Economics of Using Flared vs. Conventional Natural Gas to Produce Nitrogen Fertilizer: A Feasibility Analysis

Abstract

The feasibility analysis begins by examining the economic potential of using flared natural gas as a feedstock to produce a low-cost, reliable, and sustainable supply of nitrogen fertilizer for North Dakota farmers. Specific objectives include • Determining the most profitable facility size, location, and configuration for a natural gas nitrogen fertilizer production facility in North Dakota. • Calculating the financial returns and capital requirements of gas-based nitrogen fertilizer production. • Identifying possible business structures for the fertilizer production facility. Project objectives are achieved by evaluating the technological and economic feasibility of alternative nitrogen fertilizer production and distribution systems. • Flared Gas Collection: the economics of flared gas collection in western North Dakota analyzes the availability of flared gas supplies. • Ammonia Plant Preliminary Design: several ammonia production plants based on commercially available technologies are used to estimate capital and operating cost. • Business Structure: the effect of alternative business structures, including new generation cooperatives, on incorporation, capitalization, taxation, and fertilizer marketing are investigated. • Facility Siting: factors in determining optimal plant site include fertilizer form (e.g. ammonia, urea), technological and economies of scale, transportation and utility infrastructure, and nitrogen fertilizer demand. The use of natural gas in western and eastern North Dakota and co-location by existing coal-fired power plants or refineries are considered. Topics originally intended to study but not yet completed or are no longer relevant include • Preparing a financial pro forma, including pro forma balance sheet, income and cash flow statements for the nitrogen fertilizer production plant to demonstrate the financial viability of the enterprise. • Incorporating a supply chain model to estimate storage and transportation costs and efficiencies, including capturing and retaining value, and reducing cost and risks. • Determining the willingness of food manufacturers, bioenergy producers, and other current and potential buyers of North Dakota crops to pay the premiums for green inputs. • Estimating the impact of using of green fertilizer on farm profit. The focus of the study was refined when initial findings revealed that initiating an enterprise to capture and process flared gas was not economical at this time, but that relying on the energy industry to supply conventional natural gas for fertilizer manufacturing is more feasible at the present time. However, a premium for crops produced with green inputs and need for carbon sequestration in the future should be subsequently studied at appropriate times.

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