SURGING global urea prices and rising shipping costs are strengthening the business case for a proposed 1.4 million tonnes per annum production plant at Geraldton.
Strike Energy pointed out recently its Project Haber, which proposes to use its own low-cost natural gas from promising gas wells near Arrowsmith 120 kilometres south, to produce ammonia, the main ingredient in urea, has the potential to help shield local farmers from such impacts in the future.
"A combination of unseasonal supply and demand factors" were driving a global surge in urea prices, Strike managing director Stuart Nicholls said.
European, United States and Chinese urea was being kept "at home" to meet local demand, with northern hemisphere farmers chasing yield because of higher grain prices, Strike claimed.
The cost of gas - the key to producing ammonia and then urea economically - has been rising, with Henry Hub gas prices in the US more than doubling in the past 12 months and global prices "cyclically strong", it said.
In China, the National Development and Reform Commission has announced an inquiry into urea prices, which may result in restriction of its coal-based urea exports, it claimed.
On top of these demand and supply issues, Mr Nicholls said, the rise in shipping rates, due mainly to the impact of the COVID-19 pandemic on international trade, has pushed urea shipping costs from about US$40 a tonne to about $US75/t.
While local farmers were used to urea price volatility and shielded to a degree from the immediate impact of the current price surge because they pre-ordered imported fertilisers - more than 90 per cent of Australia's urea requirements are imported - the global situation created "a compelling argument for Australia to build its own urea manufacturing capacity," he said.
"Our project will have access to some of the world's lowest-cost gas, meaning our urea production will be price competitive in almost any market situation," Mr Nicholls said.
"Secondly, we are a domestic market focused business - so we won't be constrained by global shipping costs.
"A locally manufactured product will also improve the reliability of supply and shorten urea procurement timeframes for Australian growers."
Project Haber is also estimated to reduce Australia's urea fertiliser environmental carbon "footprint" by 50-60pc from a 2019 base, equivalent to 650-795,000t of environmental carbon dioxide a year, which would position Australia as one of the lowest carbon-intensive urea producing regions.
As reported in Farm Weekly last week, the urea price spike has seen some global regions facing the highest urea prices for eight years, according to ICIS (Independent Commodity Intelligence Services).
The impact of an unplanned shutdown of a large Saudi Arabia ammonia production plant on global markets had been exacerbated by increased demand, particularly from India, ICIS said.
Strike Energy has previously told the Australian Securities Exchange (ASX) it has received expressions of interest for Australian and international sales of urea totalling more than 3.5mtpa, two and a half times the planned annual production of its proposed Geraldton plant.
It has also told the ASX has a co-operation agreement with Mid West Ports Authority which operates Geraldton port, where 260,000tpa of fertiliser was imported.
Strike is expected to seek equity partners for the project later this year and plans to complete engineering studies next year and start construction of the urea plant in early 2023.
