3rd SNAMPROGETTI WORLDWIDE UREA USERS

SYMPOSIUM

SORRENTO - ITALY - JUNE 18+22,1996

Paper No. 1

IFA

PARIS - FRANCE

THE UREA SITUATION

AUTHOR: LM. MAENE

ABSTRACT

In 1828, Frederick Waller for the first time synthesized an organic substance, urea,
fiom purely inorganic salts. From that date till now urea has become the most used
nitrogen fertilizer in the world.
For the &re there are still a lot of opportunities to invest in urea market, even if
the efficiency of urea during soil application should increase.
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Contents

1. Introduction

2. International Urea Trade

3. New Urea Production Capacities

4. Trade Ammonia

5. Urea Supplyl'emand Balances

6. Conclusions
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INTRODUCTION

In 1828, Frederick Waller synthesized for the first time an organic substance, urea,
from purely inorganic salts. This started the whole science of organic chemistry.

Urea is a high-nitrogen-content fertilizer produced by reacting ammonia with carbon

dioxide. The general urea production process yields 70 to 87% urea in an aqueous
solution, which may be purified and dried to solid urea or used directly to make
urea-ammonium nitrate (UAN)solutions. Solid urea is produced in two forms, prills
and granules. They are chemically identical but d i e r in unit size, crushing strength
and abrasion resistance. Generally the prilled produce has a lower crushing strength
and is smaller in size than the granular products, which makes granular urea
preferred in some applications such as blending with other solid fertilizers for field
applications. Both, however, are used alone as well as in blends.

Most of the urea produced is used as fertilizer. In the USA, for example, about 92%
is used as a fertilizer, particularly on corn, wheat, cotton and rice.

The success of urea as a fertilizer is primarily explained by its high nitrogen content.
With 46% N, urea is the straight nitrogen fertilizer with the highest nutrient
concentration, thus providing substantial economies per unit of N in the costs of
storage, handling, transport and application.

Furthermore, urea has the following advantages:

- It can easily be integrated downstream of ammonia, making use of the carbon
dioxide produced in the reforming of natural gas.
- It is neither explosive nor a fire hazard.
- It is less corrosive than most fertilizer compounds.
- It has a relatively high critical humidity.
- Urea can be back-hauled in the same vessels used to transport bulk cargoes such
as grain.

A major problem with urea is its incompatibility with certain other fertilizers, such as
ammonium nitrate and other nitrates, and limited compatibility with the
superphosphates.

Both urea and ammonium nitrate are hygroscopic unless treated, but the
hygroscopicity of a mixture of the two components is much greater than that of the
individual components. The critical relative humidity of urea at 30°C is 73%, that of
ammonium nitrate 59%, that of a mixture of the two, 18%. This may in fact be
helpfbl in the production of urea-ammonium nitrate solution but causes difficulties in
blends. The high hygroscopicity of most urea-based NPK products can pose a
problem in hot, humid areas.

The problem with superphosphate can be decreased or eliminated by replacing some

or all of it with ammonium phosphate.
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-i

Urea has increased its share of ammonia demand fiom 34% to 41% during the
period 1988 to 1994. Other fertilizer products, including direct application ammonia
account for approximately 45% of total ammonia demand, with the balance of 14%
used in non-fertilizer applications.

The Development of Fertilizer Urea

In 1922, Germany was the iirst country to produce urea commercially, followed by
the USA in 1932 and England in 1935. The US industry developed fiom one
producer in the early 1930s, when 800 t of urea was produced by Dupont, to 3 1 in
1981, falling to 17 by 1991, due largely to mergers.

Up to the 1960s, the development of the nitrogen industry took place in the
developed countries of West Europe, North America and Japan. However, after the
mid-1970s, the construction of new plants shifted to the gas-rich countries of the
Caribbean and Middle East and also to some large consuming countries such as
China, India, Indonesia and Pakistan. At the same time, many plant closures
occurred in West Europe and Japan.

During the period 1973 to 1995, urea increased its share of the world nitrogen
fertilizer market fiom 20% to nearly 50%. Urea is by far the dominant nitrogen
fertilizer used in developing countries and is increasing its share in these markets.
During the period 1988 to 1994, urea increased its share of nitrogen fertilizer
demand fiom 58% to 62% in Asia and fiom 50 to 58% in Latin America. In Europe
and the FSU the use of ammonium nitrate is more widespread, for agronomic
reasons

Gas

Gas costs represent up to 75% of ammonia production costs. The cost of gas, which
is linked to the price of crude oil, has a direct bearing on the price of ammonia.

Approximately 7% of total annual industrial natural gas use in the USA goes to
nitrogenous fertilizer production, with about one fourth of this amount, or 2%, to
urea production. In West Europe, the fertilizer industry accounts for approximately
4% of gas usage. Natural gas accounts for more than 80% of all input costs to urea
production.

The countries of the FSU have the biggest share of world natural gas reserves,
followed by the Middle East. While the price of gas in Russii has increased
dramatically, when converted to US dollars it remains very competitive. About one

'Note: A disadvantage of urea compared,for example, with ammonium nitrate, is that the amide nitrogen must
first be transjormed to ammonium as a result of soil microbial action, which is dependent upon temperature.
Also, ammonium N, althoughfilly available, has a somewhat slower eflect, because it isfirst acisorbed on soil
particles and then only gradually released and nitrified. This is a disadvantage when quick action is required,
for example, for application in spring at rather low temperatures.
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third of the world's supplies are in the Arabian Gulf,where gas costs are
exceptionally low, but where capital, labour and water costs are high. Trinidad has
low cost gas and substantial reserves. The cost of gas for fertilizer production is
relatively low in Indonesia and Malaysia.

In the 1980s, many experts predicted that US prices of natural gas would increase
very sigruflcantly, forcing many ammonia plants to close. However, recent
technological breakthroughs have also helped to reduce the cost of production of
natural gas :
- computer assisted three dimensional seismic exploration helps to reduce the
time and cost of exploration and field delineation;
- horizontal drilling over an horizontal distance of up to 8-10 krn from the well-
head helps to reduce field development costs;
- the development of deeper offshore fields gives access to additional oil and gas
resources. Shell has now undertaken the development of the Mensa gas field in
the gulf of Mexico, under 1600 m of water.

In the US, technological innovations and changes in the organization of gas

marketing have prevented gas prices from increasing as much as anticipated in the
1980s.

In West Europe, the new technologies have made it possible to increase oil
production very sigruflcantly. They also help developing gas production in the North
Sea, but gas use is expected to grow very significantly in Central and West Europe.

Many developing countries do their best to attract international oil and gas
companies for exploration and field development. The production of natural gas may
increase, but in most cases, gas demand, for power generation particularly, will grow
faster. The possibilities of building additional gas-based ammonia plants are
relatively limited. Competition for available gas supplies is posing problems for the
fertilizer production industry in India and Pakistan.

2. INTERNATIONAL UREA TRADE

International urea trade increased steadily up to 1988, reaching a peak of almost 9.5
Mt' N. It fell back in 1990 and 1991, due to lower West European demand, the
disintegration of COMECON, US anti-dumping measures, increased production and
leveling off of demand in China as well as high stocks in India. During this period,
supply declined as Romanian exports collapsed, Iraq and Kuwait production was
removed from the world market. However, trade recovered in 1993 to return to its
1988 level, and there were substantial increases in 1994 and 1995.

Note: Mt = Million tonnes

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Table 1 - Urea Exports (million tonnes N)

WEUR CEUR FSU N AM L AM N EAST ASIA WORLD
1983 0.93 1.30 1.31 0.78 0.27 0.87 0.25 5.86
1985 1.06 1.63 1.60 0.88 0.30 1.34 0.79 7.60
1988 1.36 1.64 2.10 1.07 0.55 1.70 0.90 9.52
1- 1.00 0.90 231 1 .06 0.80 1.43 1.07 8.70
1993 1.07 0.74 2.70 1.05 0.78 1.80 1.14 9.41
1995 0.95 1.28 3.28 1.17 0.79 2.30 1.35 11.20

Urea export supplies fiom Central Europe and the FSU continue to dominate the
market, accounting for nearly 40% of world trade. In 1995, the FSU represented
29% of world exports, Central Europe 11%, the Middle East 21%, Indonesia1
Malaysia/Bangladesh accounted for 11% and MexicolTrinidad/Venezuela for 8%.

There has been a large increase in the price levels for both ammonia and urea since
1994. There was a recovery in demand and, contrary to earlier practice, the FSU has
acted as the main price setter. At the same time, the cost of supply has increased,
particularly in the Ukraine which relies heavily upon imported natural gas feedstocks
fiom Russia to produce both ammonia and urea for export.

The economics of urea production in 1995 were so favourable that plants operated
at the maximum of their capability virtually all over the world, with the exception of
the former Soviet Union where long distances to the ports and poor logistics remain
serious constraints.

Central Europe
In spite of the high cost of natural gas, the production and exports of urea increased
in 1995 by about 0.3 Mt N to reach 1.3 Mt. The main increases were in Romania
and Poland.

FSU
FSU urea production and exports increased respectively by 11% and 19% in 1995.
The annualized rate of the Russian urea exports for the first quarter 1996 was 2 %
higher than that of 1995. Despite earlier forecasts that the cost of gas would make
its industry uncompetitive, Ukraine continues to be a significant contributor to world
trade. In fact, urea exports fiom Ukraine increased by 3% in 1995, accounting for
10% of world urea trade.

Central and South America

In Mexico, urea exports increased in 1995 by 36 %. The use rate of the urea
capacity in Trinidad and Venezuela improved sigdcantly compared to the low level
of 1994. The urea exports of the region reached about 0.8 Mt N in 1995.

Middle East
Contrary to the FSU, priority has been given to urea exports rather than ammonia.
The major increase in urea export supplies in recent years has come fiom the
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Arabian Gulf and this is expected to continue to be the case in future. There are a
number of export projects either under construction or scheduled to enter
production before the end of the century within the Arabian Gulfarea.

The urea exports of the region increased in 1995 by 7 % to reach 1.9 Mt N. The
main increases were in Abu Dhabi and Kuwait. The commissioning of a urea plant in
Bahrain in 1997198 will fbrther increase urea exports at the expense of ammonia
shipments.

Asia
In 1995, China and India accounted for 28% and 13% respectively of world imports.

For many years Asia has dominated world urea import demand, although there have
been shifts in the volumes imported into individual countries. In 1988, China
dominated the market, accounting for over 40% of total world import demand.
Chinese imports of urea fell dramatically in 1993, following some major agricultural
and economic reforms, recovering in 1994 and 1995. The fill in China's imports was
compensated by increases by India and other countries in the Far East, which helped
to maintain Asia's dominance of the world import market for urea.

As regards China, it is estimated that the total urea imports of China reached 3.1 Mt
N in 1995, compared to 1.6 Mt N in 1994, 62 % of the tonnage being supplied by
the FSU. China, having increased imports during the first quarter of 1996 by lo%, is
generally expected to import at least as much as it did last year, close to 7 Mt
product.

As regards India, it is estimated that the total urea imports of India reached 1.5 Mt
N in 1995, compared to 1.2 Mt in 1994. Indian urea imports in 1996 will be sharply
reduced from the very high level of 1995, due to high stocks and good domestic
production levels.

The urea exports of Indonesia and Malaysia increased by 19% in 1995 to reach 1.1
Mt N. This is somewhat less than anticipated as 2 new plants were commissioned in
Indonesia in 1994195 and 2 others were debottlenecked. A further increase is
anticipated in 1996 and also in 1997198 when a new urea plant will be commissioned
at Bontang. However, domestic urea consumption is also growing fast.

Urea Ammonium Nitrate solutions, UAN

Nitrogen solutions are aqueous mixtures, usually of urea and ammonium nitrate, the
nitrogen content of which usually ranges from 28 to 32%. UAN solutions are easy
to handle, can be more uniformly applied to the soil than solid fertilizers, can be
metered into irrigation water, are less costly than ammonia to transport and store,
and direct production from urea and ammonium nitrate reactor solutions eliminates
prilling or granulation costs. However, lower nitrogen content increases shipping
costs per unit of nitrogen and different equipment is required for application than
that used to apply dry fertilizers.
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In 1995, UAN exports from the USA to Europe virtually ceased as the product was
in high demand in the US and the European prices were not attractive. However
they were replaced by UAN shipments from the FSU, where there are several
projects for the production of this product. The port logistics have also improved.
Ventspils uses tanks formerly used to receive superphosphoric acid. These tanks are
therefore equipped with heating devices which make it possible to store UAN 32 in
winter.

3. NEW UREA PRODUCTION CAPACITIES

Improved financial results in 1994 and 1995, and the experience of a very tight
ammonia supply in early 1995, have led many producers of ammonia and
nitrogenous fertilizers to consider projects for the debottlenecking of existing
capacities or the building of new ammonia and urea plants.

Table 2 - Urea capacities (million tonnes N)

19B2 1995 2000
W a t Ellmpe 3.21 2.83 2.83
MEllmpe 285 2.91 291
FSU 4.90 5.07 5.36
NorthAn#rica 4.74 4.75 5.44
I~UnAm~fka 2.19 214 3.06
Occrani 0.19 0.19 0.22
A M 0.36 0.36 0.36
M i b E& 3.61 4.10 7.18
W ,S8E 12.88 15.28 18.85
SociaM~ 9.37 11.43 14.89
World 44.39 48.06 61.10

West and Central Europe

Apart from an anticipated capacity increase in the former Yugoslavia, no significant
change is expected in overall urea capacity, neither in West nor in Central Europe.

Former Soviet Union

The two Siberian plants at Angarsk and Kemerovo resumed full operation in 1995.
They shipped a limited tonnage of urea through the North Korean port of Rajin.
These plants export to China by railway. The Chinese import by railway not only
urea but also an increasing tonnage of FSU ammonium nitrate (0.3 Mt N in 1995).

The FSU urea exports are expected to increase slightly in 1996 due to the
commissioning in 1995 of a new urea plant at Cherepovets (Russia). The building of
a new urea plant at Dneprozerzhinsk (Ukraine) has been announced but will
probably not be implemented before the end of the review period, though part of the
equipment was already delivered before the collapse of the USSR.
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There has been some improvement in port-handling facilities.

Further modernization of all the FSU capacity is needed but a limited number of
plants urgently need to be revamped in order to cut energy consumption and
improve reliabiity. These plants belong to rather conservative companies which have
done little so far to improve them. It may be too late now to modernize the plants. It
will be very difEcult for these companies to find the necessary financial resources
and some of the plants could close. However, much will depend on the future
government of Russia and on the support it may give to State enterprises and to
employment.

Elsewhere in the world, many projects for the construction of new capacities have
been announced or are under implementation. --

Table 3 - Forecast urea projects

Location m Y Capacity (1000 1. N) Date
Caada SASWERCO 121 1998
USA' CF IND.' 200 1999
..-................-.............---
..... ........-.--..-- ..... .......................................... ...............................................
PASA 368 1999
-V ARCADlANlPEQUlVEN 322 1899
Bahnin GPlC 258 1997
E m ABU QlR Ill 266 1999
EL NASR (SUEZ Ill) 230 1899
Kuwdt -
PIC SHUAIBA IB 233 1899
Oman OOCIKRIBHCO JV 668 2Cm
Qat8f QAFCO Ill 308 1997
S. Ambh SAFCO 276 1899
UAE SPlC JV (RELOCATION) 192 1999
................................... -.--.- ... .-.-. ................................................ ...................................................... ....
Ind~t~da PIM II 262 1999
KALTIM IV 262 1998 ...

KUJANG lB 262 1899

mm PETRONAS 248 1OD8
Pakistan AL NOOR 182 1997
FFC 254 1997
Tofal (Erd. Chine 8 Inde) 4.9 Mt. N

Some of the projects are firm or already under implementation. Others could still be
delayed or abandoned.
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USA
There is an unanticipated expansion of production capacity in the USA reflecting a
change in the expectations concerning gas availability and cost. Our 1996 survey
shows that the North American ammonia capacity will increase by 1.7 Mt N from
1995 to the year 2000, some 36 % of which will be achieved through plant
debottlenecking. New technologies make it possible to increase plant capacity by
some 28 %.

Latin America
In Argentina, PASA plans to build a new complex. It could be located at Bahia
Bianca close to the gas source and to an export port. Return fieight is available there
f?om the rail cars used to transport grains to Argentina's main export port. The
alternative location would be the region of Rosario in the heart of the consumption
area but accessible only by smaller ships.

As regards Venezuela, the location of the Arcadian/Pequiven complex will be Jose.

This complex will have a large ammonia surplus for export. A second project to be
undertaken by Pequiven, probably in the fiame of another joint-venture, is also to be
built at Jose. No date has been announced yet for this project.

Africa
No progress has been reported recently in Nigeria concerning the project for the
doubling of the NAFCON ammonia and urea capacity which has been considered for
a long time already. The additional urea capacity would be 0.2 Mt N.

Near East
The implementation of a urea and export ammonia complex to be built in Oman in
the frame of a joint-venture with an Indian company, could be firher delayed due to
financial problems, particularly concerning the high cost of hf?astructure. On the
other hand, we understand that in Qatar a Qafco IV project is being considered and
a decision could be taken soon. A project at Abu Dhabi is also under consideration
but not included in the forecast.

Iraq is an important potential exporter of urea but we cannot predict when the
embargo on Iraqi exports will be lifted. These plants are included in our forecast.
The total urea capacity is 0.8 Mt N.
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South Asia
India commissioned three new ammonia-urea complexes in 1994/95 and has
announced a very impressive list of new plants.

Table 4.1 - Urea plants under construction - India

COWW Location Feedstock Capacity Date
(1000 t. N)
IFFCO Aonla Naphtal Nat Gas 334 1997
IFFCO Phulpur Naphta 334 1998
NagarjunaFd. Mnda NaphW Nal G8s 228 1998
art. vijaypur NaphW Nal Gas 334 1997
m n g S 104 1997
TON 1334

Four urea plants and six ammonia plants are under construction. Two of the
ammonia plants are replacing older capacity. The four new urea plants will use
ammonia produced from naphta or a combination of naphta and natural gas as a
feedstock, in view of the demand for natural gas for other purposes.

In addition, eight new ammonia-urea projects, also to be based mainly on naphta, are
being considered.

Table 4.2 - Proposed urea projects - India

CompMy Lo#tkn F@e&bck Capacrty Data
(1000 t. N)
Chambal Gadepan II NaphErJNat. Gas 334 1-
IFFCO Project Ndkrs Naphta/Nat. Gas 334 2000
KRIBHCO Ha~h Naphta/Nat. Gas 334 2000
Naknal Fart. Pllnipa II NaphtaMt. Gas 334 2000
Oswal Chems. -W-npur NaphtrJNd. Gas 334 1999
RwMriyaCM. ThdIII B NaphtaMt. Gas 334 1999
RPG -m NapWNal. Gas 334 1999/2000
TATA C M . Babrab NaphwW. Gas 334 1999/2000
Total 2672

A feature of the new projects is that many of them will use other feedstocks than
natural gas. Many of the existing gas-based plants are already shifting their boilers to
other sources of energy, primarily naphta and fbel oil but also liquefied natural gas,
LNG,near the West coast. We understand that the first four urea plants will receive
naptha at concessional prices from local refineries. The other plants will have to be
supplied with imported naphta at the market price. The price of imported naptha
would be considerably higher than that of local naptha, which is already higher than
that of natural gas. It is therefore not certain that all these plants will materialize. For
our forecasts we assume that the first four urea plants and a small expansion of
existing units will be commissioned as planned between 1996 and 1998. However,
our forecast assumes that none of the plants in table 4.2. will be commissioned
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during the period of the forecasts, i.e. to the year 2000. The forecast potential
production for the year 2000 may therefore be understated.

The project for a gas pipeline fiom Oman to India has been shelved but a project for
a gas pipeline fiom Qatar or Iran to India via Pakistan is being considered. Imports
of LNG will probably start in a less distant future.

Socialist Asia
In China, we understand that work is in progress concerning the modernization of
the medium-scale urea plants. The objective is to increase output, improve quality
and reduce energy consumption. Most of these plants are coal-based and improved
gasification techniques will make it possible not only to reduce coal consumption but
also to use local coal qualities rather than anthracite transported fiom distant mines.
The output of these medium-scale urea plants is already increasing.

Some medium-scale ammonium bicarbonate (ABC) plants will be converted to urea,

some of the small-scale ABC plants, located in remote areas, will continue to
operate, and other ABC plants will be closed.

Table 5 - Urea projects-China

Locaion w=w -0fCompktkn Fedstock
(Mt.N)
H.kw I M 0.3 1998 Nat. Gn
Im~hou Gmirnru Pmv. 0.3 1998 Nat. Gn
Jiengxl Pmv. 0.3 1997 Fwl Oil
JUin 0.3 1999 Fwl OU
Uwning Pmv. 0.3 1998 Fwl 01
NanjingJiangw Pmv. 0.3 1999 Fwl 0 3
Jining Shandong Pmv. 0.1 1998 Coal
Wdhe, Shad Pmv. 0.3 1998 Coal
NOUI WTI Xinjhg Pmv. 0.3 2000 Nat. Gas
Urumqi Patchm 0.3 1998 Nat. G ~ B
Totd' 2.5
' TOW m y not add dim to miinding

The Fudao project, the fist ammonia-urea complex to be built on Hainan island, is
expected to be commissioned at Basauo in 1996 or 1997. The building of a second
ammonia-urea complex, using second-hand equipment, has reportedly been
approved by the Chinese authorities.

We understand that a decision will probably be taken soon as regards the integrated
project in Vietnam for a power plant and ammonia-urea complex. The urea capacity
will be 0.3Mt N. It is not yet included in our forecast.

TRADE AMMONIA
This paper concerns the urea situation but the supplyldemand balance for ammonia
traded as such cannot be disregarded. Some producers can lower their fertilizer
production in order to increase the availability of ammonia for sale, and vice-versa.
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International ammonia trade amounted to 10.8 Mt N in 1995. The FSU accounted

for 38 % of this total.

Because of the above-mentioned inter-changeability, it is m c u l t to estimate future

supply. Our best estimate is that the capacity to supply traded ammonia could
increase by about 3.8 Mt N p.a. by the year 2000. This assumes full use of the
capacity, although some plants will only be commissioned in 1999 and 2000.

The main increases will take place in Trinidad and Venezuela, due to the
commissioning of 4 new or second-hand plants, in North America with the
recommissioning of 2 second-hand plants and the debottleneclcing of many existing
units, and in the Middle East due to the commissioning of new plants.

The available supply of trade ammonia will be reduced by about 1.3 Mt N due to the
commissioning of downstream units, for the production of urea or UAN solution at
sites where there currently is an ammonia surplus for sale.

The net increase in trade ammonia supply is therefore expected to amount to about
2.5 Mt N by the year 2000. The figure is probably understated as we suspect that a
sigmficant number of projects for plant debottlenecking have not been announced
yet. On the other hand, certain ammonia projects could still be delayed or
abandoned.
As regards demand, the most sigmficant increase in ammonia import demand since
1988 has been in the US Gulf,mostly for DAP production. However, this increase
was largely offkt by the decrease in West European import demand. Future
increases in ammonia import demand will be in the Far East (primarily Taiwan,
Republic of Korea, Thailand and possibly Japan), the US Gulf and North a c a .
Increases in the US Gulf and Morocco are for DAP production and ammrnonia
would be required for new DAP and NPK plants in Jordan, Vietnam and Thailand.
Otherwise the increasing requirements in the Far East are mostly for industrial .. .
applications. As a whole, the additional demand of trade ammonia could amount to
about 1.4 Mt N by the year 2000. This may be optimistic as it assumes a full use of
the new capacities.

Based on the above calculation, trade ammonia supply could grow faster than
demand and could result in a capacity surplus of about 1.1 Mt N, i.e. about 1.3 Mt
ammonia.
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-A SUPPLYIDEMAND BALANCES

Table 6 - World urea supply - Demand balance (1000 tonnes N)

51742 5415Q 58876 59609 61104

Production Capabllii 43771 45097 46557 49140 51029
Non Fertllii Uss 2882 2922 2965 3005 3045
Available for FM.' 39046 40117 41463 43878 45634
Fertiliier Demand 37570 38942 40231 41480 42912
Balance 1476 1175 1232 2398 2722
' aRer deducUon of non hrliier use and of bsses of 5%.
The calculations show that the urea capacity may grow faster than demand. The
supply surplus could reach 2.7 Mt N in year 2000, i.e. 6 % of the world supply
capability.

If some of the projects are delayed (Argentina, Oman, Venezuela, the relocation of a
plant in the UAE) and if the embargo is not lifted on Iraqi exports, the world supply
surplus would only amount to 1.7 Mt N or 3 % in the year 2000.

The surplus could be slightly higher if all Indian projects were implemented. Also,
there is a long list of additional projects being considered. Past experience has
shown that in certain regions, in the Arabian Gulf particularly, ammonia-urea
complexes can be built in a rather short period of time, at sites where all the
i&astructure is in place, and that their capacity use rates can reach 100 % in less
than 24 months. More urea could therefore become available by the year 2000 than
anticipated in this study.

The surplus would be exacerbated by a surplus of trade ammonia. If the international

ammonia prices were to drop, the FSU producers, for example, would maximize
their exports of urea, ammonium nitrate and UAN solutions, at the expense of
ammonia exports. A sdlicient decline in the international ammonia prices would
S e c t not only the FSU, but would also incite producers in other parts of the world,
including the Caribbean and the Middle East, to invest in downstream units (urea or
UAN solutions), in order to reduce their ammonia surplus.

Overall, there is a considerable risk of over-investment in ammonia and urea

facilities.

The efficiency of urea

An agronomic problem with urea, in both solid form and as UAN solution, is the
loss of nitrogen following application. If the urea is incorporated in the soil
immediately after spreading, losses are minimal, but if this is not the case, they can
be substantial. This applies especially to calcareous soils, and in the tropics in the
case of flooded rice fields and crops which are not tilled, such as banana, sugar cane,
J
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oil palm, rubber and 'others. Volatilization losses under such conditions are estimated
at 15% to 20% of the amount of nitrogen applied.
On rice, under flooded soil conditions, losses through denitrification may be high,
particularly when flooding and drying out alternate.
For both economic and environmental reasons it is evidently desirable to reduce this
loss. Much can be done by improving the agricultural techniques but there is also
scope for improved products.
Granular urea is recognized to increase the nitrogen efficiency and yield potential of
the crops. The demand for granular urea is greatest in countries where bulk blending
or aerial application is important. However, the cost of granular urea is higher than
that of priJled urea. Hence, in developing countries, where bulk blending and aerial
application are not common, and where f m sizes tend to be much smaller than in
the US, there is an unwillingness to pay the premium and the use of granular urea
has not developed sigmficantly. Furthermore, skill is required on the part of the
h e r s in order to exploit the advantages of the product, and the advisory services
are usually inadequate.
Large size "super-granules" have also been shown to be effective for rice. Apart
&om the higher cost of the product, their placement, manual or by means of simple
equipment, is labour intensive. They too have had limited success to date.
Controlled-release urea products have substantial agronomic advantages, especially
in tropical countries, in regions with light-textured soils under heavy rainfall or
irrigation, where N losses are high. Controlled-release fertilizers are also less
sensitive to air humidity and temperate fluctuation, hence easier to store, and are less
susceptible to leaching in the soil.
However, the share of the world fertilizer market accounted for by controlled-
release fertilizers is only about 0.1%. This is because they cost much more than the
traditional products. Their use is increasing slowly on high value cash crops, in
horticulture, vegetables in the tropics, but not on the main agricultural crops.
Nitrification inhibitors are effective in reducing losses under certain conditions, but
apart &om the cost and the question of the technique of use, the presently available
products have not given satisfictory results on high-temperature soils. However, an
interesting possibility is the application of urea, or UAN solution, amended with a
urease inhibitor, which should permit a substantial reduction in nitrogen losses. In
the spring of 1996, IMC Global introduced onto the US market, the urease inhibitor
AGROTAIN, based on N (n-butyl) thiophosphoric triamide. There is a tremendous
potential for urease inhibitors in world agriculture, for both economic reasons and
for protection of the environment, and it will be interesting to follow the
development of this product.
Acknowledgement: 'Fedhers and Raw Materiels Supply and SupplyDemand Balances' by P.L.
Louis. /FA, presented at the 64th /FA Annuel Conference heM in W n in May 1996.
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The efficiency of nitrogen fertilizers and the loss of nitrogen to the air and to water,
are receiving adverse publicity and we anticipate that this problem will receive
increasing attention during the coming years. The solution to this problem will
require considerable investment, not only in the research and development of new
products and their use, but also in advising farmers on how to use them effectively.