places more of a winter item. We'll have some Q1 gas purchases trail into Q2. But in effect, the gas values that you're seeing and through the various hubs, you can bleed into your model, and that's what we're doing.

Yes. From a production standpoint, Joel, I think you can look at 2025 and going forward similar to what we had announced earlier this year at sort of the circa 10 million tons of ammonia -- gross ammonia production. And then based on where the margin potentials are that's going to change the product mix related to the total product that we do. But give or take, 100,000 tons on either side of that is generally where we look to produce.

Well, Andrew, as you know, once we make an investment decision, if we decide to move forward with it, it's going to be approximately 4 years between when that decision is made and when production commences. So what's happening in the very near term ammonia market from a pricing perspective, it is an important starting point.

Yes. So there have been -- I believe it's 5 power stations in Japan that have been kind of approved for conversion to be co-firing ammonia. Those include 2 from JERA and 3 others. And so the assessment of the volume of ammonia that would go into those applications, assuming only a 20% dosage rate is about 2 million tons a year.

That's exactly that, Tony. In terms of the low carbon value chain, we see developing 4 ag and the pull-through that will take place from the CPGs and consumers. But when you look at whether that be corn or wheat, the principal consuming crops for nitrogen, as a low or no carbon ammonia is passed through corn to the ethanol plant, which is decarbonized, you have a very good upside for a decarbonized product coming from that corn value chain of starch, ethanol, fructose and the same thing with the wheat value chain. So we're working on that with several players and more to come.

Maybe picking up on that last topic, Bert, there was earlier this week that the treasury department issued kind of the rules for the new 40B tax credit for sustainable aviation fuel that tax rate will change next year, but the rules that would presumably be somewhat applicable. And one of those requirements for ethanol to jet was the requirement to use climate smart agriculture, of which one of the requirements was the use of enhanced efficiency nitrogen fertilizer by corn growers.

I don't view it as a threat. I view it as an opportunity because of the first mover with low-carbon ammonia as the largest ammonia supplier to corn production in North America, that's just right up our wheelhouse. And so working with the co-ops, CHS and Land O'Lakes and others as well as the ethanol producers, POET, ADM, CHS. Those are the people that will drive through their management area in our area, the responsibility is as we started with decarbonized product.

That's helpful. And if I could just ask a follow-up on the spring demand here. Obviously, the ammonia side of things is more complete. Can you talk about kind of where we are on UAN from a side dress and topdress perspective and kind of when you start to think that in-season pull will really start to materialize?

So we're just getting started as we talked about planting and product movement and field work did start early. It was a surprise in February and early March, and then the rainy cold weather came through in March, delaying again field work and applications and planting. And now I would say we are on a normal -- a good pace with very good soil moisture from the Texas panhandle up through into Canada.

Yes. Welcome to my confusing world because that is exactly that you've listed the dynamics that we deal with every day that really were confusing. And then just pointing to the CF system of what Tony and Chris articulated with the difficulties with the weather and the production and the maintenance issues that created on the sales side or at least the commercial side, different product allocation and movements, and I give a lot of credit to our logistics team for moving that product around.

Well, the volume is not really sufficient to be able to meet the application for co-firing. We're only going to be able to make about 20,000 tons a year. And even the smallest of the power stations is going to require somewhere in the neighborhood of 350,000. And because that is a part of a broader program with some incentives provided by the government, they are going to be, I think, focused on the most economically available decarbonized product. And so that's going to be a blue product as opposed to green.

And we're looking at 2 options. Like Tony said, as we build inventory, that could be for a vessel to a customer that wants only 0 carbon product or it could go up to one of our terminals, which our terminals are about that size, where we can isolate an area with 0 carbon ammonia, again, back to the corn value chain. So working on several different fronts at this time.

Yes, Josh. While we're evaluating a couple of different projects, principally, what we're looking at is different technology pathways to get us to a very low carbon intensity solution. And realistically, at least at this time, we're focused on one plant as opposed to multiple plants and doing the evaluation, as I said, should that be just a straight SMR, should it be an SMR with flue gas capture?

Initially, they were different based on the type of technology but certainly, it's our hope that we can find a way to have all of our partners participate in the same project, and that would be something that we can combine together and aggregate demand so that we're -- have a home for more rather than fewer of the tons coming off of that project.

I would also say, Josh, that all 3 of the FEED studies that we have ongoing, the SMR, the HR and then the flue gas, all the partners that Tony just spoke of are all participants in that even though the JDAs and the MOUs may look different. So all the partners are working collaboratively to determine what we need to do from a carbon intensity standpoint, how does that influence the technology we choose, and as Tony said, and then really the contract for difference and the economics not that come out of that in the end.

Yes, Ben, this is Bert. And the situation in Russia is as cloudy and clear as it's ever been. So that's a little bit of a dichotomy. But it's difficult because there are some places in the world that will not accept Russian product. And so there are places that are. And the largest happens to be the United States, which is surprising with where we are geopolitically, but the other is the EU.

Yes. I mean to tag along on that one just for a second. It's kind of shocking and I think actually, [ Yara may ] mention this as well in their call. But what's kind of shocking is that there's been all of this focus on not funding the Russian war machine and not buying Russian gas and yet the U.S. is arms wide open to take urea and UAN coming out of Russia, which is effectively just natural gas that's been converted and so it's -- the U.S. is funding the very war effort over there that on the one hand, it's condemning. So it's absolutely shocking, but I think that's not surprising given the political climate over here and the fact that we're in an election year.

So it's actually when you take into account the acres that are planted and applied and harvested against probably the previous -- let's go back, maybe not 2014 as far back, but before the war, you've got a loss of acres, obviously, in the contested area, especially, which is good agricultural land. But you have several plants that are off-line and OPZ plant in Odessa that has been -- they're trying to -- I just read they're trying to bring that back up.

Although that one was struggling economically even well prior to the war. So that one has always been sort of up and down again.

So there are gas questions on gas supply. And yes, they have imported product. And so it's a question of why I think getting through the current crisis to see where we are coming out of it.

Well, the good thing is it's a global market. And you have, in a global market today, a lot of production in dispersed countries and also a lot of consumption in dispersed countries. And in a growing population, a growing need to feed the world and the benefits of nitrogen for pollution control, which are growing, not only in DEF but in power generation and with clean energy, you have demand.

Yes. As we talked about, a lot of the issues that occurred in Q1 were discrete to Q1 and that those are passed us both from a production and also a sales perspective. But as you mentioned, we did take 167,000 tons of what would normally have been upgraded to urea, which, as I said in my remarks, would be about 275,000 tons of urea. So you see the urea decrease in sales and the increase we had in ammonia.

Yes, you bet. So we had an outage and we took that opportunity to conduct the turnaround that was kind of scheduled for later in the year. And so we were able to take advantage of that downtime. But prior to that and in fact, post turnaround we're operating at rates that reflect north of what nameplate capacity has been on that or is on that unit.

Yes. So I think just starting the encouraging thing is that about 0.5 million tons as a home already for it. And as you mentioned, with the next 4 years, and that provides a lot of opportunity to find basically sales for the remaining amount, along with keeping a little bit for merchant.

Yes. So I think as Chris mentioned in our last earnings call, the FEED study for an SMR steam methane reformer, kind of a copy of Ammonia 6 at Donaldsonville was about $2.5 billion, and then there would be roughly another $500 million for scalable infrastructure that could be leveraged against additional plants on site.

Thanks, everyone, for joining us today. We look forward to seeing you at upcoming conferences.