Q2 2020 CF Industries Holdings Inc Earnings Call
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Good morning, Thanks for joining the CF Industries' first and second quarter 2020 earnings Conference call Martin drastic Vice President Investor Relations.
With me today, or Tony will CEO, Chris phones, CFO, and Bert Frost Senior Vice President of sales market development and supply chain.
Do you have industries reported its first half 2020 results yesterday afternoon on this call will review. This do you have industries results in detail discuss our outlook and then host a question and answer session.
Statements made on this call and in the presentation on our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance and involve risks uncertainties and assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or implied I know you say much.
More detailed information about factors that may affect or performance, maybe found in our filings with the FCC, which are available on our website <unk>.
So you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website.
Let me introduce Tony will our president and CEO.
Thanks, Martin and good morning, everyone last night, we posted our financial results for the first half of 2020 in which we generated adjusted EBITDA of $808 million.
These results underscore the resilience of our business model and the outstanding performance of the sea of team.
In the midst of a difficult and uncertain environment, we maintained our focus on safe and reliable operations work closely with all of our partners to avoid disruptions due to the pandemic.
Deliberate company record first half sales volumes.
Efforts exemplify our team sustained operational excellence, which along with our position on the low end up the global cost curve drives our cash generation.
On a trailing 12 month basis, we have produced more than 10 million tons of gross ammonia sold roughly 20 million product times and generated $973 million and free cash flow.
Most importantly, we have done all of the safely our rolling recordable incident rate at the end of June was 0.31 incidence per 200000 labor hours, which is a new record low for the company.
Protecting the health and wellbeing of our employees, particularly during the covert 19 pandemic remains our top focus.
Our safety culture, along the safety protocols, we put in place.
The number of employees, who have tested positive for the virus to a small number and we have not experienced any known transmission with Tennessee up location.
We continue to have in place numerous precautionary measures across our network to protect our employees and those critical contractors, who come into our facilities.
In contrast to the uncertainty and challenges faced and much of the broader economy. The nitrogen industry has performed well driven by robust demand and low energy cost.
And over the past few months our outlook for the next six to 12 months has become both clear and much more positive.
As you will hear from Bert strong demand in India, and Brazil is supporting global nitrogen market with urea prices rising significantly in recent weeks.
We're also more confident that 2021 corn plantings in the U.S. will be within a normal range.
Chinese anthracite based production remains the highest cost marginal time.
And despite all the Doom and gloom prognostication over the past 12 months of just in coal prices in China will fall that hasn't happened.
As you can see on slide 13, the cost advantage per metric ton of urea remains robust for north American producers compared to the marginal production.
Additionally, we expect the cost curve, which had flattened due to lower energy costs for many producers, we'll see but again going forward.
Since the beginning of the year U.S. LNG exports have declined significantly.
As this works its way through the market production cost for Europe, and Asian producers should rise.
As you can see on slide 14 futures prices. So just to return to a more normal energy differentials in Europe and Asia.
As this occurs we expect margins for North American nitrogen production to increase compared to producers in these regions, which is particularly important during periods when China isn't export.
Longer term, we expect to remain on the low end of global cost curve due to our access to low cost and abundant north American natural gas.
That combined with the fact that we operate in regions, which are important dependent.
Should enable us to continue to generate substantial free cash flow in both the short and long term.
With that let me turn it over to burden will discuss the market then Chris will follow to talk about our financial position on capital allocation outlook before I return for some closing comments.
Thanks, Tony.
See if I had a solid spring that highlighted our teams continued outstanding execution.
We had strong production record sales volumes have navigated the uncertainty related to the pandemic extremely well.
We had robust demand across all our products. This was supportive both by higher planted corn acres than a 2019 and much more favorable planting conditions, which length of the application season.
Early in the second quarter, we did see a pandemic related decline into bad for industrial uses of our products.
Strong agricultural demand and our production flexibility helped to mitigate sales volume impacts.
Since June industrial demand appears to have moved closer to normal levels, especially for products such as diesel exhaust fluid.
As industrial activity is closely tied to the economy. We will continue to watch this area closely and are prepared to adjust our production mix again if needed.
Because of our heavy volumes during the first half we ended the fertilizer year in June with very low inventories of all products.
In July we conducted our pre pay and fulfill programs all of which were in line with our expectations.
We believe that those who participated we'll see a good return in the future given the rapidly changing and improving nitrogen dynamics in North America and around the world.
The U.S. department of Agriculture projects 92 million acres planted corn in the U.S. for 2000 25 billion more acres lower than its earlier forecast.
The should alleviate concerns a substantial oversupply scenario.
At the same time demand for corn globally has increased significantly led by purchases for China.
Additionally, we have seen a good recovery in ethanol production at margins supported by an increase in us vehicle miles traveled.
As a result, we believe planted acres in 2021 for the U.S. as well as total nitrogen use will be similar to the 10 year average.
This improved north American outlook over a few months ago has been bolstered by positive demand driven developments globally.
Current global nitrogen market sentiment is being driven by India and Brazil.
Imports of urea into Brazil are up 13% through the first half of 2020, and we expect continued strong demand through the remainder of the year and into next year.
In India urea sales from April through July or up nearly 50% over 2019 due to favorable growing conditions, which could lead to a second straight year of record urea imports.
Global urea prices have risen substantially with this demand as recent India Indian urea tenders have secured lower than expected volumes.
At the beginning of August India issued its third urea tender and 22 days and its six since the end of March.
We believe frequent urea tenders by India could continue through the end of the year.
These positive demand development have occurred alongside important those smaller supply developments, we've seen some high cost ammonia production turn to that come offline.
We're also seeing profitable delays and the startup of new capacity due to the pandemic.
So as we head into the second half of year, we feel positive about industry dynamics and in particular about the demand outlook.
As always we're prepared to leverage our manufacturing and distribution network to meet any challenges and capture opportunities that arise.
With that let me turn the call over to Chris.
Thanks, Bert for the first half for 2020, the company reported net earnings attributable to common stockholders of $258 million or $1.20 cents per diluted share.
EBITDA was $786 million and adjusted EBITDA was $808 million.
These results reflect the impact of lower year over year global nitrogen prices, partially offset by lower natural gas costs and higher sales volume.
Natural gas continues to be a strong tailwind for the business.
For the first half the year, our cost of natural gas and the cost of sales was lower by nearly $1 per mmbtu or about 30% than in the same period the year before.
Management focus on strengthening our balance sheet and managing controllable costs responsibly also continues to support our results and financial flexibility.
As we've said before our fixed charges for 2020 are approximately $190 million lower on an annualized basis compared to 2017.
Additionally, controllable cost per tonne were lower in the first half of 2020 compared to the first half of 2019, even with the special bonus we provided to operational employees from March through June.
This continues to support our cash generation on a trailing 12 month basis net cash provided by operating activities was approximately $1.5 billion and free cash flow was $973 million.
Cash cash equivalents on the balance sheet at the end of the first half were $563 million and our $750 million revolver is undrawn.
As we look ahead, our approach to allocating capital will continue to be balance this is especially important given the uncertainty in the broader economy.
First we will continue to invest in our assets to support safe and reliable operations.
As we noted in the press release, we expect capital expenditures to increase in the second half of the year compared to the first half because of increased scheduled maintenance and turnaround activity.
These activities will also somewhat reduce gross ammonia production in the second half compared to the first half for 2020.
We estimate that capital expenditures for the full year will be approximately $350 million.
Second our focus in the near term is building liquidity.
Given the uncertainty in the broader environment, we expect to be above our target liquidity level in the near term.
In line with this approach and similar to most companies we did not repurchase shares in the second quarter in order to increase cash on the balance sheet.
We believe this will give us the flexibility as the response to the pandemic continues.
As conditions in the economy normalize our approach will also give us additional capacity along with our free cash flow generation to continue to create long term shareholder value.
With that Tony will provide some closing remarks before we open up the cold acuity.
Thanks, Chris before I move out of the questions.
Hi, thank everyone at sea out for a strong first half.
Our team continues to demonstrate both their focus and work ethic during trying conditions as well as the resiliency and strength of our business model.
We're extremely proud of how our team has navigated the pandemic so far and that effort continues at all levels of the business.
As I said before in the short term, we see a much stronger nitrogen outlook over the next 612 months than we did just a quarter ago.
Global demand is strong and we project 2021 to have normal corn acres in the U.S.
Longer term CF remains among the best position companies in our industry.
We have an unparalleled manufacturing distribution and logistics network that underpins our consistent operational performance.
We expect to remain on the low end of the global cost curve and benefit to the operating primarily in the import dependent regions.
We are also the most efficient converter of EBITDA into free cash in the industry.
We believe these factors along with our strong balance sheet will enable us to drive superior free cash flow generation through the cycle.
This will allow us to continue to build on our track record of long term shareholder value creation.
With that operator, we will now open the call to your questions.
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And we have our first question from Joe Jackson from BMO capital markets.
Hi, good morning, everyone.
Hi, Joe.
Can you talk about what you're seeing out for the setup for the fall season in states.
In Canada to.
Lot of moving part going on is it a normal order book what are you lock Dan.
The cautious west marine caution, whereas the opportunity. Thanks.
Yes, all Joel we're seeing.
It's pretty interesting because you have come off this year of 97 million, though it's 92 million acres of corn.
A little bit weaker.
Kind of grain and oilseed market.
But amazingly well we had to fill program for ammonia, which is fairly small and then started building the book for the fall application.
Season, as you remember those tons set in our inventory so whether we.
Sell them now or sell them in the fall, we're very comfortable with our ability to move those tons and get them into position had to navigate a few river issues River closures, but we feel very very good about the ammonia season for the fall.
Setting up one withheld the current crop as maturing and will come off and then have time for applications, both soybeans and corn.
And then the just the pricing structure. So to what we think is a fair level for ammonia is out there and has been taken up the next one as you am which is a bigger program and we've had different size.
Phil programs in the past from month to month, and a half worth of supply all the way up to maybe for let's say four to six months.
And this year was right in line with the average we had good uptake cutting prices were very attractive had those in my prepared remarks about the opportunities available to some of our channel partners.
And so you've seen us be active in the export markets. So again, a balanced approach to the market and I think fall will.
At a rollout and a good way we're expecting.
In the 88 to 90.
1 million acres of corn for next year, So there will be good.
Application in the corn states and we're also seeing with.
As I mentioned.
Globally, what's happening with.
The other large agricultural markets like India, Brazil, Argentina, devaluations, coupled with support and just good pull and good movement to China on the demand side for those.
Products like corn, and soybeans as well as protein.
Supports a nice global Evan that's why seen urea bounce all the way up to now a NOLA 250 or even to 55 has been done for August so setting up I believe very nicely.
For the fall in that into 2021.
And our next question comes from P.J. Juvekar from Steve Citigroup.
Yes. My question is it a different.
Companies like air products are getting into green ammonia as a means of hydrogen class board.
I feel like no one knows making at transporting ammonia better than CF.
It does that you may not have experience in green ammonia I would agree and hydrogen what is that something you would consider into future or is that not interesting deal. Thank you.
Turning PJ.
As the World leader in ammonia production, we're very focused on all potential applications in uses for ammonia and I think.
Moving forward, particularly as the world is challenged with traditional hydrocarbon based fuels and looks for cleaner fuel.
Solutions that a hydrogen based economy using ammonia as a carrying plate for that.
As an outstanding solution. So it's certainly something that we are.
Focused on it spending time on as you know we have a pretty deep relationship with.
Yes and crop.
Dave built our last two large expansion projects I think there one of the world leaders right now in.
The.
Electrolyzers.
And so it is.
Conversation then and.
Tom investigation, we're spending a lot of Taiwan, and it would not surprise me to see us.
Move into a situation, where we have a full slate of offering at some point here in the near future with.
With anything from conventional ammonia to blue ammonia to green ammonia and some various combinations, but I think longer term. It's certainly the direction. The world is moving it needs to move and I think we're going to be significant beneficiary of that because were.
We've already got all of the backend plus logistics and capability in place and it's about.
Patients on the front end and.
Again, we're in the best position to capitalize on that so we're pretty excited about that.
And our next question comes from Michael Picken, you from Cleveland Research.
Well good morning, I just wanted to get your take in terms of what's happening with Chinese urea exports. It looks like they haven't been as active in some of the recent India tenders and just sort of want it to get your sense in terms of how you see.
Production operating rates playing out in the back half the year and.
Or any kind of child reining in urea, that's in the market as well thanks.
It's been interesting year for watching China as Weve gone year after year with.
Lower lower level than last year, a little bit of an uptick on their exports, we expected to three to 4 million tons for this year, we're trending lower than that.
Through the first seven months of the year.
So they're operating rates have been around.
Lets say high Sixtys low seventys percent, which we equated to about a 53% to 55 million tons of available supply domestic consumption seems to have been higher.
Similar to India, incentivizing domestic production for supply of corn and rice and other for obviously.
Fruits and vegetables or about 50% of their urea demand.
But that is correlated well with internal demand and then not pushing product out to the international market I think we'll wind up when the market hit on a metric ton basis to 35 to 40, we had expected more supply to come out of China at did not.
They have avoided the last two India tenders.
Just kind of on a perfunctory basis participated.
And so looking at this tender that will open early next week I would expect some additional tons, but those tons and not have been bid and sold in the 250, even up to $270 a ton fob.
So very supportive to the international market very supportive trend.
For the remainder of the year of which we believe will be probably fewer than last year export tons and at higher prices.
Thank you and our next question comes from Steve Byrne from Bank of America.
Steve Your line is open.
Steve Please check of your on mute.
And our next question comes from Ben Isaacson from Scotiabank.
Hi, This is Don for Ben Thanks for taking my question.
How is industrial demand for ammonia progress over the last quarter and how are you seeing that recovery over.
Rest of the year and then also into 2021, particularly with how it's impacting your realized ammonia prices.
So we had three there are two sites the ammonia equation will end like you mentioned as the industrial side, which is you can include and upgrades for that segment ammonium nitrate urea UAN and then the industrial as a.
Chemical intermediate or into nitric acid or phosphate production.
And so we did see a dip and demand on the industrial side.
Due to covert some of that on the the phosphate production, but just overall industrial capacity declining we're seeing that recover and seeing.
Good pull from our customers for that part of our business, which is a healthy percentage of our ammonia business. It's a 365 24 seven type business for us where the agricultural applications are really a few weeks in November and then a month than a half maybe in April and May and June.
For the fertilizer side, we saw a nice recovery for ammonia.
We've had some difficult.
Application years, and 18 and 19 due to weather it was cold wet weather in the fall or cold wet weather in the spring, which delayed and moved some of that consumption to the upgraded products of UAN and urea.
So we are pleased this year to see that and and see our channel partners work with us on on the custom application business. So feel good about where we are and what that for.
Pushes forward for us is a healthy lower inventory level going into the fall and we expect to see as I said earlier, a good fall application season.
And our next question comes from Adam Samuelson from Goldman Sachs.
Yes, hi, good morning.
A couple of on the on capital allocation.
I was hoping to get the views and while it would take the restart repurchases it sounds like the outlook on the market has improved.
Cast, Michigan is good liquidity position has got just help me think about the decision process from here on buybacks.
Yes, Adam I think that big issue is just kind of the broader economic uncertainty.
I think we feel very good about nitrogen.
And when our business, particularly here in the us in the UK.
So it's not really an issue or around anything to do with the fundamentals of of our business.
Much more so just kind of broadly what's going on and.
In the economy, and I think during periods like that holding more cash rather than last.
Is that a sensible thing to do we always have the opportunity to then turned around and.
Distribute that cash when.
When there is a solution to this pandemic situation and we do have a little more clarity around.
Broader.
Economic.
Certainty.
And.
So I just think in the near term it makes all the sense of the world for Us just.
Play the long game here and not.
[music].
Not rushing to share repurchases, so we'll be.
Building cash as you know and Chris talked about it we've got 250 million coming due next year that we've committed to redeem.
Some notes due on or before the maturity date and.
And as we start getting kind of the world moves pass.
The pandemic situation will return to normal course repurchases.
And our next question comes from Chris Parkinson from Credit Suisse.
Great. Thank you very much just given the recent urea rally and just how should we think about the sustainability of the run up in terms of just how you're thinking about the ASP dynamics on second half and 21 as well as the cost curve. So if I am just sitting back thinking about FX and then relative input costs on and then the and then b to B.
Since fourth quarter mile versus for first quartile, where do you see the current spread versus earlier this year versus your presumed outlook for 2021. Thank you.
So Chris I think based on where anthracite is today. It would suggest about a 260 delivered NOLA price that's above where we are today. So we're we're continuing to trade at a little bit of.
Discount to international parity, which has not really that uncommon given that when people need to find liquidity for cargos. This is the place they come that side.
I think we're trading range that reflects.
Actual underlying economics and.
I think thats been shown the last couple of Indian tenders, when you haven't seen.
Huge participation coming out of China, and I think.
The World is operating very rationally at least within the nitrogen industry today, we as I said, we expect given the.
Absence of LNG cargoes that once the surpluses kind of worked its way through the system you will see energy costs in in Europe, and Asia climbed back up to that appropriate differential off of Henry hub began.
And so.
The almost regardless of whether how prices move what we really look at is that differential cost and that that differential becomes increasingly important during periods when China isn't exporting.
And so we're very constructive about what the margin structure. This business looks like going forward, which we kind of indicated next 612 18 months look pretty positive from our perspective.
Yes, I agree I think there.
The nice.
I think where we are today and where we are kind of I think we're projecting with the India tenders alone taking the producer longs from North Africa, and the Arab Gulf.
Into September.
That kicks those positions forward, but you still a substantial buying probably half a million tons per month for Brazil through January and February.
Projections today, or India will be over a 10 million tons of.
Of consumption of imports.
Which is up but will be an all time record and so the rally I believe last for.
At this point into Q4, and then the United States has to start buying Fritz spring demand and we are we believe the channel inventory in North America is fairly low coming out of our application season, as well as production turnarounds that ours as well as others will have taken place.
And so when you look at the cost curve, where anthracite coal is today on an MBT basis, that's about six and a half to $7 on gas.
And that they're able to export those numbers those are that's very positive for the market because those tons are being bid in and they need to make it all the way to port which are even additional costs. So a good floor right now for the market.
Thank you. Our next question comes from Vincent Andrews from Morgan Stanley.
Hi, Thanks, I, everyone just looking at slide 17.
The potential Indian range, and just you mentioned that it is a record this year I mean, do you think that that I.
I guess the monsoon would have to repeat next year in the same same way to get the same amount of demand, but where do you think be actual base level of demand is in India that we should be thinking about for 21.
I think part of the issue.
Vincent is is not only just the underlying demand it's.
What's going on from a production standpoint people have been.
Again kind of very gloomy about the notion of new production startups and what that was going to portend for imports into India and a number of those plants chambal matrix and others have started up and similarly older plants.
Diner curtailed substantially so yes, well this year looks like it's pretty strong year from the standpoint of application a lot of it is just I think the recognition that it's more efficient from the standpoint of the general industry account Indian economy to be importing urea as opposed to.
Trying to run older high cost.
Inefficient facilities. So were again were very constructive about the direction that this.
Hold market is headed for any other.
That's exactly right and with a level of imports coupled with domestic production. The an all time high for urea consumption.
But you have to remember we're going to approach again 50 million tons of.
The export market. So this is a global rally, it's not just dependent on India.
There are a number of countries that are consuming more and we've seen a few shutdown. So it's a balanced position to whats driving and we seem to have something like these things happen.
Every year or to a positive pushed to the market and we're in the middle of one.
I think to to.
Tack on to that.
In the situation, where you've got the is.
Huge global disruptions like pandemic the move toward food security is something that most governments really want to push toward.
So optimal fertilization trying to encourage.
Complete growth is something that is.
Is top of mind I think for many many regimes out there. So I think again underpinning strong demand in nitrogen.
We've actually been and as a nod way potentially somewhat beneficiaries of those situation.
Thank you and our next question comes from Mark Connelly from Steven.
Thank you.
And just wondering about about freight rates if they stay low how much does that affect CF given all this positive outlook for India, and Brazil, and if things do change and you ended up meeting to export more in the second half.
Fall application came up short.
How would that affect your your overall expectation about your competitiveness.
Generally speaking high freight rates are good for us because where we operate in important dependent regions. So anything that adds.
Additional cost into the freight market is great for us when we think about fall application. The fall application really isnt ammonia story its nada.
Urea UAN story and so if it's lower application you are talking incrementally not that much from an export because the way that Burgess manage the system from a balance standpoint, so fall application isn't really going to have a tremendous impact in terms of what our export profile looks like our export.
It's are really going to be driven more on what's the netback opportunity to move product.
Out versus keeping here.
And I think right now again, if you look at where things are trading and the margin opportunity available to us even in a low freight environment. We're feeling really good about how the business is performing and it freight rates climb again, even better.
Yes, I will then when you look at freight rates, where we are globally they are weaker.
Specialty dry products, you've probably got 17 to $20 from the AG to Brazil or.
North America.
And so that is probably a little more attractive than it's been in the past little bit higher depending on the product coming from the Baltic.
But when I look at or think about freight I think of it as a destination to our customer and that includes rail and truck terminals and.
We've been working very closely with our rail partners. Some have been more supportive some have not but in a weaker economic environment. All the sudden we might become popular again and we've had some of those discussions and are working on new terminaling opportunities leveraging some of those options available to us as well as truck.
So I like.
Where we are structurally.
On the whole freight equation and we're looking.
You've you've seen CFP and efficient operator, and that's all.
We are at least we drive that through our analysis of costs and where we can squeeze out additional value for the shareholder and that is representative freight and freight costs, such as railcars and things like that or aggressively looking at.
Thank you and our next question comes from Jonas Oxgaard from Bernstein.
Hi, This is Pat Gallagher on for John Thanks for taking the question.
You any impact on nitrogen demand with the Chinese flooding we've seen this summer.
That's an interesting one in terms of when you plant when you apply and when you harvest.
With when these different cycles and when the flooding took place was post.
Application time, so I would expect youre going to have some.
Either quality with the harvest or the crop that's been planted or the actual availability of that product.
Making it through those rains and flooding situation. So on an aggregate basis in a generalized answer to your question I.
I would expect that that would drive and future use of that agricultural land to achieve higher yields to replace that loss product.
And as a reminder, if you have a question. Please press Star then one on your Touchtone phone.
Our next question comes from Jeff The cost goes from JP Morgan.
Thanks very much.
I think thats a three part question.
I got slightly get out our patent paper here. So we can provide.
Thank you.
On slide 18.
You show less production from.
Brazilian.
Urea players.
What happened in Brazil, and does that.
Production ramp back up in 2021, that's the first part well.
Got to Reprice, Oh, I'm sorry go ahead.
Okay. The second one is in in response to PJ its question about.
Green hydrogen.
You made some suggestive remarks, but I couldn't tell whether that meant you wanted to.
Built a new ammonia facility that was supplied with green electricity or what you wanted to is.
Fine to Green power source for the ammonia that you've already got I was wondering if you can clarify that.
And then lastly.
Is your interest in green hydrogen because you believe that the financial returns of Green hydrocarbon will be higher than the financial returns for.
Agricultural ammonia.
So I'll I'll, let Bert talked about Petrobras and then I'll.
The other two thanks, so the interesting thing in Brazil, as those plants, which were owned by.
Petrobras and by here or but and I.
And the plant that never got started amount of gross to school.
Have been operating for decades and have been at times exporting plants generally supplying import needs also those are old inefficient without good gas sources.
The plant and.
No not close to put an iguana was actually supplied by product from a refinery which was next door.
So they have been I would say.
Not profitable for years and I think through this whole rationalization process that Petrobras is going through with their whole portfolio of assets and services that was one area that just made sense and there was.
An opportunity for another company to look and take those over and operate them, but that has not been able to happen probably due to gas supply. When you look at the available gas a gas pipeline network in Brazil, compared to the United States or any western country, or let's say European our North American.
Opportunities, so small and so and then the Bahia plant. For example is just out of the market. There were trucking some of that urea all the way across the country 1000 miles to Mato Grosso did not make sense, so shutting in Dallas economically intelligent as well as operationally smart.
What that has done is that increase the need for imports and thats been very good for the international market as we've talked about India. So we talk about Brazil, Brazil will now be close to a 7 million tonne import market for urea.
Puts the U.S. market as the third largest market, India being first Brazil, second and United States third for import demand so very good growth.
For for that international ton to move too.
And I'll I'll handle the other two two questions Jeff So in terms of building new.
Green ammonia plants, that's not high on my list of things that we want to do over the next five years or so.
The the economics around that or are pretty challenged I think and.
Let me describe a couple of different ways that we can though participate and when all of this the first one being.
We are actively investigating geological sequestration for the process to gas that comes out that we capture some of which we turned into ammonia.
But you can we can go ahead and sequester that and then get offset that the result of that and certify some.
Side of the production like even today Blue ammonia, if we were going to do that.
Similarly, then the next step would be you could put in some electrolyzers and put in.
Free hydrogen either into the back end of the process or potentially with the front end of the process.
And by renewable energy in the number of our locations which is available.
Wind in.
Our NII you got to hydro and incorporate Ontario, you've got.
Some green options in the UK as well and they need from that you can actually certify some with the of production is green.
And all of those things are relatively low capital cost implementations in order to be able to move section of the portfolio from conventional to green and Blue I think to do a wholesale swap out youre basically talking about.
Replacing the front end steam methane reformers with.
Huge electrolyzers and that is.
A lot more capital economically today that doesn't make sense, because the price of north American natural gases, so reasonable compared to.
Their prices of energy, particularly if you're talking about renewable energy. However, a lot of that is dependent upon what the price of carbon is or isn't and at the high enough carbon costs for a high enough product price demand for green ammonia you could absolutely see the justification from an.
And on a return for doing that.
So.
My answer to that question is we're evaluating all of these different approaches we haven't made the announcements yet because our belief is rather than a big fanfare of kind of smoke and mirrors and.
Vaporware, we want to wait until we've got something real.
But we're doing in them and announce something at that point in time.
We're evaluating all of this and we think we've got a.
A great path forward to actually at a very near term be able to produce some some blue indoor green ammonia.
But not not half it be a huge capital outlay in order to get there I think longer term, though if you project out to let's just take the 2015 number but a lot of people are using.
You could absolutely see a number of our plants be full on green running off of.
Renewable fuel.
Here and I think that benefit that we have is the capital investment in terms of the backend that the process along with all of the storage and shipping and logistics and Terminaling capabilities is that we're in the best positioned to benefit from it and anything that drives demand for ammonia whether its.
Green Blue or otherwise is good for us because it just increases the price of ammonia globally. So.
Certainly something we're excited about from a developments to improve.
And our next question comes from John Roberts from you'd be at.
Good morning, this is like a spend going on for Jim.
Thanks for taking my question. So I was just hoping you could you. Please talk us through your assumptions around new supply glass. The next two years, just under 10 year supply demand assumptions. So I was just wondering particularly as is changed now that we've had a few more months to assess the impact.
Disruptions on project completions, we've previously talked about difficulties like getting passed along to sites and engineering provide is being able to provide the required equipment.
Additionally.
Has your view changed.
The industry's ability to complain normal sort of maintenance activity given the similar difficulties and do you see that impacting supply Olson.
I'll, let Chris go through the Nitty gritty details, but really just kind of start off with a high level comment on the switches.
The World has sufficient nitrogen capacity is just a matter of at what price does it get back into production on.
And.
What you've seen as Bert indicated in his prepared remarks.
Early on is when.
Deepwater ammonia prices.
Crashed.
In response, partly to.
Ration.
You've seen high cost producer shutdown in Trinidad and actually in other parts of the world and so.
And similarly, when you've had these new plants come online in India, you've had other plants, whether its Brazil, or India or other places in the world shutdown. So while there is tremendous microscopic attention paid to the specifics on supply demand what ultimately.
Happens in the situation is.
The market rationalize is how much supplies ultimately available because the high cost production shuts down and where that high cost production is actually moves around a little bit because Trinidad was viewed as first or second quarter core tile assets for a long time up until just recently and now they're the ones that were actually.
The shutting down and so.
What I would suggest is well all of the timelines to.
Build of lengthens substantially.
And availability of some parts have.
I've been pushed out into the future, making it difficult for some people probably to to operate that generally speaking, it's going to be the cost curve in the slope of the energy differentials that are going to drive.
What the margin opportunity is not whether theres, an extra plant coming on in.
Turkmenistan or not but.
Yes, so there's not a lot to add to that because I think Tony covered it but.
On a more detailed point, we are seeing delays and some of those plans whether it be in India or you use Pakistan. So youre starting to see some of those delays related to actual turnaround and maintenance activity I think definitely more challenging and may be extended longer.
But I think that's the same challenges you have with overall operational risk with whether a number of operators get.
The virus or not as well, so I think youre going to see some of these small disruptions, but as Tony mentioned.
Theres plenty of capacity and that's just for that capacity to be back into production.
And our next question comes from Duffy Fischer from Barclays.
Hi, Good morning, everyone. This is Sean Guilmart not brick Duffy thanks for taking the question.
Just real quickly from me early on in the year granite things have changed but yet kind of given soft guidelines around EBITDA between 1.4 to 1.6 billion.
For full year 2020, just curious given the solid first half.
The dynamics, you're seeing in the market today kind of inflection positivity.
Can we get to the upper end of that range in your opinion and given kind of flat to down a little bit year on year corn acres into 2021 on maybe a bit better pricing dynamics. How would you encourage folks to think about on 2021 EBITDA level. Thank you.
Yes, we're not really.
Talking 2021 at this point.
Businesses hard enough to forecast three months is the future let alone 18 months into the future. We just we see some very positive signals about what demand is likely going to to show up I think the rest of the story is all about what the slope of the curve is and what happens in terms of energy differentials.
From region to region basis, So we're going to wait till we get to.
Further in the year, maybe even Q1 call before we approach that subject, but we still feel very comfortable with our.
Recent guidance around where we expect to show up Weve as Bert side, we had.
Vessel build program met our expectations, both in terms of take rate and pricing.
And so as we sit here today most of Q.
Q3 or much of Q3 is in the bag already and what we see looking forward through Q4 looks pretty attractive. So we feel very comfortable with our with our guidance.
And our next question comes from PJ Juvekar from Citigroup.
Hey, David Your line is open.
Good day, you might be on mute.
Once again, if we have a question. Please press Star then one year Touchtone phone.
Yes.
And we have no further questions at this time I would like to turn the call back over to more interesting for closing remarks.
Thanks, everyone for joining us today, we look forward to follow conversations and some virtual conferences.
Over the next couple of months.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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