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In Yara Clean Ammonia. My name is Silje Nygaard from Yara Investor Relations, and I am here together with Yara's CEO, Svein Tore Holsether, and CEO of Yara Clean Ammonia, Magnus Krogh Ankarstrand, together with several other members of our team. With that, we are happy to open up for questions. Operator, can you open up for questions, please?
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Yeah, thanks. It's Andrew Stott from UBS. Thanks for the opportunity. Thanks for the slides. I suppose looking at the growth opportunity out to the long term, it's hard to dispute. I suppose where I'm struggling is to know how much capital you're gonna have to commit to this? That's the first question. How do we think about the CapEx that you need to secure the growth? The second question is much more simple. Can you, at this stage, give us an idea of a timetable? Also, would it be the intention of Yara to keep a majority ownership? Thank you.
Thank you for the question. Magnus Krogh Ankarstrand here. Again, I can start with the first one. We will not comment specifically on CapEx needs at this stage in the process. What we have communicated is that our project portfolio, as we look at it, has a volume target of 2.5 million tons. Two million tons of blue ammonia, 0.5 million tons of green ammonia toward 2030, which of course a project that will need to be funded. Other than that, we don't comment on the CapEx need at this stage. Svein Tore Holsether, do you want to comment on the ownership?
Well, on the ownership side, as we stated in the press release and also in the presentation, is that we will maintain majority ownership. With regards to timing, we're going to get back to that later. This is the first phase of the evaluation of the potential IPO.
Okay, that's clear. Can I just go back, sorry, to the CapEx? If you can't give me numbers, can you give me an idea of the type of assets you need to put down to secure that growth? I mean, obviously I get the fact that you've got a production and shipping footprint, but I'm just wondering what specifically will take up most of the dollar spent?
Yeah. No, I think in terms of that question is obviously, I mean, the production facilities needed for this. The new projects that will make up the vast part of the CapEx needs, whereas the midstream element is far less CapEx intensive in comparison.
Predominantly, Yara International takes the CapEx for upstream, and this particular entity will be more about storage, shipping, et c. Is that right?
No, no. This is Magnus. Thanks for asking to clarify that. As we're moving into, say, to take a green hydrogen project, a green ammonia project, and when we establish new production facilities to feed into our plants, as an example, that would be a project that will be done through Yara Clean Ammonia.
Oh, okay.
How this structure will be and it is to enable and to accelerate that transition. That's one of the key reasons why we're setting up Yara Clean Ammonia as a separate entity to enable that.
Okay. In simple terms, gray stays with Yara International and green and perhaps blue go with Yara Clean Ammonia. Is that how to think about it? Is that too simple?
Exactly right. Green would be Yara Clean Ammonia, gray stays in Yara, and then blue depends on whether it's on existing assets or whether on potential new projects. In essence, you're describing it exactly right.
Perfect. Thank you.
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Hi. David Symonds from Exane. Thanks for taking my questions. Just one on competition. I suppose a few of your peers as well have announced projects in clean ammonia. If you look at the pipeline over the next 10 years, depending on where you look, there is a fairly sizable amount of capacity that could come online. I'm just curious how you square that against your expectations for demand growth and whether you see a risk of this market's ultimately becoming oversupplied in the long term?
Just on business mix, I mean, if you look at slide five, where you've got the bridge for demand growth, I'm just curious if that sort of 20-50 mix is indicative of where you see the Yara Clean Ammonia entity sitting in the long term as well? Thanks.
Yeah, no, thank you for the question. We don't comment specifically on competitors or their projects. I think sort of operating in a world with supply projects and sort of supply demand balance is something that we have long experience with. I think we will develop our projects based on sort of what we perceive to be solid business cases. That of course includes projections on demand and to the extent we you know will be able to sell the tons at the right price as well. Those are evaluations that we do each and every project.
Of course, an important element of European ammonia is the midstream, but also the downstream segment towards the new segments of the demand creation activities that we do. Also the work we do across the value chain to secure customers for specific projects, which is of course particularly important in a market such as this, which is completely new. Other than that, we will of course in addition to that we will of course look for competitive in a relative manner of projects, which is of course from a commodity perspective important to make sure that we achieve profitable projects. In terms of the business mix, it's of course difficult to say sort of 20-50 what the mix will look like.
We do believe that the three segments that we've illustrated have, I mean, roughly the growth potential could look roughly like what we've illustrated, 2050. Although we do think that, you know, particularly the Power Segment, so ammonia for power production is one that could come somewhat earlier. That's one that we focus on. We also signed several agreements in Japan and MOUs to facilitate that growth. Of course, that's something, importantly, what would sort of be the demand growth say the period 2025 and 2030 as well. They believe that that's secure potential.
Also we are involved in several pilot projects on the shipping side that will also generate demand for our first project. We are following this very closely and we have a very close dialogue with the major players in all these segments, and we will use that information, of course, to time our projects and position our projects as optimal as we can. It's hard to give a sort of a firm split, given you know that these are two large markets that are non-existing today. Of course, not to forget the fertilizer industry, which is also very important in this context, where Yara and European Ammonia have a unique opportunity in the sense that we already have the value chain and logistics for that established.
Thanks. That's helpful.
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Hi, thank you for taking my question. It's Mubashir Chowdhury from Citi. Just a couple of questions, please. You hopefully provided your targets out to 2030 by saying it's 2.5 million tons production capacity. Kind of looking forward, would it be if you could provide some color on timelines and FIDs and kind of a bit more of a detailed view on the actual projects themselves from this point forward as to when we actually get the project started and ramp up? I understand you can't talk about CapEx, but just kind of from a decision tree and volume perspective.
Then related to that, with regards to the 2030 target, have you already got customers interested in these projects or in the volumes and they're looking to secure long-term supply with yourselves? Or is it for you to prove that you've got a consistent supply of product before they commit to anything in terms of supply agreement for themselves? Finally, do you envisage those customers who are looking to secure the long-term volumes? Do you envisage them partaking in the CapEx as well of these projects to share some of the risk? Just kind of keen to understand how the dynamic will work with regards to the capital intensity of this business. Thank you.
Yep. Thank you for that question. I think, I mean, in terms of our portfolio, that we indicated with the 2.5 million tons, obviously a small piece of that is already. We've already taken FID, which is our pilot project, 24 MW in Norway. Which of course sounds small, but it does give us very significant learning and knowledge, both on the technical side but also on the market side and obviously certification side, since these are tons that we believe will be out there in the market, by the end of 2023. In terms of timelines for other projects, we will get more into detail on that, later in the process.
Also in general, we are of course, as Yara traditionally as well, don't communicate too early about sort of the timeline on these projects before we sort of have material news to report on that progress. That's sort of a policy that we continue in European Ammonia. In terms of on the customer side and long-term contract, I would say that there's a significant interest out there for long-term contracts for ammonia within all the segments that we've talked about. Of course, the maturity of those customers in regards to you know how mature they are in terms of commitment and so on varies quite significantly.
There are, I would say, major players within and important players, leading players within all those segments that are clearly displaying significant commitment, and that will be an important element when we make FIDs on these projects as well to make sure that we have that shored up at an appropriate level. Then finally, on the CapEx side, I believe, you know, to the extent sort of customers are willing to share into that's not something that we will comment on right now. That is, of course, a feature in the energy industry. Could be so in this industry as well. At this point, we don't have a comment on that.
Thank you. Just as a follow-up, in terms of the offtake that you have in the works, or the offtake agreements that you have, will you be willing to work with competitors who are able to produce green ammonia, and help them ship it around, or is it going to be exclusively for Yara's own production?
Yeah, no, I think we're definitely open to that. We do. I mean, Yara, we do that today, both within ammonia but also within a range of other products. When that makes sense for both parties, that's absolutely something that we would look into doing.
Definitely. Thank you.
Svein Tore Holsether here. Just to emphasize that's one of the key competitive strengths that we have is this is not only about products, it's about optimization and infrastructure to do this globally and support the hydrogen economy. Then you need to move the product from the point of production to where it's consumed. In this industry to have both the physical capabilities but also the organizational capabilities to do that is a key strength to us, and we have that globally. It's yes to also if it makes sense to source from competitors to enable that will be part of this.
Very helpful. Thank you.
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Hello, can you hear me?
Yes.
Yeah. Hi, Chetan Udeshi from JPMorgan. I just wanted to explore the topic of you know the competitive advantage for Yara. I can see how you know the know-how of shipping ammonia, trading ammonia is an advantage, but I'm not entirely sure how would you characterize the competitive advantage of Yara in green and blue ammonia production. Are you guys going to evolve the strategy to maybe leverage the know-how on shipping and you know just the ecosystem that you guys have built and focus more on the midstream?
You know, are you guys gonna be as, you know, interested in terms of also building sort of upstream capabilities to produce, most of your, you know, green and blue ammonia yourself? It's, I mean, I think the key question is the production process of blue ammonia is entirely different, more or less, so, like, what are the competitive advantage for Yara in that upstream side? Thanks.
Yeah. Thank you. Thank you for the question. I think, maybe first of all, you know, it's important to highlight that the value creation from Yara Clean Ammonia also sort of in the historic numbers and the historic setup in Yara comes from the integration of upstream, downstream and midstream. It's, you know, it's not just a logistics company. It's the ability to optimize between a large system of plants being able to handle swings in production, swings in demand, et c., both in terms of course, achieving scale and lower cost, but also in terms of being a reliable supplier, whether that's for Yara or for external customers, as such.
I think when it comes to production and projects, I mean, construction projects of the ammonia plants in itself, that's something that building on the base of Yara, we have a very strong starting point, both in terms of picking the best projects and picking the best locations for those projects. As an example, Yara's latest ammonia plant was finished in 2018 in Freeport, Texas. We have a lot of experience building plants, and we are [audio distortion] t o sort of take the distinction between green and blue, of course, when it comes to and not to get into too much technical detail, when it comes to blue projects, the actual capturing of the CO2 is something that we to a large extent already do today in our ammonia plant.
We have had several projects on that before. The storage part, of course, is a new element, but that's largely sort of with other players, we don't foresee a big role there. When it comes to green, that's of course new technology, but it's closely linked in many ways to what we currently do.
I think that the major part, when it comes to green ammonia project and electrolyzers is not actually the electrolyzer itself, it's actually the handling of the hydrogen, which is the critical core component, which we deal with hydrogen in all our plants today at the large scale. Which is probably from a technical side, the most important part, much more important than the electrolyzer side in itself. Of course, the ammonia part of the ammonia plant, whether it's green or blue, is exactly the same, for both types.
All in all, we believe that we have that our knowledge and sort of our experience on the assets and productions and project side will also be very important going forward, although that's something that we will rely on the RF for to a large extent.
I think just following up on your response then. I mean, are you going to be as backward integrated into green hydrogen production yourself as is the case today? Or do you see the green hydrogen supply, you know, you are open to maybe sourcing it from others if that happens to be a low value add business over time?
Yeah, absolutely. I think that's you know that's part of the strength and flexibility of our system that we can certainly source hydrogen directly. I mean, in fact, we already do that today, both in the U.K. and in the U.S. So you know when that's ideal or you know favorable, we will do that. And where we need to produce it ourselves and the conditions are favorable, we will do that.
Got you. Thank you.
Of course also, that would also apply to sourcing third-party ammonia as well, as Svein Tore Holsether pointed out.
Understood.
Thank you. The next question is now ready. Please then state your first and last name and the company name before you ask your question. Please go ahead. Andrew, the line is now open.
Apologies. Andrew Stott from UBS. Just want to follow up on the assumptions on the shipping opportunity. I know they're not your own, but I couldn't access the study you quote in the slides. Do you happen to know what assumptions they're making on how successful green ammonia is in displacing current and other alternative fuels for the shipping industry? Do you know what assumption they've made on market share?
I think in terms of, you know, specific numbers and so on, we would have to get back to you on that to the extent we can share it. I think what we do know in general terms is that, of course, that number is a 2050 number, so there's naturally uncertainty to that.
What I can say is that in our business plan, the key focus for us is of course to base this on the knowledge that we have about the value chain, both in terms of the time it takes to build ammonia plants, what it takes to actually you know make the changes required within the shipping sector, technically, engines and so on. All of those factors have been taken into place. Of course, a vital part is also government regulation, IMO regulation, and sort of other drivers. For sort of specific details, we would have to get back to that.
What we do think is that there is an assumption, which is, I think, in line with many analysis of this market, that green, of course, over time, will become cheaper and ultimately could become competitive with blue, but that blue ammonia will have the chance to become competitive faster. That's why we sort of have that focus as well.
Okay. Thank you.
Thank you. The next question is now ready. Please then state your first and last name and company name before you ask your question. Please go ahead. The line is now open. Please go ahead. Lisa, can you check?
Oh, hi.
Hi. Sorry guys, I wasn't sure whether I was able to ask questions. Thank you for taking my questions. I have three. First and foremost, I know you're very early in the timeline, but can you please share the steps that are required to be fulfilled for you to move ahead with this IPO? I mean, what are the milestones and can you share them with us? That's the first question. Secondly, can you share some details on how you think about pricing and how that will develop for ammonia prices in general over the next sort of three to five years? And also, what do you expect about how we should think about the premium price that you can potentially derive from selling blue and green ammonia?
The last question I have is: How should we think about the returns for the distribution of green ammonia? Again, I'm sure you can't give us much because we don't get details on CapEx and so forth, but just a bit of a color or ballpark or direction would be super helpful. Thank you.
Yeah. I can start with slightly on the timing. As we mentioned in the press release, we are now evaluating a potential IPO.
We need to go through that, you know, the next steps here. Of course, given where we are today, it's safe to say that this is a post-summer event. We're not in a rush. We'll definitely take the necessary time to thoroughly go through and evaluate the options. By now announcing this, it also is an opportunity to test the appetite for investing in this. Then Yara Clean Ammonia will update the market more on the timeline in due course.
I think in terms of your second question, pricing, we cannot give any guidance on ammonia pricing in the next two-three years. I assume your question was around gray, but unfortunately, that's not something we can share here. When it comes to the premium, at this stage, we're not in a position to share specific numbers there as well. Although I think what we can generally say is that we see an increasing understanding in the market that you know that there is a willingness to pay a premium both compared to sort of normalized gray ammonia prices, but also compared to alternative fuels.
You know, in particular, fossil fuels plus whatever carbon price that could eventually come on top of that, which is of course a key element. Also, I think we see a clear trend and quite a momentum also on the cargo owner side, as an example, that there is an understanding that there needs to be a premium and a willingness to pay the premium. Of course, if we're able to distribute that through the value chain, you know, the cost for freight to ship goods, as the one per unit, is considerably lower. All of these things, we sort of consider, but we don't have a specific number for you, unfortunately.
Just to add on that, Svein Tore Holsether again. It's indeed look at full value chains as we saw in the U.N. climate panel report, the IPCC reports. The climate crisis is alarming. That requires significant shifts in production of many products, whether and also transportation of products, whether it's in agriculture or in shipping or other industries, where we need to think differently around that. What seems like large barriers when you look in isolation, if you look at total value chains, it is doable. I urge you to read the reports from Boston Consulting Group on how much it takes to decarbonize certain sectors.
If you look into the United States Department of State and World Economic Forum initiative on the First Movers Coalition, what it takes to create full new supply chains. When you look at the totality of this, the cost increases are not that large, but it requires a different way of thinking. We have signed our first contract for green fertilizer with the Swedish farmer co-op Lantmännen. I think that's a very interesting case because that's a farmer co-op that owns also consumer-facing brands. So they go all the way from farm to the supermarket.
With converting to green fertilizer then produced from green hydrogen, they're reducing the carbon footprint by 20% without. It's the same product for the farmers. It's about simplifying this for the farmers as well. When they're able to see the totality, this is doable. This is ongoing work in the entire food industry that we need to get away from the commodity cost plus silo thinking and do full value chains, get consumers involved in this demand to know how the food is produced to get authorities on board as well, just to see the potential in this.
There are a lot of activities. We're pleased to see now more and more companies stepping up with new targets across the food industry. Common to most of them is that the only way it's possible to achieve this is to now also focus on the field or the farmer, where a significant part of the emissions take place, both in the field but also the inputs going into the field. This is one of the necessary steps in order to reach the net zero targets.
We are almost out of time now, but we will take one final question. Bengt, I think you're the last one now. Go ahead, please.
Bengt?
Yes. Good afternoon. Bengt Jonassen, ABG Sundal Collier. Thank you for taking my question. Could you elaborate a little bit about the scope? I think Yara today has around. I think there are three ongoing green ammonia pilot projects. Will those be included here in the clean ammonia segment or remain in Yara? Also a little bit on the strategy on your target. Would that only be organic or and would you be willing to look into other projects and co-invest in other projects, or will all be organic?
Thank you for the question. When it comes to the projects, all green and blue ammonia projects in Yara will be a part of the scope. Your second question, we are both looking at organic, but also new projects to go with that. The answer is yes, we would have to be willing to do that. Also in partnerships like we've done before, for instance, with BASF, but also several of our other existing ammonia plants.
Thanks.
Okay. Thank you. This concludes our call today. Thank you everyone for dialing in, and we wish you a nice day.