Nitrogen fertilizers include several types such as urea, UAN (urea ammonium nitrate), and ammonium nitrate. UAN, produced by CF Industries (CF), is the more commonly used nitrogen fertilizer in the United States. In the chart below, you can see the production flow for nitrogen fertilizers.
Nitrogen fertilizers are synthesized from natural gas or coal along with air and steam. Ammonia is produced, which is then upgraded to other fertilizers such as AN (ammonium nitrate), UAN (urea ammonium nitrate), nitric acid, and urea.
Energy as well as freight and handling can be the two biggest costs for nitrogen fertilizer production. In the above chart, you can see that natural gas is the most important raw material used to produce all types of nitrogen fertilizers. Natural gas alone can account for about 60.0%–70.0% of costs for nitrogen fertilizers. Natural gas is abundantly available in the United States, given the shale boom that has increased the supply of natural gas.
While most North American nitrogen producers (NANR) such as CF Industries, Terra Nitrogen (TNH), PotashCorp (POT), and Agrium (AGU) use natural gas as an energy source, they face significant competition from China. China is the largest producer of nitrogen fertilizer in the world, especially urea. Chinese producers largely use coal to produce nitrogen fertilizers.
Next, we’ll look at the cost structure for phosphate producers.