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Greenfield Nitrogen

A regional ammonia plant being built through a grass-roots ownership model

February 23, 2018
By KRISS NELSON - Farm News news editor (editor@farm-news.com) , Farm News

By KRISS NELSON

editor@farm-news.com

GARNER - Plans are continuing for a regional ammonia plant to be built near the Hancock County town of Garner.

Article Photos

Linda Thrasher, left, and Karl Theis with Greenfield Nitrogen, presented plans for the building the plant to a group of potential investors last week in Fort Dodge.

Currently the team from Greenfield Nitrogen, including founder Karl Theis, co-founder Linda Thrasher and co-founder Reed Kuper, has been conducting informational meetings, pitching their company to potential investors.

The project, which is slated to cost $220 million, will produce 120,815 tons of anhydrous ammonia a year and will also feature 66,000 gallons of cryogenic storage.

According to Greenfield Nitrogen, the Midwest is the world's most intense ammonia use region and yet ammonia is often shipped long distances. That realization that anhydrous ammonia is a logistics and storage game is what led to the development of the potential nitrogen plant.

The plant is designed to serve the nearby market within 100 miles, will store ammonia to sell for in-season application and will meet local market demand.

Theis, an engineer who has an understanding of the Haber-Bosch ammonia manufacturing process, came up with the idea in 2011.

"In 2011, I received a statement from my local cooperative for anhydrous ammonia at the cost of $835 a ton," he said. "The production cost of ammonia was about $235 a ton, thus providing a $600 spread."

The spread, Theis explained, is high due to the demand and access of a low cost, abundant natural gas supply that exists in the U.S. today.

That abundant low cost natural gas supply was due to horizontal drilling and hydraulic fracking.

Theis said his knowledge of anhydrous ammonia production came from his time at Iowa State University, where he learned how anhydrous ammonia is manufactured and the cost associated with its production.

"The Haber-Bosch process is a predictable process that is over 100 years old that is used to manufacture ammonia," he said.

Thrasher was taken aback when Theis, who is also her brother, approached her with the idea to start up an anhydrous ammonia plant.

"My first thought, and I recall saying this to Karl directly, was, 'A nitrogen fertilizer plant? These are capital intense, complex facilities. Could you have thought of anything more complicated?'" she said.

As someone who has worked in the fertilizing industry, Thrasher also understood the economics, particularly the importance of natural gas, which is a key feedstock in nitrogen fertilizer production.

"Given U.S. farmers' reliance on nitrogen imports and the costly transportation costs from the Gulf Coast to the upper Midwest, I knew the opportunity was speaking," she said. "The U.S. Corn Belt produces 36 percent of the world's corn, yet most of the nitrogen fertilizer comes from other locations. Low cost natural gas is why a nitrogen plant in northern Iowa made sense."

Theis said they began the process of putting their ideas into reality in 2014 after they registered Greenfield Nitrogen, LLC in Iowa as a limited liability company.

He said they conducted a nitrogen fertilizer usage study, then based the site near Garner due to the selection on natural gas supply, water, electricity, rail and access to highways and the interstate system.

"Our site provides a low cost, abundant natural gas supply and water supply and access to the world's most intense ammonia region," he said.

A seven-year land option was obtained for a site that provided all of the necessary infrastructure for a large nitrogen manufacturing facility, all soil borings and necessary site engineering necessary to proceed to complete the feasibility and environmental impact study, according to Theis.

The group then raised $4.7 million in seed capital to complete the air (construction) permit and drilled a test well to obtain a water use permit.

"We completed a more in-depth study of the site through an intense soil boring survey," he said, adding they obtained multiple cost estimates from engineering procurement and construction (EPC) firms.

"We made a decision on EPC firms and we are proceeding ahead to complete final engineering that will provide a LSTK contract to provide performance guarantees for the plant and reduce construction risk for investors," he said.

LSTK stands for lump sum turn key and is a contractual agreement in which a fixed price is agreed for the execution of a project or part of a project.

Theis said they then met with over 50 ag retailers across Iowa and Minnesota and received indications of interest for investment.

They have also completed offering documents for accredited investors and are currently in the efforts to raise the final capital for the project.

What differentiates Greenfield Nitrogen from other nitrogen plants, according to Thrasher, is its investor model.

"We've designed a program that aligns with agriculture, namely farmers and agricultural retailers," she said. "In other words, both farmers and other individuals and ag retailers can own units, which are equivalent to tons of ammonia production."

There are two different investment opportunities: merchant class and toll class.

Thrasher explained that one way to think about this is that the merchant class (farmers/individuals) receive distributions, which is like a hedge on their fertilizer costs (though they will not take product directly), while toll members receive product directly, which is like an "up front" dividend.

They do not receive dividends on their invested tons.

Merchant class - This is for farmers and individuals.

Specific features include:

- $10,000 per unit, which is equivalent to 10 tons of production. (Minimum investment: 2 units or $20,000)

- Merchant Class members' tons will be marketed by a third party on the wholesale market.

- Members receive distributions based on the difference between an estimate production cost of $316 and the current whole sale prices.

- Merchant tons also have access to Greenfield's on-site storage so tons can be sold at the optimal time.

Toll class - This is for ag retailers with a commercial fertilizer license as well as industrial users.

An investment includes:

- $10,000 per unit, which is equivalent to 10 tons of production. (Minimum investment: $250,000)

- Toll class members purchase their invested tons for the estimated $316.

- They do not receive a dividend, unless excess tons are produced.

- Toll members also have access to on-site storage.

- In many respects, this is like an "up front" dividend.

"Our goal is to provide production economics at the farm gate," said Theis. "Thus, we want to keep the margins in the pockets of investors located in our local communities."

"What makes this project compelling is that it's right sized for the region and has a logistical advantage with our expected customers being in the 50 to 75 mile range," said Thrasher. "Plus, Greenfield Nitrogen has significant on-site storage."

She added that Greenfield's project is designed much like the ethanol model and allows agriculture, whether farmers or individuals, or ag retailers, to participate in a way that ultimately helps them reduce their ammonia fertilizer costs.

"This is a true, value added project for agriculture," she said.

 
 

 

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