Phibro LLC and a group of investors are buying an Indiana clean-coal power plant made redundant by the shale gas revolution and converting it to produce fertilizer for area farmers. An affiliate of the Stamford, Connecticut-based commodity trader and investors agreed to buy the plant from the Wabash Valley Power Association, Phibro Chief Executive Officer Simon Greenshields said in an interview with Bloomberg News. Terms were not disclosed. Until recently the plant produced synthetic gas and steam from coal. The group plans to invest about $450 million to convert the plant to ammonia fertilizer production using petroleum coke from nearby refineries. The trader expects to compete with producers who use more costly natural gas, and to supply local farmers who now pay more than U.S. Gulf Coast growers. The move marks a shift for Phibro back to its century-old roots as an owner and trader of commodities.
“We are going to be one of the lowest if not the lowest-cost producer of ammonia in the country,” Greenshields said. “We think there are some interesting logistical arbitrage plays in the fertilizer market with the very wide differentials between Gulf Coast and midcontinent prices.” Phibro is rebuilding its commodity trading business after it was shut in 2014 by then owner Occidental Petroleum Corp. Energy Arbitrage Partners, co-founded by Greenshields, acquired Phibro in January to focus on trading North American oil, gas, liquids, power, fertilizers, renewables and coal. Greenshields said he expects to open an office in the U.K. this year.
Once the conversion is complete, the Indiana plant will be able to produce 1,500 metric tons a day of ammonia fertilizer using petcoke that costs about 50 cents per million British thermal units purchased under a 10-year contract, he said. Petcoke costs about 75 percent less than gas. “I can’t mention specific names, unfortunately, but there are a number of refiners in the midcontinent region that are long petroleum coke,” Greenshields said. Midcontinent ammonia fertilizers are trading at about $450 to $500 a metric ton compared with $300 to $350 on the Gulf Coast, Greenshields said. Phibro’s plant is located in Indiana’s corn belt where ammonia is delivered by pipeline from the Gulf Coast, he said. The proposed Indiana fertilizer plant can supply farmers within a 50 mile radius.
The clean coal plant opened in the 1995 in a mostly rural area on the Wabash River near West Terre Haute to replace a conventional coal generator. It cost $438 million, half of which was provided by the Department of Energy. The part of the plant that used coal was mothballed on May 1 in anticipation of the sale that closed Tuesday, Greenshields said. Like other coal plants, it’s been pressured by a surge in shale output that caused gas prices to plunge about 85 percent from 2008 highs. While a new business for Phibro, technology to convert petcoke into ammonia fertilizer is already used in China, India and some plants in the U.S. Carl Icahn is an investor in CVR Refining LP, which uses petcoke to produce fertilizer near its oil refinery in Coffeyville, Kansas. Greenshields declined to say whether Phibro is discussing similar investments with Icahn. The group led by Phibro is working on another deal to buy a second facility to make fertilizers, and the commodity merchant plans to eventually build a fertilizer trading and marketing business, Greenshields said. In Indiana, growth plans include potentially doubling ammonia output and adding equipment to make urea fertilizer. “Phibro needs to build out the old merchant platform back to its previous business model that it had for most of its life, which is to have a significant presence in the physical market,” he said. “We are trying to go back to our merchant roots, whether its fertilizers or refined products or power and gas.”