Hello, everyone, and welcome to Fertiglobe First Half 2024 Results Conference Call. Please note that this call is being recorded. Everyone has joined on listen mode only to avoid any background noise. You will have the opportunity to ask our presenters later on in the Q&A session. If you'd like to ask a question during that time, please press Star 1. If you'd like to retract your question, please press Star 1 again. Thank you. I'd now like to hand over to Rita Guindy, Fertiglobe's Investor Relations Director. Please go ahead.
Thank you, Ellie. Good morning and good afternoon, ladies and gentlemen. Thank you for joining Fertiglobe's Q2 and H1 2024 Results Conference Call. With me today are Ahmed El-Hoshy, our Chief Executive Officer, Haroon Rahmathulla, our Chief Operating Officer, and Andrew Tait, our Chief Financial Officer. On this call, we will review Fertiglobe's key operational events and financial highlights for the quarter, followed by a discussion of our outlook. The presentation will be followed by a question-and-answer session at the end of the call. The quarterly results report is available on our Investor Relations website, and I would like to remind you that any forward-looking statements made on this call involve risks, and the actual results could differ materially from those statements. With this, I will now hand over to Ahmed El-Hoshy, CEO of Fertiglobe.
Thank you, Rita, and thank you all for joining Fertiglobe's Q2 and H1 2024 Results Conference Call. Let me start by reconfirming our relentless focus and commitment to safety, which is our top priority. As of the end of June 2024, our 12-month rolling recordable incident rate was 0.05 incidents per 200,000 man-hours. I'm pleased to see this decline versus last year's metrics, a clear demonstration of the team's efforts to foster a culture of zero injuries, placing significant emphasis on both operational and process safety, and targeting the highest HSE standards to ensure safe, sustainable, and reliable operations across the board. Moving on to financial results, our Q2 2024 revenues and adjusted EBITDA were 10% and 29% below their levels of Q2 of last year, respectively, at $496 million and $156 million, while our H1 2024 revenues and adjusted EBITDA were at $1 billion and $378 million, respectively.
It's worth noting that these results were delivered in an environment of market volatility as nitrogen prices were impacted by delayed demand, cautious buying behavior, and reduced urea imports into India, which were partially offset by some supply disruptions towards the end of the period. In addition, our operations in Egypt were also impacted by widespread gas supply disruptions during the quarter, which are now resolved at our sites. I'm proud to say that notwithstanding these issues, our Q2 2024 own-produced sales volumes fell only marginally by 2% year-over-year. Meanwhile, H1 2024 own-produced sales volumes were actually up 1% to 2.8 million tons, supported by record production levels in Egypt and Algeria during the period. This is thanks to the active efforts of our team to optimize production operations while managing commercial activities, and it's supported by our strategic positioning and our diversified production footprint.
Excluding the gas supply issues faced in Egypt and other external factors, Q2 2024 and H1 2024 own-produced sales volumes would have been up 8% and 7% on a controllable basis, respectively, year over year. Adjusted EBITDA would have been $186 million in Q2 2024, or about a 14% year-over-year decline, and $410 million in H1 2024, which would have represented a 20% year-over-year decline. These figures demonstrate the interim results of the ongoing Manufacturing Improvement Plan, or as we call it, the MIP, where we've seen more tons produced at much higher efficiency rates and lower emissions. We consider it to be an achievement that despite all these external factors mentioned, our produced volumes in the first half of the year were up 4% as compared to last year.
Looking ahead, we are well on track to realize the targeted $100 million in incremental annual EBITDA by the end of 2025 compared to 2023, driven by further improvements in production and energy efficiency. Also, in terms of AI integration, there are efforts to gradually digitalize our processes, and we are on track to install infrastructure that will allow us to utilize AI across our production platform to further support reliability and energy efficiency utilizing preventative maintenance measures. In addition, we are pleased with the progress made so far on our cost optimization program, with 84% of our $50 million run rate target implemented as of the end of June 2024, and we remain on track to realize the full target by the end of the year.
Collectively, these measures are expected to add up to $150 million of EBITDA in total by the end of 2025 on a run rate basis compared to 2023. This would reflect a 15% increase to the 2023 EBITDA at unchanged pricing. These initiatives also provide additional support to our healthy free cash flow conversion and robust balance sheet, which stands at approximately 1x net debt to LTM adjusted EBITDA, and enable us to continue balancing selective growth spending on value creative opportunities and dividend payments, reinforcing our commitment to shareholder value creation. As announced in our earnings release today, we are going to present the proposal for the H1 2024 dividend amount to the board in September, once aligned with shareholders, and we'll share it with the market then, with payment expected in October as usual.
As everyone is aware, there are several moving factors currently, particularly in light of the ongoing ownership transaction, and the dividend amount is currently being finalized for board approval. The quarter was also eventful on the project side, with several major milestones we are proud to celebrate. We're glad to announce having taken a final investment decision on TA'ZIZ's 1 million ton low carbon ammonia project in the UAE, along with our partners TA'ZIZ, which is an ADNOC and ADQ joint venture, GS Energy out of Korea, and Mitsui out of Japan, and are on track to start construction this year following the award of the construction contract to Tecnimont S.p.A., with production slated to begin in 2027. With a 30% equity stake, our equity investment amounts to approximately $30-$35 million, implying double-digit project and equity IRR.
These returns are supported by a focused investment approach on the back end of the plant only, so only an ammonia back-end synthesis, utilizing existing reuse infrastructure and facilities and abundant raw material supply, namely hydrogen and nitrogen. The project located in the UAE enjoys strategic access to new key markets, including Asia, and Fertiglobe is entitled to market a proportionate share or 30% of the project's low carbon ammonia production. The first phase of this project will produce ammonia with approximately 50% lower carbon intensity compared to conventional ammonia, with further reduction in the carbon intensity plan in the second phase by capturing and sequestering CO2 emissions. Additionally, I'm excited about our selection as the winning bidder in the first-of-its-kind H2Global auction.
As the winning bidder, which was announced in the last couple of months, Fertiglobe will supply renewable ammonia out of Egypt into Europe under an offtake contract worth up to €379 million in terms of support at a delivered price of €1,000 per ton until 2033. The agreement provides a framework for demand and pricing support, helping Fertiglobe and the consortium behind Egypt Green Hydrogen reach Final Investment Decision on the first integrated green hydrogen plant in Africa by H1 2025. Fertiglobe has secured a long-term supply of renewable hydrogen from the adjacent Egypt Green Hydrogen, which Fertiglobe has a 20% stake in. I have to thank the team for their tireless efforts to get this done. The unique offtake at this price gives us a great starting point to create a highly economic project, leveraging our existing asset base and providing decarbonized products to the European global markets.
Finally, supported by ADNOC, we played a key role in delivering the world's first-ever certified bulk commercial shipment of low carbon ammonia enabled by carbon capture and storage to Mitsui for use in clean power generation in Japan. The landmark low carbon ammonia shipment was produced at Fertiglobe's Abu Dhabi facilities and supported by ADNOC's $23 billion allocation towards decarbonization and low carbon solutions, further demonstrating the unique value proposition behind our partnership with ADNOC and the case for ammonia being a key instrument in the decarbonization of hard-to-abate sectors. These steps and initiatives align well with ADNOC's overall efforts to grow low carbon ammonia value chains and capture 5% of the global low carbon hydrogen market.
With regards to the pending ADNOC acquisition of OCI Global's 50% stake in Fertiglobe, the approval process has been progressing well, with closing expected later this year, and we will provide a further update to the market once all the remaining conditions to completion are satisfied. As previously highlighted, this transaction supports both ADNOC's ambitious chemical strategy and its plan to establish a global growth platform for ammonia, as well as Fertiglobe's growth plans by unlocking further potential in its core products of ammonia and urea, while accelerating the pursuit of new market and product opportunities and expanding its focus on clean ammonia. With that, let me hand it over to Haroon to discuss the market outlook as well as our commercial and operating performance.
Thanks, Ahmed. Let me start by briefly highlighting the outlook for nitrogen fertilizer and ammonia markets. Starting with ammonia, the Northwest Europe benchmark eased by 7% quarter-over-quarter during the quarter as the spring demand season came to a close. Price reductions were tempered by supply disruptions across the U.S., Trinidad, Europe, and the Middle East towards the end of Q2. We expect ammonia markets to remain firm in the short term and broadly balanced through year-end, notwithstanding anticipated new merchant supply from the U.S. Gulf and a new Russian export terminal in Taman expected late 2024. Promisingly, several key ammonia markets have been showing signs of tightness and improved import demand in Q2 2024, reflecting strengthening economic conditions as well as growth in industrial uses for ammonia.
More recently, the latest Tampa settlement for August of a $60 per ton increase has highlighted the tightening market conditions west of Suez, where prolonged production outages at some export hubs have limited product availability. This indicator provides further support to an expectation of firmer CFR Northwest European prices and an upward trend from current $520 per ton levels. Collectively, these dynamics are expected to support a period of relative price stability and a broader global trade recovery in ammonia following two years of prolonged contraction. In the medium to long term, we see accelerating incremental demand from new applications for low carbon ammonia, such as fuel for power generation, as a maritime bunker fuel, and as a clean hydrogen carrier. Consultants forecast incremental demand from these terms to reach 22 million tons by 2030, more than doubling the quantity traded today.
Phase Two of Europe's Carbon Border Adjustment Mechanism expected in 2026 is catalyzing growth interest in decarbonization opportunities within the existing fertilizers and chemicals value chain. Europe's position as a global marginal producer suggests that European carbon costs could support an increase in global ammonia fertilizer prices. In terms of urea, while the Q2 2024 urea Egypt FOB benchmark was down 14% compared to Q1 2024 and 4% lower year-over-year, pricing has recovered in recent weeks since reaching lows in May. This reflected weak sentiment early in the second quarter due to reduced demand for urea imports from India in April. However, sentiment improved as the quarter progressed, with demand from the tail end of the northern hemisphere spring application season met tight supply conditions, reflecting the continued absence of Chinese exports, production outages in Asia, and gas curtailments in Egypt.
Chinese urea exports fell 7% in the first half of 2024 compared to the same period last year, reaching record lows. Exports are expected to remain at low levels, below 2 million tons in 2024 compared to 4.3 million tons in 2023 due to strong domestic demand for both agricultural and industrial applications, combined with low urea inventories in the country. Looking ahead, consultants expect a firmer urea market supported by renewed appetite for urea imports in the U.S., a degree of European price support given underlying cost pressures, the continued absence of China from the export market, and a slower pace of new urea capacity additions. These factors collectively suggest more balanced markets in the short term, with potential further upside from outstanding purchases from Brazil. Longer term, demand growth of 12 million tons is still expected to materially outstrip additional capacity growth of 9 million tons by 2028.
Now, moving on to the highlights of our performance in the second quarter of 2024, we're really pleased to end the quarter with a mild 2% year-over-year drop in our own produced sales volumes despite the gas supply issues faced in Egypt, which have impacted our operation. Notwithstanding these, as Ahmed mentioned, we were also able to increase our production by 1% year-over-year in the first half of this year. As we have mentioned, our own produced sales volumes and EBITDA would be materially higher compared to last year, excluding the impact of uncontrolled factors like the gas supply issues, thanks to the strides taken on the manufacturing improvement front, which have impacted our operating rates positively. In addition, significant focus continues to be made on energy efficiency, where we have reached very meaningful records at some of our facilities recently.
We have also delivered significant improvements on HSE, which remains a top priority with one of the lowest incident rates in our industry and continued efforts to reach our target of zero injuries. We expect to realize and be able to show more efficiencies and positive progress over the coming quarters. Between our cost optimization program and our Manufacturing Improvement Plan, we expect to generate incremental annual EBITDA of around $150 million by the end of 2025 compared to 2023, which represents almost 15% of our 2023 adjusted EBITDA of $1 billion, the $150 million calculated at 2023 prices. With that, I would like to hand it over to Andrew to discuss the financial results in more detail.
Thanks, Haroon. So let me start with some highlights of our performance in Q2 2024 and H1 2024, which, as Ahmed mentioned, was impacted by price volatility as well as external factors outside of our control, such as the gas supply issues in Egypt. So for Q2 2024, our revenues were $496 million, that's 10% below the same quarter last year. Meanwhile, our Adjusted EBITDA decreased 29% year-on-year to $156 million, leading to Adjusted EBITDA margins of 31%. Excluding external factors, EBITDA would have been $186 million, that's 14% lower to last year, and that's mainly impacted by prices. Our adjusted net income attributable to shareholders was $15 million compared to the $84 million in the same quarter last year. In the first six months of 2024, our revenues were $1,408 million, excuse me, 16% lower than the same period last year.
Meanwhile, our Adjusted EBITDA decreased 27% year-on-year to $378 million, leading to Adjusted EBITDA margins of 36%. Excluding the external factors, our Adjusted EBITDA would be $186 million for Q2 2024 and $410 million in H1 2024, a 20% year-on-year reduction. The adjusted net income achievable to shareholders was $134 million compared to $219 million in the same period last year. Returning to the balance sheet and cash flow performance, as of 30 June 2024, Fertiglobe reported a net debt position of $880 million in net debt for the last 12 months, adjusted EBITDA of about one turn, which allows the company to balance selective growth opportunities and dividend payout supported by robust free cash generation and a healthy balance sheet.
In early 2024, Fitch and Standard & Poor's announced placing Fertiglobe on the Rating Watch Positive and CreditWatch Positive, respectively, on the pending acquisition of OCI's 50% stake by ADNOC, with the expectation to raise Fertiglobe's credit rating by at least one notch following completion of the transaction. Recently, Moody's has also upgraded Fertiglobe's outlook to positive from stable. As a reminder, in 2022, Fertiglobe achieved investment-grade credit ratings by all three rating agencies, S&P Triple B Minus, Moody's Baa3, and Fitch Triple B Minus, supported by an attractive cash flow profile and a prudent financial policy. We are committed to maintaining and improving these ratings.
The free cash flow before growth CapEx amounted to $70 million in Q2 2024 compared to $60 million in Q2 2023, reflecting the performance for the quarter, the lower working capital inflows, the higher maintenance capital expenditures, and an increase in net interest, as well as lower tax and lease payments. Meanwhile, our H1 2024 free cash flow before growth CapEx was $225 million compared to $331 million H1 2023. Our total cash capital expenditures, including growth CapEx, were $23 million in Q2 2024 compared to $35 million in Q2 2023, of which $16 million was related to maintenance capital expenditures compared to $31 million in the previous period last year. For H1 2024, total CapEx was $44 million compared to $47 million last year, including $35 million in maintenance CapEx compared to $42 million in the same period last year.
We maintain our guidance of $110 million-$130 million for maintenance CapEx this year, with a total growth CapEx expected to be below $50 million and will ultimately depend on the progress of our growth projects, which are in various stages. Fertiglobe remains committed to creating shareholder value, leveraging our active cost optimization and manufacturing improvement initiatives to bolster the cash flow generation across cycles and maintain a robust balance sheet. And as discussed before, we are well on track to meet our previously communicated targets of optimizing the controllable cash flow drivers and look forward to reporting even more progress in the coming quarters. I'll now hand back to Ahmed for our outlook including remarks.
Thank you, Andrew.
To conclude, we continue to believe that the medium to long-term outlook for ammonia and nitrogen markets is supported by material increments of demand from new and existing sources with limited supply additions over the medium term. Fertiglobe is well positioned to leverage the growing demand for renewable and low carbon ammonia supported by its projects and platforms. We are proud of all the efforts exerted by the entire team to support and bolster our performance in a tough operating environment and in the context of market volatility, but will not be stopping here as our goal is excellence at all fronts and we'll continue to pursue that goal. Supported by our active cash flow support initiatives, a top quartile cost positioning, healthy cash conversion capacity, and our strategic platform, Fertiglobe is uniquely placed to continue delivering robust results and major milestones while always focusing on creating shareholder value.
With that, we'll open the line for questions.
We are now opening the floor for question and answer session. If you'd like to ask a question, please press star one. Again, that's star one. Our first question comes from Waleed Mohsin from Goldman Sachs. Your line is now open.
Hello, good afternoon, and thank you for taking my questions. Just have a couple. The first one is on the Algeria contract. Could you please provide us with any updates on the discussions happening on that front? And second of all, how do we think about sales volumes going into Q3 in the context of seasonality and your planned operational performance so far into the quarter? Thank you.
Thanks, Waleed. Just to kind of answer that first question with regards to Algeria, obviously a very relevant one. We've been having constructive discussions with Sonatrach, the Algerian government, with regards to the extension of the gas agreement. It's been delayed versus our initial expectations. As we had mentioned earlier, there were some changes after our gas contract, around the time of our gas contract expiry in November of last year, there were changes in leadership in Sonatrach. We also see a presidential election coming up in September. We've been kind of in Algeria approximately once a month over the last few months. The focus from the Algerian government is one of finding a good path forward, a constructive path forward to be able to monetize their gas, but also keep a flourishing downstream petrochemical industry.
Just as a reminder, we own 51% of Sorfert, but we get 36% of the economics. So the Algerian government is our partner in that project. And what happens on our gas expiry here will not just affect ourselves, but also affect other fertilizer producers whose gas contracts expire over the next 12 months, as well as the broader gas industry, gas consuming industries, including steel. So for the Algerian government, it's a lot at stake. It's not just with Sorfert. And we will provide updates to the market as we develop these negotiations further. With regards to your second question regarding Q3 volumes, obviously we don't provide forward-looking volume guidance during the quarter. As I said during the prepared remarks, the plants are running well. And from a gas supply perspective in Egypt, we've seen the gas supply resume versus Q2. So we see an improvement there.
Also, I really have to commend the team for the improvements in the manufacturing improvement plan on energy efficiency. Actually, we can produce the same amount of tons with less gas now with some of the tweaks that have been happening on the sites. And obviously, in our Q3 results conference call, we'll be sharing that performance on a retrospective basis.
Thank you.
Our next question comes from Pratik Bhatnagar from HSBC. Your line is now open.
Hey, good afternoon and thanks for taking my question. I have to look, you mentioned that you had some volume impact because of the gas issues in Egypt. Should we consider them as lost volumes, or is there any way you can kind of compensate for it during Q3? So that's my first question. The second question is on urea demand from India. Could you give some color? You said it's been weak in the past, but what's the outlook here? Thanks.
Sure. I mean, with regards to the compensation in Q3, obviously what we produce is not always exactly what we sell, right? So I think that's where your question's coming from. But in terms of what we're seeing in Q3, as I stated, the plants have gotten more gas versus that kind of Q2, that May, June period. And so we've been able to run at a higher rate into Q3. But in terms of Q3 compensating for Q2, we did have some lost tons and we gave some statistics in the press release around what our EBITDA would have been, but this was reflective of the one-time hit because once those volumes of ammonia urea were not produced, obviously we were not able to kind of recreate them in the third quarter.
With regards to your second question on Indian imports, I think through June, we saw a decrease in Indian imports off the back of stronger domestic production year over year. So that's been a factor in kind of that market volatility where we've seen less Indian demand. But when you think about it more broadly, from a supply perspective, we also saw the Chinese supply, not just year to date, has been very low, but even in August, we're not seeing really vessel movements where China is going to be exporting a lot. So what's helped offset some of the decreased imports into India are the reduced production or reduced sales of Chinese urea as export.
That's driven by also not just the Chinese government policy for less exports, but also significantly higher industrial demand, for example, for NOx abatement, as well as one of the best fertilizer consumption years as well. On the India side, from the kind of the historical kind of 8-9 million tons of import demand this year, I think the market's seeing something like a 5-6 million ton import demand. The monsoon season for this year is looking to be and progressing very positively. We and the market expect a tender during the month of August where India will need to come back to the market and buy production. I think, as you can see, producers have kind of been more comfortable on the back of some of the supply disruptions and being able to place product.
So with the Indian tender coming, hopefully in the next few weeks, there'll be more visibility on that demand. And it also kind of bridges us into that September, October time period where some of the northern hemisphere markets, particularly Europe, which has been very subdued, start their buying activities again.
Thanks a lot. Very helpful.
Our next question comes from Akash Thomar from SICO. Your line is now open.
Hi. Thank you for the opportunity to ask the question. I have one question on freight costs. So we have heard from the players that freight costs are going up for other players. For you, we know you can ship to Europe from Algeria and Egypt. So can you give us more color? How were your cost base impacted from freight costs? Were you able to capture some upside from your cost advantage being located in Europe or being located in Egypt, or the higher cost elsewhere has offset it? Any color on that? Thank you.
Yeah, I mean, I think this is one of the unique attributes that Fertiglobe enjoys. Despite having all our production in the Middle East, it spans over a very widespread geographical footprint where Algeria has very attractive freight costs into Spain, into Western Europe, into Southern Europe, a few days sailing, for example, into some key markets there. We're able to get very attractive freight rates, whether it's for ammonia urea. In Abu Dhabi, the ability to get into the west and even east coast of India is quite advantaged, even Eastern Africa, and going as far east as Australia, where we're one of the largest suppliers into Australia, we're well positioned. And as a reminder, we and the market operates off of freight costs, and it basically gets added onto the cost of production. So we pass the freight costs generally onto the customers.
So when freight costs overall go up, the destination price goes up to help give us the same netback. And so it affects, as we call it, the CFR price. In terms of our logistics and chartering team, that's a major focus of us. One of our biggest cost items is freight, and they've done a great job of optimizing where we have a few ammonia vessels on the water on a time charter basis, and we use spot vessels with urea deliveries where we look at attractive, for example, backhauls, right? So you send urea somewhere, and then that vessel will come back carrying grain from that agricultural producing market. So I think that's one thing. But another thing to point out is Egypt. Egypt is very strategically located in the northeast corner of Africa.
We're able to deliver urea from the northern part of Egypt into the Mediterranean to supply Europe on a very attractive basis. But if we find it advantageous to go east, and we do at times, we can go east from the Red Sea. And when it comes to ammonia, our positioning is very strategic with production in Ain Sokhna, which is 35 km south of the Suez. There have been some questions on this. Despite the Red Sea supply disruptions, we're able to take advantage of sending ammonia into Europe while other AG producers in the Arab Gulf or elsewhere will have to go through the Suez Canal and pay higher freight costs. We're basically just at the entrance of it and are able to go there quite swiftly.
Oh, that's very helpful. Thank you.
Thank you. Before we proceed, if you'd like to ask a question, please press star one again. That's star one. Our next question comes from Lisa De Neve from Morgan Stanley. Your line is now open.
Hi. Thank you for taking my question. I have one, and it's actually on the green ammonia project that is up for FID. There was a deal announced with Europe that you would be supplying that green ammonia at EUR 1,000 a ton. I'm very interested in understanding the composition of that EUR 1,000 a ton because there was a presentation from H2Global, which included the slide on Fertiglobe, and it quoted that 16% of the EUR 1,000 a ton makes up freight and transportation costs. I was just very curious because that number seems a little bit higher than I would normally expect a ton to be incurred in terms of level of freight and transportation logistical expenses. I wonder if you could sort of shed a bit of a light of what's included in that EUR 160 a ton. Thank you.
Absolutely, Lisa. And it's a good question. So from our perspective, and it's actually related to the prior question we just received, I think, as well from the other gentlemen. Basically, we're going to utilize that same freight and logistics team to optimize logistics to get that green ammonia into Europe. The estimate that was provided by H2Global was more of a German government requirement to try to estimate what is the netback to a producer based on their own estimates. So I would take it more as what we would do, what we typically do for ammonia, even on a gray basis. And we obviously get that CBAM advantage starting 2026, where we're able to avoid having to pay large carbon border adjustment taxes and duties into that market.
We obviously also enjoy duty-free access from Egypt into Europe, unlike other sellers into Europe like the US markets or the GCC markets. They have to pay a 5.5% duty on ammonia. So I think your question is absolutely correct. There's no reason why we should be paying $160 for all those costs to get into Europe. And we're going to aim to have a much more attractive netback than what's been published on this illustrative freight and logistics cost estimate.
Okay. That's super helpful. Thank you.
Our next question comes from Jared Thomas from J.P. Morgan. Your line is now open.
Hi. Thank you. I just want to understand some of the reasons why the margin was as low as it was for Q2. Is it just the result of gas disruptions or freight costs? I just want to unpack that a bit more, please. Thank you.
Yeah. Let Andrew, our CFO, go through that. I mean, it's an appropriate question. And some of it has to do with unique elements of Q2 2024, but equally, it also has to do with what was happening in Q2 2023, where there were some occurrences. So Andrew, can you take that question, please?
Yeah, sure. Thanks. So essentially, a large chunk of that is the pricing, as we said. There's external factors on pricing. So we've got the negative price impact of the urea. That was basically that drop from 3.35 last quarter, last year, down to 3.21. And there's also an element of our sales volumes as well due to sort of lower production. So those are sort of essentially sort of most of the elements in terms of price impact. We did also have some sort of reversal of some accruals in the previous year, which basically potentially sort of exaggerated the upside as of last year as well. So that's essentially also having an impact on there, but it's predominantly price impact. Okay. Thank you. That's all.
Our next question comes from Shahzad Laiq from Bank of America. Your line is now open.
Yes. Thank you for the presentation and the opportunity to ask questions. I have one question on your low carbon ammonia project. I think you provided some detail on that, saying that the phase one of the plant will produce about 50% lower carbon intensity ammonia, and then the second stage will use carbon sequestration. So I'm just wondering, what's the difference? Are you not using carbon sequestration in the first phase, and what's leading to that lower carbon, 50% lower carbon intensity ammonia? That's the first question. And the second question is just in terms of offtake, is it fair to assume that ADNOC here takes the offtake risk and the pricing? Thank you.
Sure. No, good question. Maybe, Haroon, why don't you take it and discuss kind of how we're getting over the fence hydrogen and what the second stage would look like?
Yeah, sure. Hey, Shahzad. So in essentially two stages. First stage, we are going to get, as Ahmed was just saying, hydrogen over the fence from Borouge. And when you look at the carbon intensity of that hydrogen, it results in, when you synthesize that in the back end plant that Ahmed was saying, it results in ammonia, which has a 50% lower carbon intensity than gray. So the reason behind that lower carbon intensity is just securing this hydrogen stream, which is a byproduct from the cracking process upstream from Borouge that has a lower carbon intensity. In the second stage, and you've probably seen ADNOC's own ambitions around developing their CCS infrastructure. In the second stage, and this is about 2030, 2031, we would then envision moving from this 50% lower carbon intensity product to a higher CO2 sequestered from this ammonia production.
That links to the CCS infrastructure that we expect will come online in 2030 and 2031. I think just in terms of the point that we've made always, we are just constructing a back end plant. So when you think about CapEx estimates, these are much more favorable than when you build a front end and a back end. So the CapEx estimates are much more attractive, which also then results in very attractive IRRs, double-digit. We mentioned in the press release, double-digit IRRs for this project. In terms of offtake, in terms of offtake, we have a 30% equity stake in the project, and we are entitled to a 30% share of the offtake as well. In the future, we'd look to come back to the market with some guidance on how that offtake percentage increases or not post kind of the ownership change.
Again, this last point, this again goes back to our focus on capital discipline. We would look to put debt on this project. As a result, our equity share is what we've guided in the press release post debt financing around the $30 million-$35 million range.
Okay. Thank you. If I can just follow up with one question. When you mentioned double-digit IRR and you mentioned you get 30% of the offtake, obviously, I think that's also subject to the pricing of ammonia that's realized, right? So what's your assumption there when you say double-digit IRR? And does it also include some fixed cost kind of payment or margin payment that ADNOC does to you guys?
It was based on fairly conservative assumptions. So it's based on gray ammonia pricing. There's no premium for that lower carbon intensity or factoring in any stage two benefits from a pricing perspective when that intensity reduces even further. So based on conservative assumptions, it doesn't include any margin on the sale of that subsequent offtake as well. And Shahzad, that's really driven by the fact that that CapEx number is very attractively positioned from a CapEx cost return perspective.
Okay. Thank you, Haroon. Very helpful.
Thank you so much. As of right now, we don't have any pending questions. So I'd now like to hand back over to the management for the web questions.
Thank you, Ellie. We have one question on the webcast on the marginal cost of production for ammonia and urea. Ahmed, do you want to take that?
Sure. Can you read out the question?
Any sense of marginal cost of production for ammonia and urea today?
Yeah. So obviously, that fluctuates with pricing of the feedstocks and maybe starting with Europe more broadly and then moving into other markets. The European TTF market is around EUR 35-36 per MWh today. And going into winter, there's several factors where we've seen, for example, lower output from nuclear and wind generation in Europe, as well as some concerns on the ability to import gas in Europe continue to kind of support the forward curve for TTF. And that's obviously driving the marginal cost of both ammonia and urea in those markets. With regards to some of the other producers, we're seeing that China FOB costs for the higher cost producers are kind of in the high 200s, almost at the $300 per ton level.
And that's providing kind of a bit of a floor with regards to that, but we are seeing pricing above that floor currently. In addition, the continued demand growth we're seeing about the industrial and agricultural side for urea and the industrial side for ammonia and the Clean ammonia demand growth, those are all elements with the medium-term outlook seeing demand outweigh supply or ones that can result in more kind of demand-driven pricing as we've seen. And we've seen that in the last several months, for example, on the ammonia side in Europe, demand-driven pricing rather than kind of floor-driven or marginal cost pricing that we've seen there.
Thank you. There's no other questions on the webcast at this time.
All right. Thanks, everyone, for joining this conference call and looking forward to the next discussion. Take care.
Thank you.
Thank you so much, everyone, for attending today's call. You may now disconnect. Have a wonderful day.