Good afternoon, and thank you for joining the OCI N.V. Q4 and Full Year 2021 Results Call. My name is Gemma and I'll be the operator today. If you'd like to ask a question during the presentation and have joined us via the phone lines, please press star followed by one on your telephone keypad. If you change your mind, it's star followed by two. For those that have joined the webcast, please use the text box provided. I'll now hand over to our host, Hans Zayed. Please go ahead, Hans. Thank you.
Yes, thank you. Good afternoon and good morning to our audience in the U.S. Thank you for joining the OCI N.V. Q4 and Full Year 2021 Conference Call. With me today are Ahmed El-Hoshy, our Chief Executive Officer, and Hassan Badrawi, our Chief Financial Officer. On this call, we will review OCI's key operational events and financial highlights for the quarter, followed by a discussion of our outlook. As usual, at the end of the call, we will host a question and answer session. As a reminder, statements made on today's call contain forward-looking information. These statements are based on certain assumptions and involve certain risks and uncertainties, and therefore I'd like to refer you to our disclaimers about forward-looking statements. Let me hand over to Ahmed.
Thank you, Hans, and thank you all for joining us today. We're pleased to announce a strong set of results in the Q4 with an adjusted EBITDA of more than $1 billion for the quarter, resulting in over $2.5 billion for the full year 2021 as our end markets continued their upward trend, which has accelerated our goals to achieve a strong balance sheet. I'd like to thank all our employees for making this another excellent quarter and for their strong commitment to improving and growing our business. A lot of hard work has gone into bringing us to this point, and I'm excited about what our dynamic team and state-of-the-art asset base can accomplish with this balance sheet and market backdrop. We're pleased that we can start returning capital to shareholders, as Hassan will discuss in more detail.
While also having capital left over to strategically deploy in decarbonizing and growing our asset base in a value-added way for the future hydrogen economy. I'd like to start, as always, by covering our top priority, safety, as we want all our employees and contractors to go home safe every day. Our twelve-month rolling recordable incident rate at the end of December was 0.35 incidents per 200,000 man-hours, well below industry averages. Of course, I'd like to reiterate that our goal remains to prioritize process safety and to reduce occupational safety incidents to zero at all our production facilities across the globe. I'd like to give some highlights of our performance during the quarter.
Despite three large plant turnarounds during the quarter, a shutdown of our European methanol operation since last summer, the shutdown of one ammonia line at OCI Nitrogen, and a significantly higher feedstock price environment in Europe, our EBITDA and cash flow from operations improved significantly year-over-year. Our business model showed its effectiveness during the quarter as we continued to operate and maximize our downstream production in Europe by sourcing record volumes of ammonia from our operations in Fertiglobe and the U.S., as well as third-party volumes to support our Dutch fertilizer and industrial operations at OCI Nitrogen.
Effectively, we bought ammonia at a big discount to European natural gas, and the team did an excellent job increasing throughput capacity by an annualized 300,000 tons per annum in our ammonia supply chain in Rotterdam, where we enjoy having the only ammonia terminal in the Rotterdam port. By doing so, we've been able to combat the volatility in feedstock pricing and continue to provide essential nitrogen fertilizers to the European agricultural community, as well as important industrial products to the value chain there. This unique supply chain is one we can leverage in the future by importing low and no carbon hydrogen in the form of ammonia and methanol to help decarbonize the Netherlands and the broader European Union and help them meet sustainability targets over the medium term.
OCI is actually one of the top two largest consumers and producers of hydrogen in the Netherlands. Our own product sales volumes were lower at 2.7 million metric tons during the Q4 compared to the Q4 of 2020. Solo owned produced nitrogen product volumes were down 16%, largely due to turnarounds at Fertiglobe and the shutdown of one ammonia line at OCI Nitrogen, partially offset by growth in ammonia volumes at Fertiglobe as well as DEF volumes in the United States. Methanol volumes declined 44% due to a plant turnaround at Natgasoline extending into the Q4 and no production from BioMCN in the Netherlands due to the high gas price environment in Europe. Solo owned produced volumes in 2021 were down 7% year-over-year overall due to turnarounds in 2020 being deferred to 2021 due to COVID-19.
We expect in 2022 across our platforms to benefit from the operational benefits resulting from our manufacturing excellence and improvement program that we've rolled out at all our nine plants. I'll now hand it over to Hassan to discuss the financial results in more detail. Hassan?
Thank you, Ahmed. Firstly, I'd like to echo Ahmed's earlier expressed gratitude and thanks to all our employees for their resilience and commitment that is ultimately instrumental to the results that we achieved at the Q1 and for the year. Looking at the Q4 and annual results, we believe the business is starting to demonstrate its free cash flow potential, yet still leaves room for further improvement, which is the focus of our manufacturing improvement initiatives across our sites. OCI's consolidated revenues increased by 112% to $2.2 billion, and our adjusted EBITDA rose by 291% compared to the same quarter last year to just over a billion dollars at $1.04 billion. As we continue to benefit from higher prices for our products.
Our adjusted EBITDA margin also captured the benefits of higher pricing coupled with a competitive cost base coming in at 46% in Q4 2021, and this is compared to 20% margin in Q4 2020. We achieved this result despite the higher European gas price environment. Our consolidated adjusted net income line also saw a market improvement and reached $400 million for the quarter. For the full year, consolidated revenue was $6.3 billion, adjusted EBITDA totaled over $2.5 billion, and adjusted net income reached $732 million. Focusing on free cash flow, which is a primary KPI for our financial performance, we generated $789 million of free cash flow from operations during the Q4 , bringing the total to approximately $1.6 billion for the full year 2021.
Cash flow from operations proceeded to cover CapEx, and more importantly, several transactional events which occurred during the quarter. These include, firstly, the successful IPO of what is now our 15.1% subsidiary, Fertiglobe, which took place in October. The IPO resulted in net proceeds to OCI of $447 million following an IPO that was 22x oversubscribed. Secondly, there was also the special dividend that extracted pre-IPO through a dividend recap at Fertiglobe, which totaled $850 million, which is the reason you see a leakage of approximately $357 million below the free cash from operations in the treasury tables. The net result was a decrease of $825 million in net debt during the quarter, so approximately $2.2 billion.
We reached a net debt to adjusted EBITDA leverage ratio of 0.9x , down from $3.7 billion on net debt and a net leverage of 0.3x a year, just a year ago at the end of 2020. The drop in net debt was before proceeds of $375 million from the sale of 50% stake in our methanol group. Adjusting the net leverage ratio on a pro forma basis, this takes us to about 0.7x leverage ratio. We expect the positive trajectory to continue into Q1 with further improvements to our balance sheet as our LCR continues to improve and our key product markets continue to perform stronger in a healthy pricing environment. The company has continued to focus on reduction of our growth debt as well.
During 2021, we redeemed bonds at OCI and IFCO for a total of $1.8 billion, and consequently have reduced gross debt by around $600 million to $3.8 billion, which is further reduced by the proceeds, as I mentioned earlier, of the divestment of the 50% stake in our methanol group, which takes us to just under $1 billion of gross debt reduction. Concurrently, we lowered our weighted average cost of debt from 4.3% during 2020 to around 3.2% by the end of 2021, and reduced our cash interest by more than $60 million per year, which will have an effect 2022 onwards, positively impacting our run rate free cash flow.
Following the transformation of our capital structure during 2021, we believe we are experiencing a quickened pace towards achieving our objective to reach an investment-grade credit rating. With the upgrade by Fitch in December, we are now one notch below investment grade across all three rating agencies. From that perspective, we will be reevaluating our standing debt to identify refinancing opportunities that could further lower our borrowing costs. A good example of that is over $860 million of municipal bonds at IFCO, which are above 5% interest rates, where we believe we can meaningfully lower further as we continue to have access to that market. Turning to our newly announced dividend or capital return policy.
As we already indicated in our previous conference call, we are pleased to confirm our new capital allocation policy, which was approved by our board. Under this policy, which we have fleshed out for this results call, we will distribute a consistent semi-annual baseline amount, which we have set at $400 million per year, which will be split to two semi-annual installments, so $200 million every six months. The policy is subject to maintaining our investment-grade profile. In addition to the baseline, in periods of high performance, we aim to pay a variable component which is linked to the level of free cash flow generated while pursuing our value-treated hydrogen-focused initiatives and growth opportunities.
We will work to maintain an investment grade credit profile and have a target of less than 2x net leverage through the cycle, which is a bit of a change from our previous objective of 2x through the cycle. To put this into practice, as you will have seen in our press release, we are proposing an interim distribution of EUR 1.45 per share, or around circa $350 million, which includes the $200 million base distribution. We have now clarified the mode of distribution to be effected through a capital repayment. The benefit is removing withholding tax at the source, which we believe extends to all minority shareholders. The form of distribution required an EGM, which we have convened yesterday for both the next two distributions.
As you may have read in our EGM documents, we are giving the board the flexibility to determine the variable component in the October distribution, which will be based on the H1 2022, up to a similar amount. That will be, of course, subject to market conditions and company performance. The first interim distribution based on H1 2021, which was envisioned for April, will now likely take place in June due to the capital reduction process. For the planned October distribution, we have given indication that we expect to pay a variable component in addition to the $200 million base distribution. Again, that incremental part will be based on market environment and output for volume and prices. In terms of guidance, looking at important aspects of our capital allocation, namely CapEx, interest, tax, and how we approach minority interest.
We expect around $300 million of maintenance CapEx. In addition to that, anywhere from $75 million-$150 million of growth CapEx, which will depend on the project's progress and FIDs. Cash tax for regular activities are expected to be somewhat in line with 2021, where cash taxes came in at just above $130 million. For the interest expense as a result of the actions that we described earlier and the lower cost of debt, we expect more than $60 million of reduction in cash interest in 2022. We hope to continue to find new savings opportunities as we capitalize on our rating improvements.
In looking at minority interest, based on the circa 25% of EBITDA guidance at the Fertiglobe level, which is how we quantify leakage relative to EBITDA, we believe you need to add the 60% of dividends that are distributed by Fertiglobe to the shareholders, which is attributable to minorities and our strategic partner, ADNOC. As well, calculation of dividends to our leakage of 15% to our new methanol group partners, based on the transaction that we just closed. That we are closing soon, actually. These are the contributors to the leakage at OCI consolidated level. Finally, we are pleased to announce earlier the execution of definitive documentation for the sale of the 15% stake to ADH and ADQ in February.
OCI expects the deal to close in 60 days, including receipt of proceeds, which amount to $375 million, implying a $2.5 billion equity valuation, what is essentially a debt-free business. The deal marks another positive step towards positioning the company strategically in the Abu Dhabi ecosystem, which we see as a catalyst for hydrogen-based growth opportunities in the future and further enhancing our future strategic optionality as a group. With that, I would like to hand back to Ahmed for commentary on our markets and operating environments. Ahmed.
Thanks, Hassan. We're excited about 2022 as the outlook for OCI remains positive for this year and into 2023, supported by strong underlying demand for nitrogen fertilizers, driven by low grain inventories and healthy farm economics. We also see continued good demand in our industrial markets for ammonia, methanol, melamine, and BF. Spot urea prices in February have declined compared to the end of last year, but they remain at elevated and healthy levels. Ammonium nitrate, ammonium nitrates and melamine prices remain very strong, and we see supportive fundamentals going forward. We have good visibility into H1 2022, with a healthy order book across our core markets and some well-priced sales into Q2 2022. Our distribution capabilities, including the ability to manage inventories close to key demand centers, coupled with a disciplined commercial strategy, allows us to optimize benefits from the current market conditions.
This bodes well for our outlook, as exemplified by the recent award to Fertiglobe to supply approximately 500,000 tons of urea to Ethiopia, which is distributed 150,000 tons in Q1 and 350,000 tons in Q2, collectively at an average price of $725 a ton. As well as supplying approximately 450,000 tons of urea to India this quarter. If I start with the outlook for nitrogen markets, we'll start by going into the low grain inventory and stock-to-use ratio globally that we're seeing supportive of sustained crop prices at current levels, which amplifies the need for the application of nitrogen fertilizers, set crop yields, and ease food security concerns. Recent weather concerns in South America have contributed to further tightness in the global grain market.
Current crop prices are supported with farm incomes in key grain exporting regions, even with higher input prices, incentivizing farmers to expand crop area and maximize yields, which is important to ensure enough output to meet food demands. Global grain markets in 2022 and 2023 are expected to be tighter than last year, with forward corn futures above $5 a bushel through the end of 2023 and spot prices currently at $6.50 a bushel. We are seeing robust fertilizer demand in key import markets, further supported by low inventories, with Europe, Ethiopia, U.S., and India importing products ahead of the season in Q2 2022. U.S. nitrogen outlook remains strong, supported by low inventories and strong demand. U.S. agriculture is expected to be one of the best years on record, with net farm income 26% above its 10-year average.
We had one of the best fall seasons for ammonia, with current ammonia prices in the Midwest over $1,300 a short ton, and the system is the least bought we've seen going into the spring season, providing more upside for in-season sales in Q2 2022, which is a plus for our well-located production and assets. On the UAN and urea side, we see significant buying still to be done, where farmers are eager to have the product and retailers are starting to make purchases to ensure supply for the season. In Europe, we maintain a healthy order book as nitrates demand is strong, with limited pre-buying this season and low inventories across the system. Production curtailments due to high gas prices in the Q4 and the ban on Belarusian UAN imports has led to further tightness in the spring season.
Several other factors are at play affecting supply and demand dynamics. Urea export bans by the Chinese government are limiting their participation at least until the end of their domestic season in July, with China implementing mandatory requirements for summer stocking and tighter environmental restrictions, as we all know. Russia, one of the bigger nitrogen exporting countries in the world, also has export quotas on urea, nitrates, and a ban on ammonium nitrate exports until the H2 of this year, further tightening global nitrogen balances and limited AN imports. It's likely to lead to increased substitution to our main product, CAN. We expect markets such as Africa, Australia and Asia to step up in 2022 with the end of the season in the Western Hemisphere and purchase large quantities of urea to cover needs.
India, a key urea import market, is a prime example of where a lack of availability has hampered demand in 2021 as domestic production fell and imports were 3 million tons lower year-over-year, limited by key buying in most markets. We expect a significant rebound in 2022 to replenish low inventories and increase stock from the 3.5 million ton level they're at today towards the government's target of 6 million tons, which is supported for East of Suez supply demand dynamics. At the same time, the medium-term supply outlook is tightening as projected new capacities are below the level seen over the last five years and with the demand growth continuing and startups being delayed. Switching over to the industrial side, we're also benefiting from a strong rebound in all global major economies and in many sectors.
This gives us good visibility on end markets and will boost demand for methanol, melamine, ammonia, which are used in many downstream end markets ranging from construction to healthcare to automotive, textiles, among others. Ammonia prices in Q4 2021 and into Q1 2022 have been supported by strong fall application season in U.S., lowering inventories ahead of the spring season, as well as high demand for downstream phosphate production and a number of planned and unplanned outages across the ammonia production market. Over the next five years, the ammonia market is expected to continue to tighten structurally, with incremental demand expected to exceed new supply by 3 million tons, without accounting for the medium-term low-carbon ammonia demand and new applications we expect towards the middle of the decade.
melamine markets have continued to tighten, driven by strong demand from home renovation and construction markets, tight supply in Europe and low global inventories across the supply chain. Quarterly contract prices increased by 35% in Q4 2021 and increased a further EUR 775 a ton to EUR 3,965 a ton in 2022 for the Q1 . Tight supply and logistics bottlenecks in China following the Lunar New Year are expected to continue to support pricing into the Q2 . DEF now represents more than 30% of our sales from IFCO, and DEF prices have been supported by the recovery in truck sales and freight activity across the United States.
The higher netbacks from this product enable us to continue to enhance returns for our U.S. nitrogen operations going forward, and we've renewed a 3-year off-take contract with Dyno Nobel for DEF and other industrial urea projects via our successful N-7 partnership, and have successfully grown our volume for the 2022 season. Methanol markets also remain positive. U.S. spot and contract prices in Q1 2022 have been supported by continued recovery in demand, low global inventories, and we've all seen a recovery in oil prices, whereas there's no major supply for methanol expected to come on stream in 2022. Transportation applications also continued to lag other sectors, which is expected to rebound with COVID-19 restrictions easing and should keep the market conditions tight in 2022.
Further, strong demand is set to continue with operating rates for major derivative segments, including formaldehyde, acetic acid, MTBE, and MMA, are at reportedly high rates in the U.S. and Europe, and provide good visibility on our sales and pricing into the H1 of this year. Methanol to olefins, or MTO, operating rates have also recovered to approximately 80% in Q1 2022 and are expected to remain healthy in the quarters ahead with the affordability of purchasing in methanol improving on the back of higher naphtha and oil prices. A new 1.8 million ton MTO facility is starting up in China later this year, which should provide a further capacity boost to consume more methanol. We've also seen.
We've also seen very strong visibility in the medium-term pricing environment as we continue to expect tighter methanol market fundamentals, with increased demand expected to exceed new supply by 8 million tons per year through 2026. This, like in the case of ammonia, doesn't consider the additional upside from hydrogen fuel demand, notably for marine fuels application which represents meaningful medium to long-term demand upside as we've talked about in prior calls. On gas markets, globally, higher marginal feedstock costs are providing support to markets with prices, particularly natural gas in Europe currently at approximately $25/MMBtu for the balance of 2022 and at approximately $15/MMBtu for 2023 and 2024.
Those levels in 2023 and 2024 are 3x higher than the levels we witnessed between 2016 and 2020, raising the marginal cost for lower utilization rates for marginal producers and providing support for selling prices over the medium term, typically for ammonia and nitrates. For us, we have a strong competitive advantage with our gas contracts in Fertiglobe and continue to benefit from the low-cost gas environment in the United States. In addition, we are fully hedged for Q1 2022 at all our operations in the United States at approximately $3.90 an MMBtu, with some of these hedges in the form of call options that allow for downside participation should the prices of natural gas decline.
We also continue to make good progress in our efforts to capture value-creating opportunities from emerging demand for clean ammonia and methanol as we aim to become one of the largest producers of hydrogen fuel and feedstock in the world. We recently strengthened our methanol platform considerably through a new strategic partnership in Abu Dhabi, as Hassan highlighted, highlighting our growth leadership in the renewable energy markets and commitment to a green future. As one of the largest producers and traders of ammonia and methanol globally, with a strategically located asset base and access to low-cost renewable energy sources, OCI is actively pursuing ways to leverage its existing infrastructure to help decarbonize sectors that make up approximately 90% of global greenhouse gas emissions today. To conclude, before we go into Q&A, we are excited about the prospects for the company.
Shorter term, we expect healthy fundamentals in our core markets and advantaged feedstock costs in MENA and the United States to continue to support our robust balance sheet and healthy free cash flow as we also expand our free cash flow conversion via the step-down in growth debt and focus on operational excellence. We expect a further drop in net debt and net leverage by the end of this quarter, in Q1 2022, which positions our new capital allocation strategy well and focused on targeted investments in hydrogen and other growth opportunities. Our end markets are looking positive into 2023. Nitrogen and industrial markets continue to be the strongest that we've experienced in years, with robust underlying demand-driven fundamentals supporting our medium- to long-term outlook.
We also see large upside from the additional demand emerging in a range of new applications and sectors as the hydrogen transition continues, where ammonia and methanol are ideally positioned and the key beneficiaries. We're ideally positioned as we leverage our global platform, world-scale young assets and strong logistics platform, and harmonize our hydrogen strategy with our relentless focus on shareholder value. With that, we'll open the line for questions.
Thank you very much. As a reminder, if you'd like to ask a question and have joined us via telephone line, please press star followed by one on your telephone keypad. If you change your mind, it's star followed by two. Our first question today comes in from Christian Faitz of Kepler Cheuvreux. Please go ahead, Christian. Your line is open.
Thank you very much. Good afternoon, everybody. Two questions, please, as a start. First of all, to Hassan, what is your view on cash flow evolution during the course of 2022? You mentioned CapEx, but how do you see free cash flow evolving also in terms of working capital management moves, et cetera. Second, can you remind us of any plans for currently unplanned outages that you have at any of your operations, whether it's on the nitrogen or the methanol side? Thank you very much.
No, thank you for the questions. I mean, unfortunately, we don't give that kind of explicit guidance on free cash flow or adjusted EBITDA for the year, but we do try to give you guidance on some important components. Hence, we shared our capital guidance, which we had not shared earlier as we flesh out our plans for the year, and also highlighted the interest, the reduction in interest expense, which is a run rate benefit. We've helped you estimate our cash tax bill, which should be consistent with last year. Beyond that, really it's a function of prices.
In terms of planned shutdowns, as Ahmed mentioned in previous calls, due to commercial sensitivity, we don't really share with the market, except with the benefit of hindsight, in each quarter what we have done. I mean, overall, this is a business which is, you know, planned shutdowns are a routine part of our operating model in order to maintain asset integrity and maintain our overall utilization rates, which have consistently been improving as we focus on rolling out the manufacturing improvement plans at our nine sites, and have also made significant hirings over the past year in various positions that really has drove our technical and process safety management.
Okay. Thank you.
Our next question on the line comes from Nabhan Sardhahi of Citi. Nabhan, your line is open. Please go ahead.
Hi. Thank you for taking my question. Two please. Just on the market dynamics, where are you seeing the current shutdowns in the urea and ammonia capacity in Europe? Could you talk about your thoughts on the fall in inventories in Europe as well? That'd be helpful from a demand side. Then on capital allocation, can you just talk about your decision for the $400 million base dividend per annum, please? Given kind of the $300-$400 million CapEx guidance, that makes a break-even cash flow requirement around $800 million. Should we see that as if within trough cycle environment, OCI being able to achieve higher cash flow than that number, or do you think there's a flex in that base dividend as well? Thank you.
Sure. I mean, with regards to the question on Europe, it's obviously been a dynamic situation with you know, natural gas pricing in Europe and decisions on restarts and shutdowns. On the ammonia side, we think that in December you had an annualized reduction of ammonia capacity of around 9 million tons in December. A lot of restarts happened in the beginning of January, where we think that number that's offline has dropped to close to 3 million tons. It's interesting to kind of think about today when you're hovering around $24-$25 an MMBtu for just gas. You add on to that the price of CO2, which is now gone up to EUR 90 a ton, and you're about EUR 2 a ton-I'm sorry, two tons of CO2 per ton of ammonia.
Around EUR 180 or $200 in CO2 variable cost. The variable cost of production has us more than we think is very supportive for ammonia pricing as well as nitrates pricing. You know, that 24-ish dollars on BTU is the projection for the entire year, not just this winter. You know, there will continue to be volatility on the ammonia side, and we've seen ammonia dip below that variable cash cost at times. That's what the team did a great job of capitalizing on in Q4. You know, the fundamentals will probably cause some shutdowns in the market to extend ammonia declines, you know, from the levels it's at today. On the urea side, we've seen some curtailment on the urea nitrate side as well.
I don't have the numbers here with me right now, but you know, some nitrates are at lower capacity. On the urea side, some of the less efficient plants may be down with about half a million tons, annualized, for urea. That currently is the marginal cost producer globally, even with if when China comes back in the Q3 . We'll have to watch, you know, what that looks like. They also can't operate if urea prices decline significantly more given the pricing on the natural gas side. The other question you have, and I'll hand it over, Hassan, is on the dividend side. What was the last question?
It was a question on the farmer inventories. Is that the one you're missing?
Yeah. If that was your last question about farmer inventories.
Yeah, exactly. Where you see farmer inventories from a fertilizer perspective, i.e., do you think they're well stocked up or where do you think they're coming out versus prior year currently?
I think the dynamics in the last several months have seen a lot of delayed buying, in some cases, lack of availability of nitrates in the H2 of last year prevented buying. The inventories are at historical lows in many of the key regions, I think. In India, like we said, we're at about 3.5 million tons of inventory, where the government target is usually 6. Some of the buying that you typically would have seen in Europe has been a bit delayed, and we're starting to see that come back in Europe. In the U.S., the retailers were trying to pick the right time to buy, and we're seeing now demand again pick up to buy nitrates, as well.
On the nitrate side, on the urea side, they're low. On the ammonia side, which is applicable to the U.S. fertilizer market, we have never I mean, that's the most investment. We've never seen it this low in terms of how much has been bought for the spring for ammonia. We think that demand is gonna have to come. There's been a bit of looking to see the demand in front of them before buying, given the elevated price levels we've seen. But we do think that the buy-in is gonna happen. We do think that planting is gonna be, you know, in line with last year's planting levels, plus or minus. It makes sense to add that nitrogen to the ground at these crop prices.
Maybe I'll take the remaining part of the question. Before that, I think we didn't answer the question on working capital that was asked by Christian. Allow me to answer that, and I'll move on to then your question on the dividend baseline amount. In terms of working capital in Q4, we did have a net operating working capital inflow of $165 million. Generally, working capital obviously gets affected by the higher price environment. There's been a number of factors without anything not one thing specifically standing out, but includes having prepayments during the quarter, higher payables in the ordinary course of business related to our gas bills, some realization of hedges, et cetera. Overall, for the year, we would expect normal seasonality and some unwinding of prepayments. Overall, our working capital requirements should remain fairly stable, from a perspective of the year.
In terms of your question on dividends, as we mentioned, you know, the dividend policy, which now is a consistent base return of capital of $400 million per year with an additional variable component, which will be linked to the free cash flow generation. I think we demonstrated already with the announcement of the interim distribution related to H2 2021, that we are distributing a number higher than that at circa $350 million or EUR 1.45 per share. We haven't given explicit guidance for the October distribution yet, except that we will be expected to be higher than the baseline based on the outlook for markets and the company performance. This policy is obviously, as we mentioned, subject to maintaining an investment grade credit profile and ensuring discipline balance sheets going forward.
We believe based on the sort of underlying improvements that we see in our business, continued reduction of our interest expense, which has led to higher free cash flow conversion and the impact of our operational excellence projects, that couple that with the demand-led environment that Ahmed described at length earlier in the call, that we are well positioned to maintain healthy distributions going forward. I hope that answers your question.
Yeah, just to follow up, I guess I wanted more touch on. I know it makes sense in kind of the current pricing environment, and it's relatively lucrative at the moment. In terms of from a cross cycle analysis, is there any way to think about that? Would you talk about maintaining investment grade rating, so I assume that $400 million is a sacrifice, so push comes to shove that $400 million could be reduced as well.
I mean, yeah. I mean, again, it's a triangulation between maintaining an investment grade profile, looking at the growth initiatives that will tend to be sort of asset-light initiatives, with intelligent CapEx deployment. Given the low leverage that we've been able to achieve, combined with our free cash flow conversion capabilities as a company, we have started to demonstrate not even at full potential, yet, but because we have a lot of concentration of plant shutdowns, we think that we're in decent shape given this market environment to sort of maintain these kinds of distributions going forward.
Yeah, well, Nabhan, I'll just add that, and kind of echoing what Hassan was saying, you know, the operational excellence program, which is one that's focused on utilization rates as a recognition of we're not where we'd like to be in terms of operations. I'll say this now, what we've done is significant focus at the plant level on personnel. We've changed out six out of the top six of eight plant managers globally in the last 12 months within OCI and have a stronger centralized team. That has significant effects on our ability to generate EBITDA and better energy efficiency and conversion.
From a maintenance CapEx perspective, yes, we've given guidance of around $300 million this year, but obviously this year is one where we have significant free cash flows, as was last year, 2021. We're kind of restocking and putting in some state-of-the-art equipment that we have the ability to flex down during lower periods as well. Between that ability to have lower maintenance CapEx, interest expense, as Hassan mentioned, the triangulation around our balance sheet, we think it puts us in a good position.
Very helpful. Thank you.
Rikin Patel from BNP Paribas, you have your next question. Please go ahead.
Hi, thanks for taking my questions. Just firstly on the market, can you maybe provide some context to the quite sharp decline in urea prices year to date, and how that sort of relates to the disconnect versus ammonia and nitrates, and where you think the directionality of those products will go in the next couple weeks and months. Secondly, on the clean ammonia side, for the projects you've announced alongside Vertex, can you possibly give us an indication of what the order book looks like for some of those projects and what the sort of indicative interest is at the moment for those tons? Just finally, again, on clean ammonia, could you give some sort of indication on what the CapEx could look like for some of those projects, in maybe 2023 and then in 2024? That'd be helpful. Thanks.
Sure. No, good, relevant questions. Just starting with the urea one, which has seen, like you said, significant decline from the end of 2021. I think the last Indian tender last year was $995. And then we've seen obviously that come down in Jan-Feb, you know, with a few reasons behind that. One is, you know, the market is somewhat sentiment driven, right? With the period where the U.S. still the river isn't open until March to be able to take tons up to the Midwest and the seasons more in the May timeframe, there was this kind of period of illiquidity where traders continued to focus on building length, having low prices in the market and shorting the market in Brazil and the United States by, you know, making trades.
1.5 million tons is gonna clean up a lot of the market and excess supply that was there in time for the seasons in Europe and the U.S., which we said are significantly underbought. There's gonna be more tons that need to make their way into the United States and into Europe. Probably to your question in terms of the relative value with ammonia and nitrates versus urea, you know, at this point, I think we're starting to see some people who have the ability to curb urea production will do so and sell ammonia where they can find better value. That kind of keeps a little bit of linkage on that front.
In terms of nitrates, you know, the nitrates are at a much higher premium than urea today, and we're seeing even new season sales taking place in Europe at pricing that's more attractive on a nitrogen basis than urea today. We could see where possible some switching to urea in the United States as well as in Europe. Taking a little bit of the market share from nitrates because nitrates are less available, but it's gonna be restricted to some extent because of the equipment that people have in place. It's gonna depend on the locations. In our case, in the Midwest, you know, we see that UAN is UAN and ammonia are more used rather than urea. You'll probably continue to see the UAN demand there.
Certain areas like the northern plains and some of the other areas in the United States for application could see some marginal UAN to urea switching, which should add to demand. We think in the Midwest there's been some underbuying there. Last year, we've also seen a delay of turnarounds with the high price environment in the H2 of last year and the beginning of this year, where we could see some turnarounds in Q2 and Q3. Typically we see them in Q3 in the markets that also, you know, balance that market to some extent. Is that clear on the urea side?
Yeah, that's clear. Thanks.
Okay. Your next question was on the market for green ammonia and blue ammonia in terms of what the off-takes look like and things like that. We'll share that in more detail with the market as things progress with the various projects that we're looking at. As we've said in the past, our focus is on low-hanging fruit opportunities where we're comfortable with the cash cost, which relates to your next question around CapEx. We're looking at, you know, what makes the most sense? What can we do incrementally that's not a big CapEx where we're taking a major bet?
We are leveraging existing ammonia synthesis capacity that consumes syngas from a reformer, and now building in green and blue hydrogen into the back end of existing plants for the most part, and trying to do so with very minimal CapEx so that the return is dependent on a low cash outlay at the beginning. That's our main focus. The one exception to that is the Project Harvest blue ammonia plant in Abu Dhabi that we, you know, plan to FID later this year. There we're a minority investor. We're focused on cash costs and competitiveness. We've brought in some long-term off-takers in the form of GS Energy and Mitsui into Korea and Japan.
Looking at ways to de-risk these projects and really try to move forward because we do need to start making moves towards, you know, decarbonizing and driving that transition.
Okay, thanks. That's helpful.
Our next question on the line is from Lisa De Neve of Morgan Stanley. Please go ahead with your question, Lisa.
Hi. Good afternoon. Thank you for taking my questions. I have three. Just going back to Mubarak's question, you mentioned something about there are some delays in turnarounds which you're now seeing in the market. Would you be able to share what turnarounds you're seeing and in what parts of the market or regions? That's my first question. Secondly, we talked a bit about green and blue ammonia, but can you also share your midterm growth ambitions for the OCI Methanol group and provide maybe an update on the MOUs you have with MAN Energy, Hartmann, and Eastern Pacific? Thirdly, I have a question on the UAE carbon credits. Could you please share the EBITDA contribution that you saw in Q4 , if you don't mind?
Of course, if some of your European operations are still not running year to date, BioMCN and your OCI Nitrogen Bonaventure line, should we assume that you may sell more excess credits this year into the market, or will you keep them for maybe the latter part of this year in the assumption that you will run new assets? Thank you.
Thanks, Lisa, for the questions. Your first one, yeah, I mean, I think we know of some public ones in the United States where they've said that they've actually moved turnarounds from H2 of last year to this year. Other than that, I think it's been more kind of market intel that we have on our side around you know, some of the turnaround plays when people saw significant pricing increases in the ability to push turnarounds out. To your second question on MAN Energy Solutions and Hartmann Group, you know, we continue to work closely, you know, with regular discussions and meetings with MAN on the ammonia engine as well as the retrofitting and methanol engine. We'll be continuing to move forward on Hartmann Group and Eastern Pacific Shipping as ship owners.
We're encouraged that there's actually significant focus on bringing those to market, and others have actually placed orders in the container vessel line for not just Maersk but others for decarbonizing container vessels, so more demand around us that can help create that additional increase in the market. The last question on EUAs, you were asking, what was that contribution out of the performance of the European methanol group? Is that the question?
Yes. If we may see some summer sale of credits this year as well, given some of your operations in Europe are still down.
Yeah. The sale of EUAs in the European performance in methanol was approximately $90 million in Q4. This offset you know a couple of things. The normal operating expenditures that we have of around $8 million for the plant itself, as well as some covering of contract volumes because we were down and we had annualized contracts, and they're set on a quarterly basis of around $8 million. The other thing that is in those results is that the fuels business in Q4 did over $20 million of EBITDA, which is great as we've seen transportation demand and the use of the second generation biofuel in the form of biomethanol gain market share, as the roads and transportation have moved up.
We see it as given it's second generation and qualifies for higher premium, great outlook for us and ability to take gray methanol out of the market and sell it in the lower carbon biomethanol markets. With regards to how we treated it as an EBITDA item, you know, we think and we view that this is an operating cost, and we said it in previous calls as well. People aren't appreciating that EUAs are an operating cost that we have to think about as we start and shut down. It's not just natural gas that's variable, it's also the price of CO2, because if you do produce, you're gonna have to buy CO2 credits in the market if you don't have them.
If you do have them, then you're gonna use them where you could otherwise sell them. They do have a value. We think that, you know, that affects ammonia by about $200 a ton at today's prices and methanol by approximately $100 a ton just on, you know, the CO2 side. In terms of, you know, how we would treat EUAs for this year, we're not gonna be providing guidance about the treatment of EUAs. You know, the allocations change from year to year and depending on the operation. It's something that we'll share with the market if there are any big changes on that front. Things progress through the course.
Okay, super helpful. Thank you very much. Our final question on the phone lines comes from Kenneth Tsang . Please go ahead, Kenneth.
Thank you for your presentation. I just have a couple of questions. Firstly, you talk about the market price in nitrogen. Do you see any lag in realizing these prices? If you can remind us, you know, historically, do you see any lag versus in 4Q or so far in 1Q 2022? Do you see any difference in the lag, if any? The second question, I want to go back to dividend policy. You mentioned also the capital allocation on growth projects. Is it right to understand, given the dividend policy right now you actually prioritize at least paying the base dividend of $400 million before considering growth projects?
Sure. With regards to the realized pricing, you know, there's often a lag between spot and realized prices depending on, you know, how your order book looks. In Q4 you could see, you know, there could be a little bit of lag kind of month-over-month, like by a month or so depending. I mean, the one that kind of really sticks out, I'd say in our Q4 performance was probably fall ammonia in the U.S., where you typically see pre-pays happening in the summer for fall application. People wanna know that they have that security. That would've lagged by a few months. Otherwise, overall, you know, our aim is to try to get that realized pricing from the market.
In Q1, we have some sales that took place in Q4 that are in Q1, which benefit from the higher pricing. We have an order book, like we've said, you know, on urea with Ethiopia sales into Q2. At Fertiglobe, we have sold into early Q2 as well on some nitric in Europe. We have an order book that takes us, you know, almost into end of Q1, early Q2 as well on UAN in the United States. You know, those types of, you know, that type of order book profile could result in some differences on how realized pricing performs. That's less kind of specific to us. Does that answer your question?
Yeah. That's helpful. Thank you.
I'll just say one actually one other last point is that you sometimes get one month lag on contract customers on ammonia. So that kind of has a one-month lag for our U.S. business when it's industrial in Beaumont. I'll hand over to Hassan to discuss the dividend side.
Regarding your question on the sort of dividends, I think I mean, we have triangulated our dividend policy on the basis of how we view our business performing going forward. We have the ability to extract consistently dividends from Fertiglobe, which has its own stated dividend policy, as you may have seen, and the results are released simultaneously. Coupled with what is now a substantially better performing business in the U.S., with our OCI, our plant in Iowa ramping up and really starting to realize its full potential. Of course, the outlook for methanol that is quite positive and tangibly, potentially benefiting from the new sources of demand going forward.
We believe we have the balance sheet breadth to maintain a dividend policy, our dividend policy going forward, and continue to deploy CapEx or growth CapEx in a disciplined manner in a context where we're no longer building these large sort of multi-billion-dollar investments that you typically see because of the way these new projects are set up. They're more sort of intelligent asset-light type of projects that we selectively pursue. It is a sort of a new different type of requirement there and spread over time. We believe that we're really well positioned to address sort of both aspects of our focus areas going forward.
Okay.
Yeah.
I'm sorry, if I may clarify. It sound like, you know, we should be confident addressing both. It doesn't sound like there is a priority, you know, of one or the other. You might flex your dividend policy accordingly if there's a need to meet both the growth and dividend parts, right?
I mean, again, I refer you back to the way the dividend policy was stated. You know, we believe we're fairly confident that we can address both areas of focus of returning capital to shareholders in a disciplined manner in the parameters of the dividend policy while pursuing our growth initiatives, which we have guided already this year to be anywhere between $75 million-$150 million based on the progress we make on projects. We'll continue to give future guidance as these projects materialize further and potentially reach FID stages.
Thank you. That's it. That's all.
Thank you very much. We currently have no further questions on telephone lines, so I'll hand back over to Hans for the webcast questions. Thank you.
Yes. Thank you. I'll read out some of the questions that have come in, and the first one is from Mr. Buitenhuis. Thanks to all at the company for the great performance last year and especially the Q4. My first question, in a report about the Iowa Fertilizer Company's credit rating from Fitch Ratings, the agency assumes that after 2022 the fertilizer prices will go back to 2018 levels. Do you agree with this outlook?
We don't give projections in terms of pricing views. With the information we have right now, we see that 2023 and 2024—like if you look at pricing for natural gas in Europe, 2022 and 2023 on average is around $20/MMBtu. You compare that to 2018, which was in a kind of trough period, you were sitting at like $5-$6/MMBtu. You're basically triple cash costs for the marginal cost producer and potentially even a little bit higher than that. We think that that's probably not an updated or reflective view on the market given the information we have.
Next question is, your Q4 2021 US nitrogen revenue growth was 137%, which was well short of the year-over-year growth in UAN and ammonia benchmark pricing. Does this simply reflect the pricing lag or is there another pricing dynamic at work? Currently, Midwest UAN pricing appears expensive relative to urea on a nitrogen equivalent basis. Do you expect weaker UAN volumes as farmers substitute urea for UAN?
Yeah. I actually think we ended up covering some of these in two separate questions. We had a little bit lower volume in Q4 2021 for ammonia, urea, and UAN in the United States, and that was coming off of a you know significant extended turnaround in Q3 that ended just in the beginning of Q4. That was part of the impact. You had some sales you know given the turnaround that came from earlier periods. Like I said on ammonia in specific, that's one where it's a prepaid market where you saw European gas skyrocket, and ammonia prices go up a lot more than when some of those sales were set earlier. I kind of attribute it mainly to that.
Regarding UAN and urea switching, up to 20% of demand could potentially go from UAN to urea and vice versa. But like we said, in the Midwest, where we're at, out of the river plants in Iowa, Illinois, Missouri area, Indiana, Ohio, Michigan, we're seeing that the UAN continues to maintain market share. You know, we have a solid order book at good pricing here for Q1 and even in some sales into Q2.
The next question is: How is the run rate till now in the Q1 of 2022?
The run rate?
I assume the operational run rate.
The operational run rate? Yeah. As Hassan mentioned, we don't guide on how we're performing due to competitive aspects around that. Commercial.
Okay. The next question: How well positioned is OCI in the spot market? Because not all fertilizer producers were able to maximize their profits in Q4 because of long-term contracts that they had during the quarter.
Yeah. It's a good question. One we've talked about in prior calls. We think that, you know, when you think about the global traded urea market, for example, it's a 50 million ton market. We export around 4.5 million tons. Traders have roughly 30 million tons worth of market share, and they benefit from these netback and index-linked contracts that can let them send product where it makes the most sense for the trader, not necessarily where it makes the most sense for the producer. When you see that happening, then you can end up being stuck in contracts that send your product to a part of the world that doesn't make the most sense for you. I think we've talked about it for Fertiglobe specifically.
You know you could see Fertiglobe send six vessels to the United States one year and another year you could send zero. We've seen very big differences in how we ship our product depending on where can we get the best netback. I commend the commercial team for that focus and that flexibility to not have a system that just sends one location and just gives it to an intermediary that may take it to a market where they have the best benefit, having more control and visibility on where that product's going, leveraging the inland distribution capabilities in Europe and the United States, and increasingly in LatAm and East Asia, to generate better netbacks for our customers.
Thank you. Next question is, what is the target net debt level for the end of Q1 2022?
Yeah, we haven't given any explicit guidance on that specific number, but we did share that we continue to see a healthy trajectory with more deleveraging on a net debt basis occurring in Q1 as we continue to benefit from a positive operating environment. Again, we're only a couple of months away, so our main results will attest to that for sure when we're issuing our Q1 results.
Thanks, Hassan. The next question is, this year you're returning significant dividends to the shareholders. What were the reasons to prefer paying dividends above starting a buyback program? Are you considering a buyback program if the free cash flow allows that possibility in the future?
Well, there's two parts to this question. The first part is that this is not a typical dividend. We have sort of opted for a capital repayment process. Technically, as a company, when we listed in Holland, we were able to establish a certain share premium reserve that we're able to tap into to effect these capital reductions, which effectively extends these reductions or make these reductions tax free in terms of withholding tax. This benefit should be extended to all shareholders, of course, subject to any other sort of tax circumstance. In general, they're extendable to all shareholders, and we believe that is a very efficient way of returning capital to shareholders.
In terms of future buyback, I think we've alluded in the last conference call that, subject to achieving sort of our investment grade, future investment grade rating, and we are in a good trajectory to achieving this goal. We hope that we would then, at that juncture, potentially explore other avenues of returning capital to shareholders. However, we do believe that this capital return or capital reduction, as it's called technically, is quite an efficient way of returning capital to shareholders.
Thanks. Next question is, how flexible are you in deciding to shift to more ammonia production instead of conversion to urea? Ammonia prices are looking very profitable, and urea prices come a bit down since Q4 2021.
Yes. I mean, I think we're uniquely positioned that on OCI Nitrogen and Iowa Fertilizer Company, we have significant ability to switch between products like UAN, DEF, urea and ammonia in the case of OCI Ag. In the case of OCI Nitrogen in the Netherlands, we can also switch among the products and we make daily decisions if there are big changes in the market. But generally it's something that we focus on to get the largest contribution margin for our product. In terms of switching, in terms of the other products from urea to ammonia, that's something we'll always keep in mind.
We have the benefit in both, in all of our Fertiglobe assets actually to have ammonia export infrastructure at Fertil in Abu Dhabi, significant ammonia export infrastructure in Egypt as well as in Algeria. I think that's quite unique to our, you know, our platform. Probably a few other companies have that ability to generally either focus on ammonia export or urea. That doesn't mean that we'll necessarily do that, but it's something that we monitor if there's a large disconnect in pricing in either direction.
Thanks for that. After the Fertiglobe IPO, does OCI plan to maintain a controlling stake in Fertiglobe for the foreseeable future?
Yes. There's been no change in the guidance around that, as we mentioned at the time of the IPO.
One more question. Referring to the question on nitrogen price lag, just confirming, do you not see a material lag in Europe as majority of the lag is contributed by the U.S.? Do you measure the normal average lag globally?
Yes, it's something that we look at significantly, obviously the lag and where we are in the market. In Europe, if you're saying specific to us, you know, we have sales that could be one or two months ahead of time, given our order book goes into the first part of next quarter. But they're at the kind of some of the pricing levels that we've seen in the last few months that kind of supported for our Q1 visibility in 2022.
Okay. Thank you.
Thanks.
I think that's all the time we have for the questions, and I'll hand back.
All right. Thanks everyone for joining the call. Look forward to the next one in May. Thank you.
Thank you very much for joining us today, ladies and gentlemen. You may now disconnect your lines. Have a good afternoon. Thank you.