Upstream is the backbone of Yara’s production system, including world-scale ammonia and fertilizer plants, phosphate mines and global trade of ammonia.
Upstream produces ammonia, urea, nitrates, NPKs and other nitrogen-based products as well as phosphoric acid and feed phosphates. Products are mainly sold through the Downstream and Industrial segments.
Yara is the world’s number one producer of ammonia, nitrates and NPKs, and largest global trader of ammonia. Strong operational efficiency and competitive raw material sourcing gives Upstream significant competitive advantages, providing a world-class manufacturing base for Yara’s business.
1) Including Yara share of associated companies and joint ventures.
In 2009, Upstream successfully integrated the Belle Plaine facility in Canada into its global production system. Belle Plaine delivered its second-best annual result in history, while also completing a comprehensive turnaround and expansion program, increasing ammonia and urea capacity by twelve percent and 14 percent, respectively.
The 50 percent Lifeco (Libyan Norwegian Fertiliser Company) joint venture started up under Yara operational management in February, with increased production compared with historical levels, and results in line with expectations.
In Sluiskil, the Netherlands, a EUR 400 million urea expansion project is in its construction phase, for completion in 2011, delivering a 45 percent capacity increase, lower energy consumption and increased reliability.
The USD 3.2 billion investment in Qafco-5, where Yara owns 25 percent, is on schedule for start-up in first quarter 2011. The Qafco-6 urea project was approved during 2009, and is in the engineering and procurement phase.
In Siilinjärvi, Finland, a EUR 60 million investment to increase phosphate rock production by 150 kilotons per annum neared completion, with full production scheduled for second quarter 2010.
Upstream delivered a weak financial result in 2009, impacted primarily by low margins for all finished fertilizer products and lower sales of NPK in particular.
An accident at the Tertre ammonia plant in Belgium in June halted ammonia production for the remainder of 2009, while the nitric acid and nitrates ran at reduced capacity. Reconstruction is on schedule for start-up in second quarter 2010. Both the proportional share of business interruption insurance and the property damage claim are included in 2009 results.
Ammonia production increased eight percent, reflecting the inclusion of Belle Plaine and Lifeco volumes, partly offset by production curtailments and the Tertre accident. Finished fertilizer production decreased two percent, mainly due to NPK curtailments and the Tertre accident.
Yara’s production system ran at approximately 84 percent of capacity for ammonia, 86 percent for urea, 91 percent for nitrates and 67 percent for NPKs. The lower utilization mainly reflects ammonia and NPK curtailments, Belle Plaine turnaround and the Tertre accident.
Oil and gas costs in Europe decreased 45 percent, while Yara’s global average gas cost was down 50 percent, reflecting both lower oil-linked and hub gas prices and Yara’s decision to maximize spot exposure in its energy contracts. Yara’s 2009 energy cost for plants with oil-linked contracts was USD 8.46 per MMBtu, while the European plants’ average energy cost was USD 5.03 per MMBtu.
2009 special items reflect mainly the Tertre property damage claim of NOK 244 million and a NOK 118 million gain on the sale of Yara’s remaining shares in China BlueChemical Ltd. 2008 special items included a NOK 359 million negative inventory fair value adjustment in connection with the Belle Plaine acquisition and a positive contract derivative effect of NOK 97 million.
1) Based on average NOK/USD rates, 2009: 6.27 (2008: 5.57) Forward focus
To maintain its industry-leading position and further improve operational safety mechanisms, Yara management will in 2010 establish Process Safety as a separate functional area. The Process Safety programs will focus on technical safety analysis, effective alarm and control systems, procedures, training and competence development, and will build on Yara’s extensive, documented experience. Increased attention will also be given to human error, an important contributing factor in the majority of incidents.
To further improve plant reliability and productivity, Yara is leading the way in the field of Risk Based Inspection (RBI). These programs aim to assess the true equipment condition and customize plant inspection programs to specific needs and conditions, following a risk-based approach which considers probability of failure together with consequence of failure.
From 2013, all European ammonia and nitric acid plants will be regulated under the European Emission Trading Scheme (ETS). This will lead to added production costs for Yara and other European producers, especially in the ammonia sector. The European industry is currently in discussions with the European Commission to address any competitive distortion versus non-European producers. Most of Yara’s nitric acid plants have installed the N2O reduction technology, reducing emissions by up to 90 percent, and are expected to meet the new requirements.
Yara will continue its long-term strategy of increasing capacity in areas with competitively priced natural gas. Efforts are mainly focused on the Middle East and Africa, but any areas where the petrochemical development represents a viable alternative to natural gas export are of interest.