An offtake agreement giving US fertilizer giant Koch exclusive access to 1.4 million tonnes per year of granulated urea, which it is proposed to produce at Geraldton, will be negotiated by Strike Energy Ltd.
Strike announced last week that it had selected through a competitive process Koch Fertilizer as the preferred bidder for the first 10 to 15 years of urea production from its Haber Project plant project in an area Geraldton Industrial.
The plant is proposed to use natural gas from Strike’s South Erregulla SE1 well and all subsequent commercial wells near Eneabba as the gas field develops, as feedstock for the manufacture of duration.
In an announcement to the Australian Securities Exchange (ASX), Strike said so and Koch Fertilizer had “entered into a non-binding term sheet”.
They will now begin negotiating and drafting a “comprehensive final drawdown agreement reflecting the key terms agreed to in the term sheet”, he said.
These conditions include a 10 to 15 year supply period, prices linked to international benchmarks and the agreement being conditional on a final investment decision in the Haber project by Strike.
Strike’s Managing Director and CEO, Stuart Nicholls, said the selection of Koch Fertilizer as the preferred bidder “lays the foundation for an exciting and transformational time for the business, after which Strike will have completed its journey to become a fully vertically integrated manufacturer of energy-intensive, low-carbon products”.
“Securing Koch Fertilizer as the sole purchaser of Strike would provide Project Haber with a high degree of creditworthiness and financial security,” Mr. Nicholls said.
“Having a single long-term buyer for 100% of urea production will form the basis of the financial architecture needed to successfully finance this nationally significant development.
“Australian farmers stand to benefit from the re-domestication of Australian urea manufacturing, which will ensure a local supply of low-carbon, globally competitively priced nitrogen-based fertilizer.
“With global urea prices at record highs, the time for this development in Australia is now.”
As previously reported in Farm Weekly, the Haber project, which was given major project status by the federal government to allow coordination and streamlining of various approval processes, is conditional on Strike proving approximately 350 petajoules of “resource to high level of confidence” at South Erregulla SE1 as the gas supply required.
Cheap natural gas is said to be essential to urea production, as it accounts for around 70% of production costs.
Synthetic urea is made by reacting natural gas, atmospheric nitrogen and water together at over 200 degrees Celsius and high pressure to produce ammonia and carbon dioxide.
These gases react again at high temperature and pressure to produce molten urea which is cooled and made into granules for fertilizer and industrial use.
Koch Fertilizer and its subsidiaries own or have interests in nitrogen fertilizer plants in the United States, Canada and Trinidad and Tobago, Strike told ASX.
It is a subsidiary of one of the largest private conglomerates in the United States, Koch Industries, based in Wichita, Kansas.
Koch Fertilizer distributes nearly 10 tons of fertilizer products annually through terminals in the United States, Canada, Mexico, Brazil and Australia.
Koch Fertilizer Australia has terminals in Adelaide, Portland in Victoria and Brisbane, with a head office in Melbourne.
Another WA urea proposal is waiting for Environment Minister Reece Whitby to sign environmental clearances for the $4.3 billion Perdaman urea project in the strategic Burrup Industrial Estate near Dampier.
In March, the Pilbara Port Authority issued a call for expressions of interest to dredge and construct a new multi-user quay at Dampier Port which Perdaman will equip with bulk handling facilities for urea, including a storage shed, a conveyor system and a ship loader.
The Northern Australia Infrastructure Facility is providing $160 million to the Port Authority for the new wharf.
It is proposed that liquefied natural gas from the Northwest Shelf will come from the adjacent Burrup gas hub for the urea project.