AN offtake agreement giving United States fertiliser giant Koch sole access to 1.4 million tonnes a year of granulated urea proposed to be produced at Geraldton, will be the aim of negotiations by Strike Energy Ltd.
Strike announced last week it had selected via a competitive process Koch Fertilizer as its preferred bidder for all of the first 10 to 15 years of urea production from its proposed Project Haber plant in a Geraldton industrial area.
The plant is proposed to use natural gas piped from Strike's own South Erregulla SE1 well and any subsequent commercial wells near Eneabba as the gas field develops, as raw stock for urea fertiliser manufacture.
In an announcement to the Australian Securities Exchange (ASX) Strike said it and Koch Fertilizer had "entered into a non-binding term sheet".
They will now begin negotiating and drafting a "full form definitive offtake agreement reflective of key terms agreed in the term sheet", it said.
These terms include a 10 to 15 year supply period, pricing linked to international benchmarks and the agreement being conditional on a final Project Haber investment decision by Strike.
Strike managing director and chief executive officer Stuart Nicholls said selecting Koch Fertilizer as preferred offtake bidder "creates the foundations for an exciting and transformational period for the company, at the conclusion of which Strike will have completed its journey to becoming a fully vertically integrated manufacturer of high energy intensive and low carbon emission products".
"Securing Koch Fertilizer as Strike's sole offtaker would give Project Haber a high degree of creditworthiness and financial security," Mr Nicholls said.
"Having a single long-term offtaker for 100 per cent of the urea production will provide the foundation for the financial architecture required to successfully finance this nationally significant development.
"Australia's farmers are set to benefit from the re-domestication of Australian urea manufacturing, which will secure a local supply of globally cost competitive, low carbon emission nitrogen-based fertiliser.
"With global urea prices at all-time highs, the timing for this development in Australia is now."
As previously reported in Farm Weekly, Project Haber, which was awarded Major Project Status by the Federal government to enable various approvals processes to be co-ordinated and streamlined, is conditional on Strike proving up about 350 petajoules of "high confidence resource" at South Erregulla SE1 as the required gas supply.
Cheap natural gas is said to be key to urea production because it represents about 70 per cent of production costs.
Synthetic urea is manufactured by reacting natural gas, atmospheric nitrogen and water together at more than 200 degrees Celsius and high pressure to produce ammonia and carbon dioxide.
These gases are reacted again at high temperature and pressure to produce molten urea which is cooled and processed into prills as fertiliser and for industrial use.
Koch Fertilizer and its affiliates own or have interests in nitrogen fertiliser plants in the US, Canada and Trinidad and Tobago, Strike told the ASX.
It is a subsidiary of one of the largest private conglomerates in the US, Koch Industries based in Wichita, Kansas.
Koch Fertilizer distributes almost 10mt of fertiliser products annually via terminals in the US, Canada, Mexico, Brazil and Australia.
Koch Fertiliser Australia has terminals at Adelaide, Portland in Victoria and Brisbane, with a head office in Melbourne.
Another WA urea proposal is waiting on Environment Minister Reece Whitby to sign environmental approvals for the $4.3 billion Perdaman Urea Project within the Burrup Strategic Industrial Area near Dampier.
In March, the Pilbara Ports Authority called for expressions of interest to dredge and build a new multi-user wharf at Dampier port which Perdaman will equip with bulk handling facilities for urea, including a storage shed, a conveyor system and a shiploader.
The Northern Australia Infrastructure Facility is providing $160 million to the port authority for the new wharf.
North West Shelf liquid natural gas is proposed to be sourced from the adjacent Burrup gas hub for the urea project.
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