CF Industries Holdings, Inc. (CF) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the CF Industries Holdings clean energy commitment briefing. My name is Tia, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to the host for today, Mr. Martin Jarosick, with CF Investor Relations. Sir, please proceed.

Good afternoon, and thank you for joining the CF Industries briefing outlining our clean energy commitment. I'm Martin Jarosick, Vice President, Investor Relations for CF. With me today are Tony Will, CEO; Chris Bohn, CFO; Bert Frost, Senior Vice President of Sales, Market Development Supply Chain; and Ashraf Malik, Senior Vice President of Manufacturing and Distribution. Earlier today, CF Industries announced a Commitment to the Clean Energy Economy as well as a series of initiatives to decarbonize the company's ammonia production network. On this call, we will review the announcement in detail and then host a question-and-answer session. As previously announced, we will release our third quarter and year-to-date earnings next Wednesday and hold an earnings conference call next Thursday. So this afternoon, we'll focus our comments as well as answer questions regarding today's announcement. Statements made on this call and in the presentation on our website that are not historical facts nor 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 those expressed or implied in any statement. Now let me introduce Tony Will, our President and CEO.

Thanks, Martin, and good afternoon, everyone. We're excited today to talk with you about our Commitment to the Clean Energy Economy and the steps we are taking to provide clean hydrogen fuel through the production of green and low-carbon ammonia. As we look forward, it is clear that the world needs clean energy. Hydrogen has emerged as a leading clean energy source to help the world achieve net 0 carbon emissions. And ammonia is one of the most efficient ways to transport and store hydrogen. Because CF is the world's largest producer of ammonia, we are uniquely positioned with an unparalleled asset base and technical knowledge to serve this developing demand. To capitalize on the growth opportunity that clean energy provides, we will decarbonize the world's largest ammonia production network, positioning CF at the forefront of clean ammonia and hydrogen supply. Our commitment includes an initial green ammonia project at our Donaldsonville Nitrogen Complex as well as carbon capture and sequestration and other certified carbon abatement projects across our network. It also involves ambitious sustainability goals. Most notably, we are committing to a 25% reduction in CO2 emissions intensity by 2030 and to net 0 carbon emissions by 2050. What I want to do is walk you through the growth opportunity we see in the clean energy economy, explain how our first set of initiatives leverage the competitive advantages of our asset base and discuss the market value premium that we believe is available through providing clean hydrogen fuels. Then we will take your questions. As you know, the global focus on climate change in greenhouse gas emissions has created a push to decarbonize economies. To reduce greenhouse gas emissions and make progress towards achieving climate goals, the world must dramatically increase clean energy and reduce dependence on carbon-based fuels. Hydrogen can be produced with 0 carbon emissions through the electrolysis of water, and therefore, has emerged as a leading clean energy source. As you can see on Slide 5 of our materials, clean hydrogen demand is expected to grow exponentially. The key to unlocking rapid adoption of hydrogen as a clean fuel is the ability to store and transport it, which is the same challenge renewable energy faces in general, making it available on demand and moving it around. Because hydrogen is highly combustible and has an extremely low boiling point, storage and transport of hydrogen by itself is a challenge. But fortunately, this is exactly what makes ammonia the key enabler for a clean energy future. Ammonia, the very product, we are the world's leading manufacturer of is a highly efficient and stable mechanism for the storage and transport of hydrogen. Ammonia's energy density is significantly higher than liquid hydrogen, gases hydrogen and especially lithium batteries, which means ammonia is ideal for the economic storage and transport of clean energy, as you can see on Page 6. In fact, a well-developed global ammonia transportation and storage infrastructure already exists with terminals at over 120 seaports. As a result, given the projected demand increase for clean hydrogen fuel, we expect the demand for green and low-carbon ammonia to increase in lockstep along with it. Ammonia is a clean fuel in its own right and is the most efficient storage and transport medium for hydrogen. Based on expected adoption of clean energy, green and low-carbon ammonia demand could easily exceed the current 180 million tons per year demand of conventionally produced ammonia. And while conventional ammonia demand will continue on, this new low carbon ammonia will be used as a clean energy source and will support a significantly higher price premium. Therefore, our ability to produce green and low-carbon ammonia at scale opens up a significant market opportunity as countries and industry shift to the use of green hydrogen. The scale of our existing network and the speed with which we can begin to produce green and low-carbon ammonia, establishes us as a clear leader in providing clean fuels for a sustainable world. Because this, our competitive advantage in producing low carbon ammonia at scale is measured in terms of years ahead and billions of dollars less expensive. The Board of Directors has authorized a green ammonia project at our Donaldsonville Nitrogen Complex. As you saw in our press release, this will involve the installation of a state-of-the-art electrolysis system. The system will generate carbon-free hydrogen from water that will then be supplied to an existing plant to produce green ammonia. We expect the project cost to be fully contained within our annual capital expenditures budget which typically ranges from $400 million to $450 million per year. When completed in 2023, the project will produce approximately 20,000 tons of green ammonia per year. Importantly, this initial investment is scalable, and we will be able to add a number of additional electrolysis units to the plant with limited incremental infrastructure investment. We also project a significant opportunity with low carbon ammonia, which can be produced by either carbon capture and sequestration, where CO2 is removed and injected into geological storage or through utilizing certified carbon abatement credits to offset CO2. We estimate that over time, we could produce approximately 3.5 million tons of low-carbon ammonia per year, which represents about 1/3 of our annual production capacity. Carbon capture and storage projects will be a critical aspect of our approach, and we are developing numerous projects near our facilities. Our manufacturing complexes have existing CO2 header and collection systems that capture CO2, and many of our sites are located near existing CO2 pipelines. In the United States, we believe we will qualify for Section 45Q federal tax credits, which would make these projects cost neutral. Additionally, our engineering team is focused on identification and prioritization of certified carbon abatement projects, and we are excited to have leading technology providers on this journey with us. We have signed memorandums of understanding with ThyssenKrupp and Haldor Topsoe to support the execution of these initiatives. And look forward to collaborating with their teams. These initiatives will position CF to unlock the clean fuel value of ammonia rather than its nutrient value. I want to direct your attention to pages 9 and 10 of our materials, as this is really the key to our investment decision. Whereas conventionally produced ammonia is sold as a fertilizer for the nitrogen content. We will be selling green and low-carbon ammonia for the clean hydrogen content, a completely different market with a completely different price point. As you can see, the hydrogen value is disconnected with and substantially higher than the fertilizer value of ammonia as a feedstock for fertilizer. We see the actions we announced today is just the first step of our commitment to clean energy economy. The opportunity we have ahead of us is clear. Economies will continue to focus on decarbonization and hydrogen will be a key solution with ammonia as a critical enabler of hydrogen as a clean fuel. As the world's largest producer of ammonia, we have significant competitive advantages that will allow us to meet this emerging demand. We are committed to being at the forefront of hydrogen supply, being a leader in providing clean fuels for a sustainable world and providing a growth platform for long-term shareholder value. With that, operator, we will now open the call to your questions.

[Operator Instructions] The first question will come from P.J. Juvekar with Citigroup.

Congratulation, guys. This is fantastic. I guess you guys are the largest players in ammonia. So it makes a lot of sense. So a couple of questions. To consider it green ammonia, where would you get the green power from? And is the cost at $0.04 kilowatt hour. Is that the cost of green power and how does that compare to fossil fuel-based power or electricity that you get?

Yes. P.J., thanks for the comment. About 25% of the energy that we consume across the entirety of our system is already renewable energy. And from our perspective, the allocation of which electrons go to which plant is kind of in our court as long as we can identify that we are purchasing renewable energy in sufficient volume in order to cover the energy consumed in the production process, and we don't try to double count those electrons. We feel we're being absolutely aboveboard and appropriate in certifying those tons as being green.

And do you have customers lined up for -- the customers who value the green hydrogen out of ammonia, and what could be the end users? And how did you decide to choose Donaldsonville, which obviously has great infrastructure, but I thought you would consider your U.K. site, given its location in Europe?

Well, the first thing I want to highlight is that this is just the initial announcement of a program that's going to unwind over the coming years. As I mentioned, one of our commitments is 25% reduction by 2030 and that carbon 0 by 2050. And the only way you get there is through an ongoing series of initiatives and projects. So this is just the first step. As you mentioned, there are a number of projects and initiatives going on in the U.K., including a project called HyNet that's a carbon capture sequestration project that we're involved in on in the Northeast under the IRC. But as we think about from a scale standpoint and the fact that this is scalable and can be added to pretty quickly and just the volume of infrastructure and our ability to load ocean-going deep hole vessels, Donaldsonville has got both the technical resource capability, the expertise on construction and the right kind of dock and surge location to be able to ship globally. As you're probably aware, Japan has emerged as a significant buyer of low carbon ammonia for use directly as a fuel, and we have ongoing discussions with marine operators and other utilities looking at it as a fuel content before you even get to it as a medium for hydrogen storage and transport. But we've got a lot of conversations that are going on, some of which are not quite ready for prime time yet, but we feel very comfortable that by the time this project comes online in a couple of years, there'll be plenty of demand to consume the offtake.

The next question will come from Steve Byrne with Bank of America.

Out of that 25% carbon reduction per unit of ammonia that you target for 2030, how much of that would you say you've already accomplished with your newer higher efficiency ammonia plants?

Well, I mean, certainly, the $5 billion of new assets that we've put in the ground are a step in the right direction from a globe perspective of reducing carbon intensity because commensurate with those new plants starting up, there was a shutdown of very emissions intensive emphasize coal plants in China. So I view those as a win for the world and a part of that. So I think we've made progress, but Steve, as you're aware, we've done all we could, from an energy efficiency standpoint on some of our older plants, which is really where you get a lot of the benefit. So an ongoing 25% reduction is a pretty meaningful milestone to stretch to get to. And I think as we talked about in the comments earlier, carbon capture and sequestration will clearly play an important role in how we get there.

And on that carbon capture and sequestration, I can follow your math and get pretty close to your variable costs on the gray and the green ammonia, but your blue ammonia variable cost doesn't seem to have any incremental cost in it for that capturing sequestration? Is -- can you help me out on that? Is there an opportunity there for you to move that carbon in a relatively modest expense?

Yes, you bet. I'll give you just a high level, and then I'll give you it over to Chris to have him talk a little bit more about it. But we already have kind of the various vessels in place to extract, process CO2 out of the synthesis gas. And a lot of that CO2, we then compress and have header systems where we pumping around for urea production. But we pull so much CO2 out that the rest of it ends up just getting vented. We do sell a little bit to industrial gas companies for beverage consumption and so forth, particularly in the U.K. that -- but a lot of it just gets evented. Now fortunately, there are a number of our facilities that are either sitting on very appropriate geological sequestration formations or are very near existing CO2 pipelines. So the 45Q tax credits are going up toward between like $35 and $50 a ton. And we think that, that will more than cover or cover the incremental compression and line transport costs of moving the CO2. So that's why we say we expect it to be kind of net neutral, assuming you've got the credits in place. Chris, you there?

Yes. I would just follow- on that. The 45Q, a lot of the CapEx with the carbon capture and sequestration resides in the carbon capture part of it, which -- because we're already capturing that CO2 at all our sites for upgrade that's already in place. So that incremental capital doesn't have to be spent. So as Tony mentioned, where we are with the 45Q, large part of that or actually all of that offsets those incremental costs. So you're correct in understanding that there'll be incremental costs, but they'd be offset by the 45Q tax credit.

The next question will come from Joel Jackson with BMO Capital.

Can I ask 3 questions, Tony, if that's okay, one by one?

Sure.

One thing I find striking is the $12 per kilo number that you sort of throw in one of the slides, $2,000 a ton for ammonia. I mean, I think you've seen some deals like Olin, Plug Power, $70 a kilo. I've seen other numbers a lot lower. How much confidence do you have in that $12 a kilo value? And do you actually use that in your financial analysis for what projects you would do?

Joel, I think what we're doing is using that as an illustrative indication that says the value for hydrogen and, in particular, clean hydrogen, is -- there's multiples of what the nitrogen content of ammonia is. And so as we see demand continuing to develop and uses of hydrogen continuing to expand over the coming years, we are very comfortable. And in this investment, and it doesn't necessarily have to be $12. It doesn't mean that it couldn't be $14 or to your point, $40 at some point. We think the world is headed this direction. We think the ultimate demand for and requirement for hydrogen and green/low carbon ammonia is greater than what it's produced today. So that has to incent new greenfield production to occur in order for that to happen. Any kind of price point that's going to allow someone to recover capital on a greenfield plant, we're going to be really pleased with this initial investment, and we also view it as -- this is an initial investment, we can continue to scale it for subsequently less investment at each increment we add to it, and then there's going to be a lot of learnings and also cost reduction over time. So as we plot our course forward, we're really optimistic about where this all is headed.

Okay. And my second question would be on a lot of -- yourself and other nitrogen producers on the continent have really spent time, the last 5 years, I think, in trying to be less long ammonia, you don't have to ship as much ammonia around the rails, hazardous good, I think had an issue for, I think the price is transporting ammonia the rails. Obviously, you're talking about devil here exporting. But as this -- if this all plays out, I don't know if shipping ammonia around the states is the most advantageous thing. Have you thought about that? Or could you give a little color on how -- obviously, shipping hydrogen around it is very complicated. And so have you thought about how well that would play out?

Yes. I mean, I'll ask Bert to talk about it a little bit. But today, we're able to ship some amount of ammonia from our Oklahoma plants all the way out to the West Coast. And even though the rail rates are, I would say, [indiscernible] we're able to do it and still make money at fertilizer values. I think at clean hydrogen values, it won't be a problem. The other point that I'd just highlight is we've converted all of our rail fleet off of. It started off years ago before it was pre annealed steel. Then there was the annealed steel and there had never been a derailment with the release on the anneal. We've gone to the entire fleet now, I believe, is over on the interim railcar, which is safer yet still. Again, there's never been an issue. So my view is this really is the safest, best, most efficient and economical way to move product around. There's also a reasonable ammonia pipeline that runs through a big chunk of the Midwest, and we've got terminals all over the place. So relative to at least usage in the Midwest, I think that, that's relatively manageable. But I do believe that ultimately, rail movement will be economical. Bert, do you want to...

You hit on the highlights, we ship a lot of our ammonia by pipe. We're the largest shipper on the New Star pipeline with our terminals dispersed throughout the Midwest by barge. We're able to load out of Donaldsonville and as well as Verdigris and distribute those tons along our terminals along the Mississippi, Illinois and up to Ohio. So we have a substantial method to move as well as rail and truck throughout the United States and vessel to the world. So Donaldsonville is a site, one, to get this ability and capability and to develop something that's leverageable that was the chosen site for many different reasons. But also logistically, we have all 5 options there. So we feel quite confident in our ability to move the product.

And then my last question is a little bit different. So looking at some of your ESG announcements and talking about aligning your goals and executive compensation, as specifically as possible, can you outline sort of CEO level, other C-levels senior managers, who -- which KPIs, which targets under ESG, each will be individually held to for the goodwill goals? What percent of their compensation, that would be as much as you can, would really appreciate.

Yes. I'm happy to give you an overview. The specifics of which I'm going to refer you to our forthcoming proxy because that's going to have all of the gory details, and that will be coming out well in advance of our annual meeting. But because all of this is new, and I don't want to misspeak on sort of the record, I'm going to leave the specifics for the proxy. But part of the answer is very easy, which is all of us are on exactly the same annual incentive system. And that's true for a clerk in the terminal, in Ridgeville, Washington. That's true for a board panel operator in Yasu City, Mississippi, that's true for Chris and Bert and me. We're all on exactly the same annual incentive system. And a big piece of that has to do with our adjusted EBITDA. And then there's another piece of it that has to do with a set of different metrics. In the past, it was ammonia utilization, and this year, we're changing ammonia utilization to include ESG metrics. And the ESG metrics that we're focused on this year are going to be ones around behavioral-based safety and also around GHG reductions. And again, I'm going to leave the specifics to the proxy. But those 2 bits will probably make up about 20% of the target of our annual incentive system, behavioral safety and GHG reduction opportunities. And I think the other pieces of ESG are handled in different ways. So our full Board and the Nomination and Governance committee takes responsibility for Board diversity and composition. The management in conjunction with the comp and governance -- the comp committee takes responsibility for management and e diversity. And so we handle a lot of different aspects in different places, but the 2 things that we're principally focused on this year and tied to would be GHG reduction and behavioral-based safety.

The next question will come from Vincent Andrews with Morgan Stanley.

Tony, maybe you could just give us a little perspective on sort of the scope and timing of sort of the vision here? And I guess maybe just to phrase it this way, this project that you're announcing goes through 2023, it's within your existing CapEx budget. But how do we want to be thinking about next year and the year after that and so forth? Is it just going to be like there's going to be $100 million a year that's going to go to something like this? Or are we ultimately going to get an announcement that you're really going to be stepping up the spending we should be thinking less about share repurchases and more about sort of pivoting the business model more towards this, and that's where some of the cash flow is going to go. So what message do you have for us today about those things?

Yes. Thanks, Vincent. Nice to hear from you. So I think on this one, we're going to walk before we run. And so we're announcing a project that fits within our existing capital budget, but we think is a meaningful step forward. Clearly, by the end of this decade, we expect to have a lot of projects completed and done because we're looking for a 25% reduction in our CO2 intensity. And as I mentioned, I think I would fully expect us to add subsequent units into this Donaldsonville will continue to expand our capacity and then also begin rolling this out into other facilities as well provided demand develops on the time frame that we expect it to. And we fully expect that that's going to happen, but we don't want to get out -- too far out there ahead of demand as it's developing. But I think as we look at the economics and as we look at societal pressure and where things are headed, I'm excited about being able to deploy capital against an asset base that helps the world and also provides a great return profile for our investors as opposed to just returning it in the form of share buyback. So my expectation, Vincent, is that you'd see us dial back dramatically the amount of repo that we do and put it against projects that we think have a tremendous upside to it, and that's part of being a leader and part of the growth profile that we're excited that this provides us.

Okay. Very good. And then just as a follow-up, the MOUs that you announced maybe you could just give us some sense of what are the technology capabilities that you're most focused on developing? Any thoughts there would be helpful.

Yes, I'm going to let Ashraf, who runs our manufacturing operations and has been intimately involved and all of this talk about that.

Yes, sure. So we have close relationships with these leading technology suppliers. And specifically, in this case, we have developed our partnerships with ThyssenKrupp and Haldor Topsoe to really help us drive forward with the low carbon intensity technology. So you see the projects here. And so we're working with those companies in relation to these initiatives, but there are others as well. And we're looking to the future and what the next steps are that we can be taking. And we want to really be in tune with the development of the technologies in the sector. And these are certainly 2 companies that are closely involved with us. So this is really part of age a, not just the current but the future vision that we have in terms of driving forward identifying and implementing the latest technologies that they evolve.

The next question will come from Adam Samuelson with Goldman Sachs.

So maybe start with just I to, just as you think about the capital profile moving forward, I mean, at this point, you haven't really refrained that, that capital budget or for CapEx of $400 million to $450 million. But it kind of led to scaling back on repurchases. So can you just help us think about the time line for -- and the kind of the key gating factors that, that would bring you to really change that CapEx profile. And so in the interim, the business still throws off a good amount of cash, should we be thinking about cash building on the balance sheet. I just want to be sensitive to the big timing of when bigger investments to pursue this opportunity could happen?

Yes. Thanks, Adam. I think as we look at this, we absolutely believe kind of without a doubt that the demand is developing. And in a lot of cases, it's a question of the rate at which it develops. And to be perfectly honest, next Tuesday, may have a fairly big impact in terms of the rate at which things begin to develop. I don't think it's a question of when, I think it's a question of if, I think it's a question of when. And I think under a more aggressive timeline, you could see us ramp up the spending faster. And I think under a more status-quo environment from the standpoint of GHG and climate, then we're probably in the walk-before-we-run state for a while because I do think the backdrop, whether it's a cap and trade program or other things, is going to be a significant lever on demand development for these technologies. And so we want to be fully prepared and ready regardless of or as it's developing. But I think in some ways, again, our spend profile and investment profile against these opportunities is going to be commensurate with demand development, and there's certainly a piece of that is in the political spectrum.

Okay. That's helpful. And then the second one, just thinking about the scale of the current ammonia production base. Is it reasonable to think if you go down this path and the potential value of hydrogen as a fuel being in excess of the nutrient value that we get to a point at some point in the future that you actively start reducing your fertilizer production and just stop upgrading it into ammonia urea and UAN to -- and you become an ammonia supplier to the energy industry? I just want to be thinking about kind of where the end point could be here.

Yes. I mean, I think we have an ability to move about 1/3 of our production into the energy market, the clean energy market without really affecting any of our upgrades. And so it would probably reduce a little bit our anhydrous ammonia sales for use as a fertilizer, but it would not affect our upgrades. And wow, what a great problem to have, that will be to decide whether or not to upgrade less urea or UAN as opposed to selling it for high-value ammonia. But there is a limit on the amount of blue, ultimately, that we're able to produce blue ammonia that is low-carbon ammonia, which is by carbon capture and sequestration or other abatement projects. And so I think we also have the ability to duplicate the rollout of the electrolysis plant across the fleet of 17 ammonia plants that we have and scale it up. So I think we've got a lot of runway with respect to how much we can move into the clean energy market just based on our existing installed base. And again, if demand develops the way we expect it to, I could absolutely imagine there being greenfield or brownfield expansion and directly targeted at green Ammonia going.

The next question will come from Chris Parkinson with Crédit Suisse.

So you just got some units ammonia as a marine fuel. And also probably more importantly, as a power source, which seems interesting just given the SE dynamics? And also just some of the remaining concerns on the industrial front currently. So just generally, how would you talk about the current growth in ammonia demand collectively in these, let's say, call them newer substrates? And what should we think about that growth rate for aggregate nonagricultural demands over the next couple of years? So just trying to parse out the opportunity versus what we've seen more recently in industrial.

Yes. I think what you're going to find is kind of a tipping-point effect. When you start seeing fleets transition over to ammonia combustion as opposed to bunker fuel or other effects. And then you're going to see very rapid sort of exponential adoption. And we are absolutely in discussions with a variety of people, not only as a marine fuel, but it's got a number of other applications, as I mentioned, for utility usage and others. So that is all developing, but I expect there to be pretty rapid growth in a number of those sectors as we look forward.

And just pretty much as a direct corollary of that question, I mean there's been news in the last 6 weeks that the Saudis are already beginning to export blue ammonia to Japan. Just given the export capabilities in Western Canada, is that -- is it safe to say that's presently an opportunity you're assessing for CF, but it sounds like it is?

Yes. I mean, we have access to an ammonia terminal in Portland, and we have sold in the past C02 out of our medicine Hat facility for EOR and for other applications like that. So the capability basically is throw a switch and available today for us out of Medicine Hat with an ability to move those tons to the West Coast and then export into Asia. So again, that's why I said earlier, I think based on the scale of our network, based on the capabilities and the rest of the assets we have in place, we can get there faster at scale and cheaper than anyone else.

The next question will come from Duffy Fischer with Barclays.

Three relatively quick questions. So first, to get to your 3.5 million tons of low carbon, how many tons of CO2 do you actually have to reduce in aggregate? What is the split of that reduction going to be between abatement and sequestration? And then the last one, what do you think the premium will be on green ammonia versus low carbon ammonia?

So Duffy, maybe I'll take the first part of that question. This is Chris. To get to the 3.4 million tons that are about 3.5 million tons we're talking about, it's about 6.5 million tons of CO2 we would need to sequester. So as Tony talked about earlier, I mean, we're already pretty far along on that with the sense that we already capture and also have a header system in which the CO2 is in. So we're in discussions with several companies about that sequestration. So that shouldn't be an issue to reach that amount once we come to an agreement.

And then just the delta between green and low carbon?

Well, I think that one is one that really, in a lot of ways, is based on the end market user. And I think for some, there's going to be a rigid approach around. It's got to be low carbon at inception. It's got to be green. And therefore, that's going to carry a premium price for those that are able to take low carbon instead of no carbon again, the availability of that product should be broader and more readily available faster. And so just based on SND dynamics, I would think that, that will carry less of a price premium. But it's all a matter of the rapidity of how these things develop from a demand standpoint and the pickiness of the end market and the end buyer. But I think the good news is we're prepared to serve all comers, and we'll see where the market lands on that stuff. It's certainly going to be nothing connected to Tampa ammonia, though. So we're excited about that.

The next question will come from Jonas Oxgaard with Bernstein.

A couple of question on -- well, the first one is really around the choice of location. So why didn't you decide to build in the U.S. rather than U.K. where you could take advantage of incentives in a -- if can tell a very different way than the U.S.?

Yes. Jonas, well, the first issue is right now, the carbon capture sequestration project, a high net project that I've talked about, is still much more in the early stages or feasibility stages. It's not quite ready for prime time and we don't have an export dock over on the Northwest facility in the U.K. We have a small dock and a small terminal on the Northeast at our Billingham facility, but we have much more I think construction expertise capability and just larger scale for export here in Donaldsonville. And our expectation is a desire and need to want to be able to scale and ramp this up. We have 6 ammonia plants in Donaldsonville. So we want to start in a place that we think gives us access to the world, marketplace with the best infrastructure available with the best technical expertise, living right there on the ground. And where we can scale it up and expand it rapidly in the same location. Now I think we will then grow and deploy this elsewhere in the system. But for unit number one, it's going to be down sale.

Okay. And then that follows into the next one. So you're clearly looking at scaling. If you're buying renewable electricity at the scale you're doing now, it's perfectly feasible, right? But as you're scaling up, you need to build electricity somehow how are you thinking about this? Are you looking at partnering with someone or is this something that you're envisioning running yourself down the line?

Well, I mean, I think that's a fairly static view of what the grid looks like. My expectation is that incentives both in the form of care and stick drive an increasing representation of renewable energy available on the national grid as we project forward in the next 5 years. And so while I'm not saying it's 5 years until we have units 2, 3, 4, et cetera. I think that our view is on the scope 2 side of the equation, someone will be there to build that. We're not a utility. So we're either going to buy it off of the grid or will partner with someone to provide it for us. But energy Jon is not really kind of our sweet spot. We want to make them on.

Okay. If you don't mind, I'll sneak one more in there. So does this mean that you're envisioning running this -- the electrolyzers 24/7? Or are you going to be in a position of a load balance or running at night when electricity is cheap?

No. I mean, we -- again, I think there's a lot of different views on how things develop and are going to be accounted for on green ammonia or low carbon ammonia. And I think the notion that says you actually have to track the physical molecule is one that's just fraught with complexity and bureaucracy and high cost and makes that an unworkable solution. So I think where you end up is a situation that you have kind of credits. And so our view is we're going to run this full out. We can allocate the 25% of renewable energy that we're currently buying off the grid against the production of those tons. And then those tons can be sold and certified as greens. But I think anything that sort of suggests you have to do molecular tracking of the product. Suggest that you have to go all the way to greenfield, brand-new plants. And I don't think the world is in a position to; a, be able to or willing to pay for it or be able or willing to wait for it. And so I think this is a appropriate path forward that also benefits from efficiency of being able to get there and get there quickly.

The next question is from Andrew Wong with RBC Capital Markets.

Thanks for having me on the call. So just given the potential scale of the blue ammonia production, I mean, it looks like the bigger near-term opportunity right now. Can you help us understand the market dynamics there a little bit better? Like what's the current size? What is the pricing last you mentioned maybe there's a potential scaling of like how blue ammonia could be that might affect pricing? And just how does that change over time given the S&D dynamics in that market?

Andrew, so I'm not quite sure that, like of the various color gradations of ammonia, but I'll tell you, from our view, if we sequester the amount of CO2 that's commensurate with what was produced in the production of it, we get that much that many kind of tons certified. So I don't know what you call light blue versus dark blue versus anything else. I think it's more a question of as long as you've remediated the carbon that was produced and released, you've got a carbonless ton of ammonia. And again, I think you can look at where the value of clean hydrogen is trading today from an energy content standpoint, and we're excited to tap into that marketplace even if it ends up being because it's low carbon or blue as opposed to no carbon or green, a slight discount to that number. There's still plenty of price premium in there to make us excited over a product that has virtually kind of net no incremental cost to us because the 45Q should cover it. So I think that however you slice it, this is a great opportunity for us.

Okay. That's great. And then just maybe another one. I mean, the opportunity for the green and blue ammonia space looks very attractive. But then what does this say about the fertilizer side of the business? I mean, this is a potential opportunity on the blue and the green side, but the current business is still on the fertilizer side. So how does that how do we view that in the lens of CF pivoting towards more of the green and the blue side?

Yes, I mean, I think one of the things that we hold near and dear is that we help feed the planet. We feed the -- we help feed the plants that feed the world. And I think that, that is a mission that I take a lot of pride in. And I think we can add to that now that we also helps provide low carbon fuels to help run the planet in addition to feeding it. And I think there are -- people are still going to need to eat. There's still going to be a huge demand, particularly as population increases, a growing demand for use of nitrogen as a fertilizer to help raise the food to feed the world. But I think we look at the molecule and say there's more value on the hydrogen content of the molecule than there is on the nitrogen content. And so that's why you see us moving this direction. It doesn't mean we're going to abandon our customers or for sake that, that's part of the business. But I think this puts us squarely in a high-growth area and at the forefront of it has been with an asset base that is heavily advantaged relative to any entrant coming in.

The next question is from John Roberts with UBS.

Hydrogen forecast. Is there an estimate of how much hydrogen will go through ammonia? And I ask that because I think Australia has a large hydrogen initiative, and I think they're planning to actually export hydrogen instead of ammonia. So some players must think the cost savings are not going through ammonia is worth the risk of shipping to hydrogen, I guess.

Yes. I mean I think there's different points of view on that one. Our sense is, given the energy density of ammonia, particularly versus gaseous hydrogen, you get much more density per ship load basically by going to ammonia. If you try to liquefy hydrogen and ship it as a liquid because of its extraordinarily low boiling point, you end up consuming something like 30% to 40% of the energy value just to refrigerate it. And so the notion of I'm going to liquefy it and try to send it around that way as a nonstarter to begin with. And so what you're then faced with is this difficult situation of shipping around compressed gaseous hydrogen, which is not nearly as dense as shipping around liquefied ammonia when you already have in place, all of the assets and infrastructure to ship liquefied ammonia. So we feel very comfortable that not only is it more efficient, but the asset installed base on a global investment perspective already exists.

The other thing I would add, John, as we show on Slide 5. The amount of growth that's expected for hydrogen in order to decarbonize the economy is going to be a huge amount. And even if a portion of that goes to ammonia, it's multiple above where we are today from a global-traded ammonia. So I think there's going to be many different avenues play here, but ammonia is definitely going to be one of them for all the reasons Tony just mentioned.

And then secondly, is this first plant basically scaled based on that 25% of your electricity that's from renewables now. And so we should think there's room for 3 more plants if 100% of your electricity eventually came from renewable?

No. This does not come anywhere close to consuming the amount of renewable energy that we currently buy. This is just a small piece of it. The reason this one is sized as it is because this is a -- it fits with the available technology and is an easy add to the plant in a way that lays the groundwork for future expansion. And so it ends up being, as you project forward on subsequent build the perfect size to really set up the infrastructure and framework to make each subsequent step lower cost and more efficient.

So what would be the size at scale in?

Well, that's part of the reason that we've got MOUs with a couple of the best technology providers out there because we want to push the envelope on that one and make it as big as possible. We're still working through all of that and how it rolls backward and changes the mass balance on the front end of the plant. But we've got the right people on the case on this one. So we're optimistic.

The final question is from Mark Connelly with Stephens.

Tony, you've touched on the carbon rules and regulations around product movement. Where is the regulatory framework the least clear in terms of the issues that you're really most interested in?

Well, from the standpoint of carbon regs, there already is an existing framework in Canada, even though it's been rolled out more province by province with a federal backstop. There is -- the carbon regime in the U.K., although Brexit is throwing a little bit of a question mark in terms of how that ultimately lands, given that it was predicated on the European or the EU ETS system. Obviously, the U.S. hasn't done at all. So it's an interesting question because there, I think, is still maturing and evolving in all 3 of those jurisdictions. But I think given that the U.S. hasn't done at all, I think there's the most upside there. I also think if you look at the history of governmental subsidies and incentives against renewable energy. So wind and solar. There's been billions of dollars of incentives supplied to help drive adoption. And I would expect that to continue going further. And I would expect there to be not only carrot but stick on this, but drive more rapid adoption going forward, whether that happens immediately or 2 years or 4 years or 6 years or 8 years from now is anyone's guess, but I think it's coming. It's a matter of when. And I think it provides the biggest opportunity for us, which also plays into our selection of Deville and in terms of site 0.001 or Unit #1 on this because I think there's a lot of upside there.

Right. Okay. And just one last simple question. I think I understood you to say that there's no substantial port infrastructure changes. Is that true even as you scale up?

We -- as you scale up, yes, I just have to make sure that the power feeds into the facility are able to handle the incremental unit chunks. But for the first 1 or 2 here, we feel very confident in that. And we'll be laying the foundation for subsequent additions with this first set of tie-ins. There are other locations like in the U.K., where we already have a huge backbone into the plant from an electricity supply standpoint. So in some of our locations, some of the expenditure could actually even be less.

Ladies and gentlemen, that is all the time we have for questions for today. I would like to turn the call back over to Martin Jarosick for closing remarks.

Thanks, everyone, for joining us today, and we look forward to speaking with you again exactly a week from today when we go through year-to-date earnings.

Thank you for participating in today's conference. You may now disconnect.