CF says cheaper gas makes expansion attractive

CF Industries Holdings Inc., the world's second-largest maker of nitrogen fertilizer, said the addition of production capacity in the U.S. and Canada is more attractive because of lower natural-gas prices.

“The idea of locating a new complex with existing infrastructure at one of our sites is something I'd love to be able to consider,” the Deerfield-based company's Chief Executive Officer Stephen Wilson said in a Jan. 28 interview at Bloomberg offices in Chicago.

CF's Donaldsonville, Louisiana, plant is a possible location for investment because of the availability of supplies of gas from shale formations, Wilson said. Natural-gas futures have fallen 72 percent in New York since reaching a record in December 2005 after discoveries of so-called shale gas contributed to a supply glut. Natural gas is used as a raw material to make nitrogen-based fertilizers.

Still, Wilson said his enthusiasm for more capacity is tempered by the possibility that the U.S. Environmental Protection Agency may enact rules to limit carbon emissions. The agency is moving forward with plans for regulations after Congress failed to pass climate-change legislation.

“Until there is clarity on what's going to happen there, I certainly would not recommend such a project for our company,” Wilson said.

CF, which bought U.S. rival Terra Industries Inc. for $4.7 billion in April, rose $3.36, or 2.5 percent, to $138.40 as of 4:15 p.m. in New York Stock Exchange composite trading. The shares have advanced 45 percent in the past year. Oslo-based Yara International ASA, the largest maker of nitrogen fertilizer, has climbed 33 percent in the same period.

“The U.S. is oversupplied by about 1.5 billion cubic feet of gas a day,” enough to supply 6 million average homes on an average day, said Peter Linder, a Calgary-based energy analyst and president of DeltaOne Capital Partners, a fund management company. “That doesn't look like it's going to change in the foreseeable future.”

Outside of the U.S. and Canada, CF's expansion will depend on whether CF can seize opportunities to acquire low-cost gas supplies in politically stable regions where demand for fertilizer is growing, Wilson said.

The nitrogen-fertilizer industry is more fragmented than the industries producing potassium- and phosphorus-based nutrients, Wilson said. Much of the world's nitrogen-fertilizer output is state-controlled, he said.

“The likelihood of a North American public company buying a government-owned entity is remote,” he said.