I had the opportunity to attend the Nitrogen+Syngas conference in Berlin last week. Nitrogen+Syngas is a conference aimed at ammonia, urea, methanol and gas-to-liquids plants.
One of the presenters, an executive from an Agrichemicals firm, spoke about the coming collapse of ammonia prices because of overbuilding. Right now, ammonia prices are at record highs and production costs in North America at record lows but, as of March 9th, I counted seventy-eight ammonia plants either under construction or in planning worldwide, so, he may well have a point.
There was an implicit warning in his talk to competitors who are rushing to build new plants - you are too late. His conclusion was backed up by a host of facts regarding the lack of port facilities to export ammonia, the lack of capacity in the existing ammonia pipelines, and so on and so on. It was an impressive presentation.
Still something rang hollow.
I've been following the ammonia industry for 30 years (over 30 years is more accurate but makes me feel old) and indeed there have been cycles of boom and bust. It's probably that I have gotten older and take a longer view of history but now I look back over those cycles as temporary reallocations rather than "booms" and "busts". The very last bust was a major one in the United States with many ammonia plants shutting down. Yet the demand for ammonia continued to climb during the bust. What was actually happening was that the US "bust" was accompanied by a simultaneous "boom" in the Middle East, Russia and Trinidad as entrepreneurs moved in to exploit the high gas prices in the United States and steal business. As US plants shutdown, new plants were still being built.
Today the reallocation is being reversed as new plants come to the US to take advantage of cheap "frack gas" to make ammonia. Entrepreneurs are forming consortiums to build new ammonia plants - at a record pace. No doubt, some will fail and some of these new plants will never be built but I'm going to bet on the entrepreneurs in spite of the daunting facts in my Agrichem-Exec's presentation. The US is entering an ammonia boom.
How can I ignore the clear facts in the presentation? Well, I learned a lesson years ago when visiting Sturbridge Village. For those of you unfamiliar with it, Sturbridge Village is an operating 1830's village in Sturbridge, Massachusetts. During a particularly bad time when we had a serious oil shortage, someone posted a newspaper article in the lighting museum. The article described how the oil shortage was threatening the stability of the United States and stressed how important it was for the US government to step in to protect overseas resources and encourage the production of more oil. Copious facts were presented to back up the writer's argument.
If you haven't already guessed, the article was talking not about the the then-current oil shortage but about whale oil.
Things change and entrepreneurs, operating in sometimes outright denial of compelling facts, are generating those changes.