LSB Industries, Inc. (LXU) Earnings Call Transcript & Summary

Welcome to Granite Research's Industry Experts Series. Investment research can be downloaded at granite-research.com. I'm your host, Rob McGuire an analyst covering LSB Industries, NYSE ticker symbol LXU. And I'm pleased to be joined today by Dr. Jakob Krummenacher, Director of Clean Energy and LSB Industries, who will be discussing Clean Ammonia. Good morning to everybody. My name is Rob McGuire, an analyst of Granite Research. I want to thank you for joining us today for our expert Series call with Dr. Jakob Krummenacher, Director of Clean Energy at LSB Industries. This call is being recorded. There'll be a link to the replay available at graniteresearch.com or at LSB Investors Relations page and the Granite Research website is granite-research.com. Also with me today is LSB's CEO, Mark Behrman; and Vice President, Investor Relations, Fred Buonocore. Mark is going to have some opening remarks here, and then he's going to introduce Jakob. And with that in mind, Mark, would you take it away?

Sure. Thanks, Bob. Good morning to everyone. I'll be really brief because I know everyone's really interested more in just clean ammonia and what's going on. There is a global push to decarbonize as everyone is aware of. It's a big focus on both low carbon hydrogen and low-carbon ammonia. And as an ammonia producer and quite frankly, the fifth largest in the U.S., we're very focused on that. We started our efforts about 3 years ago. Initially, it was, I'd say, learning more about what the possibilities are and the demand, potential new demand that was out there. And as we continue to to really develop a focus for us. And if you think about a couple of projects and what we could do on our site, we ultimately decided that it wasn't a part time job for me and that we needed to really bring on someone who had both experience as a chemical engineer, so that there's a knowledge based on what we can and can't do with all existing facilities. But even as we think about new facilities, the person really had to have that kind of background, but also be very commercial. So Jakob and I started talking a couple of years ago, and it's now what Jakob about 1.5 years since you joined us, and Jakob leads our efforts on clean energy. I'll let him give his back -- a little bit about his background. And we're really excited about the opportunity. We think that it's not a question of will new demand really materialize. It's really a question of timing. And when will that demand materialize and as new demand comes on? Clearly, there'll need to be more supply to really support that new demand that will be out there in the marketplace. So with that, Jakob wanted to maybe give a little overview of your background and then get right into the fireside chat in the Q&A.

Excellent. Yes. Thanks, Mark. Thanks, Rob, for hosting this call as well. Like Mark mentioned, I'm Jakob Krummenacher, Director of Clean Energy. My background is a chemical engineer by training, but I spent most of my career in the energy world. Actually, most of that first 12 years, I spent it in oil trading, with BP an oil trading bench, doing the analytics, being the lead analyst. And in the last 4 years, I was in the Marine fuel bench. Before moving into the nitrogen world. And once you move into the nitrogen world, I was looking forward to do a different commodity, more helpful as a seeds, to grow crop and feed the world. But we've seen a year of moving into the nitrogen world, they all talk about hydrogen and ammonia as clean energy products started. And when you are the only energy guy in a fertilizer company, you're automatically growing #1 of a clean energy team. So I started doing that for CF and before moving on to LSB after having several conversations with Mark. So I want to make this a little bit more interactive. So if you do have any questions and on the way, just raise your hand and either Rob or Fred will address you and please mention your name and the firm that you are with before asking the question, so that is on the recorded line as well. So without any further ado, let's go ahead and start. Fred? Yes. So first slide here, I added this in order to remind ourselves as to why the world cares about carbonization and why we're doing these?. And the real issue is that we have a 40 gigaton carbon problem globally, meaning that 40 gigatons of CO2e or GHG, greenhouse gases are emitted every year into the atmosphere on a net basis. So when you talk about the Kyoto protocol and the Paris Agreement, they all want to reduce this 40 gigaton number. But where is it coming from? If you look at the chart on the right, you can see the countries that generate the most greenhouse gas emissions. You can clearly know that between China and the U.S. are almost half of the world's emissions. So any kind of agreement, any kind of protocol that gets instituted in place, will not work if the U.S. or China are part of it because then you are really only addressing 20 gigatons instead of the full 40. The chart on the left shows the industries or the sectors that generate the CO2 emissions. A lot of it, the quarter of it is electricity and heat production to keep our homes warm, to keep our houses powered, and our building powered, and we burn a lot of fossil fuels to do that. There is also transportation. Cars, buses, trains and airplanes, they account about 15% of the global emissions. Ammonia production falls under the industry sector that accounts for about 21%. But ammonia on a global basis, even the 187 million metric tons that produces every year, they only responsible for about 1.2% of the global greenhouse gas emissions. But people sometimes ask, is it really going to make any difference, when you're looking at 1.1% reduction by decarbonizing ammonia. But the thing that you need to look at is like what are you going to be using these low-carbon ammonia for? And as people think about using it for fuel, well, you're looking it about for us a fuel for power generation then it's going to be reducing that the 25% slice of electricity and heat production. If you are using it for marine fuel, then it's going to reduce a big chunk of the transportation slice. And also, if we continue to use it for conventional uses like agriculture, it will also reduce the 24% on the agriculture, forestry and land use. At the end of the day, when you look at this pie, about 3/4 of it are energy-related. We burn fossil fuels to produce electricity. We burn fossil fuel to generate heat and that heat keeps our homes warm or we burn fossil fuels as a transportation. In the industry sector as well, we burn a lot of fossil fuels to generate heat and that drives chemistry. So all in all, 75% of that pie is related to energy. So it's an energy problem and only energy can solve. So let's look at the next slide. Fred, please. So if we look at energy. Energy, it really can provide 3 things for society, right? It can provide heat, it can provide power and light and it can provide the mobility. And you can see most of it, for the last 130 years or so, we've been developing these carbon-based energy society. We use fossil fuels for generating electricity, for heating homes. We use fossil fuels for power and light. We use fossil fuels for mobility, gasoline, diesel, bunker and marine field, jet fuel and it's being transitioning in the U.S. right now, for example, the electricity sector uses about 22% of renewable power, which is a part of the transition, it's going to take some time to get there. What does not look like in the future? Well, more of all of the above, more of renewable electricity, more of renewable natural gas, biomass, nuclear should be part of the equation as well. But one thing that in common, whether it is heating, power and light and mobility, is that ammonia and hydrogen the low carbon kind are all featuring all 3 buckets of the energy sector. So they're about to become a big fuel fix-up for the energy sector in all of [ utility ]. Next slide. When we look at the demand for hydrogen and ammonia mainly which in the chart on the left. In 2020, the world made almost 75 million metric tons of hydrogen, about half of it was used in the refining, mainly in the refining sector. You see ammonia made from natural gas via steam methane reforming. And the refineries use it to remove sulfur for crude oil or for fuels. And we also use it in the hydrocrackers and hydro trading as they made smaller molecules when you chop off oil molecules into diesel, gasoline and other products, then you are short of hydrogen and you need to replenish that and that's how they used it. About 1/3 of the hydrogen is used to make ammonia. And that 1/3 of 75 million metric tons is actually producing up 187 million metric tons of ammonia today. And then the rest is methanol, steel and other applications as well. Ammonia, as you know, about 80% is used into the fertilizer market. Most of it is not as direct ammonia application, but it's a kind of shape over downstream product. Mainly urea on a global basis, although in the United States, the main product of use is UAN. And about 20% of the global ammonia is consumed in industrial uses, explosives, refrigerants, plastic, emission abatement, chemical feedstock and other uses. So when we look at the projections on where things might go, you have conventional applications, industrial and [ agriculture ] have been growing about 1.4% on a global basis every year. So we expect that to continue again over the next decade as we look into 2030, and that will represent about 20 million metric tons of incremental demand from 2020. But what we're seeing today is that people are looking to use ammonia as a power generation fuel in place of coal particularly in Japan and South Korea, and that's expected to have basically about 7 million metric tons of new demand of ammonia as a fuel. We're also looking at companies that are testing today, marine engines that run on ammonia. If you put ammonia on marine engine, you end up with 0 carbon emissions on that engine and if that ammonia was made in a way that was low carbon or no carbon, then you have an end-to-end fuel that has 0 cardon emission. And that is very attractive for the marine industry, which we're expecting to be somewhere around 5 million metric tons in 2030. If you look at 2050, everybody has all kinds of projections and the way we put this together is that we look at everybody's forecast the IEA, International Energy Agency. We look at IRENA, CRU, Argus and others. And some of them, have very rosy forecast that is probably twice as much as what we have here. But we wanted to put something that is more realistic and we feel that is within the reach. And even then, basically asking for doubling the capacity of producing ammonia on a global basis over the next 25 years or so. So it's a huge increase in demand. So how do we make these kind of products. So let's look at the next slide, Fred. So people a while ago, when they started talking about hydrogen and the [indiscernible] essentially the environmental attributes of the hydrogen that you made in terms of the carbon intensity, they decided to label the different processes based on colors. So if you make hydrogen, like most of the hydrogen is made today from steam methane reforming from natural gas and then they decided to call that gray, and you have a carbon intensity of about 10 to 1. So 10 kilograms of CO2 per kilogram of hydrogen, you make it that way. If you continue to make it that way, but you will somehow capture some of the CO2 and permanently sequester it, we've preventing it from being released into the atmosphere, then you can call that blue. If you make a hydrogen in a process that is entirely carbon-free, like renewable power and splitting water via electrolysis into hydrogen and oxygen, if you make it that way, it will be cited as green because it's the ultimately cleanest way of making hydrogen in terms of carbon intensity. And then everything else the one between if you make it from methane, but you don't release CO2 and instead collect the carbon black they call it turquoise. If you make it in an electrolyzer, but instead of using renewable power, you use nuclear power, then they call it pink and so on and so forth. But the world is kind of moving away from this because the big issue with this color-coded labeling of the hydrogen, which ultimately also represents the labeling of the ammonia as well. The main problem with this is it doesn't really say much about the carbon intensity. The blue hydrogen for example, I could capture one of those 10 kilograms per kilogram of hydrogen and [indiscernible] especially my carbon intensity drops to 9, and I can called that blue or I can capture half of it and drop the carbon intensity to 5 kilograms of CO2 per kilogram of hydrogen and is still blue. So it doesn't really say much about the actual carbon intensity. So we're going to be moving from this to a carbon intensity world. So you're going to have your process, and you have to be open about your operations in terms of carbon emissions, so that people can trust the carbon intensity or the product potentially be certified that way. Next slide, please, Fred. So here is why it is important to go low carbon. This chart has the levelized CO2e emissions of the fuels from the life cycle. So you can -- if you start at the left, you start with actually start grams, so CO2 generated per megajoule of fuel. So keep in mind that a megajoule is different in every fuel, right? A gallon of diesel would have a lot more energy than the gallon of ammonia. And a gallon of ammonia will have a lot more energy than a gallon of liquid hydrogen as well. So if you look at this on the left, you're looking at coal, we have good power generation fuel. And you're looking at bunker fuel or marine gas oil, and then ammonia and diesel. You can see that ammonia and diesel are very similar in terms of emissions, about 100 grams per megajoule. The big difference though is that the blue portions of these bars are the emissions generating while you manufacture the fuel, while the gray portions of the bar are the emission generated while you burn the fuel or you use the fuel. So you can see that diesel, for example, 20% of the emissions are generated at the refinery when you're cracking down the oil into the different products in the refinery, you only emit about 20% of the total fuel emissions. 80% of that are generated on [ bore ] of your diesel truck, or [ bore ] or your tugboat or whatever you're using it as a fuel. So it's a much more difficult proposition to decarbonize that type of fuel A, because it's fuel gas. So we have low carbon concentration, low CO2 about 7% to 8%. But B is moving. So you have to have some kind of a movable carbon capture system if you're going to go after that. Ammonia on the other hand, 100% of the emissions are generated at the ammonia plant and technically that generated in 3 stacks, the primary reformer, the secondary reformer and then the high-purity process stream that meets the CO2, from which we have removed the hydrogen from the methane. So as you can see, if you take ammonia, for example, conventional SMR today, about 60% of that amount of that CO2 emissions comes from the process side. Because we're interested in removing as much hydrogen as we can from that process side so that we can make ammonia, we end up with a high-purity CO2 stream, which is about 96% and 4% water. If you can capture that CO2, like what we're trying to do at El Dorado, we're going to capture the CO2, we're going to remove that 4% water. We're going to compress it and inject it into the subsurface and that will leave that ammonia plant with a 60% reduction in the carbon emission. So essentially will go from 102 all the way to the right to 40 grams of CO2 per megajoule. And as you can see other fields are there too. Gray, liquefied hydrogen, gray methanol, LNG are a little bit better than ammonia. Corn ethanol is 57%, that's a renewable fuel, but once you make new ammonia, you can find the technology to continue to capture the combustion emissions of the CO2, you can bring it all the way down as close to 0 as possible. Or if you use ATR technology, you can capture more of it, 95%, 98%. But once you go down to 0, then people ask the question, well, if you make ammonia before you may -- if you make hydrogen before you make ammonia, why do you -- why does the world want to use ammonia instead of hydrogen? And that little table tells you some of the advantages of ammonia over liquid hydrogen. Number one, it has 2.5x the energy density per volume than liquid hydrogen, so you're shipping around liquid ammonia or liquid hydrogen in a vessel, you're shipping 2.5x more ammonia to the same volume. So it's an efficient way of shipping the fuel. The other issue is that to keep hydrogen in the liquid state, you need to be about 400-plus Fahrenheit -- negative 400-plus Fahrenheit, which is a really, really low temperature, a very expensive way of keeping things cold. Ammonia, you only need about minus 30 Fahrenheit in order to keep it in the liquid state. And then there are issues with the flammability, right? Hydrogen highly inflammable. Ammonia, on the other hand, is not inflammable, it's toxic, more toxic than hydrogen. But we've been using ammonia for over 100 years, and we ship around the world safely. We shipped over 20 million metric tons today, although the last couple of years has been a little less than that because there's very little being shipped out of Russia. But the flammability of hydrogen is an issue. For example, Kawasaki industry built last year, the first ever liquid hydrogen carrier and is used to take hydrogen from Australia that is ironically made out of coal to Japan and is blended into the natural gas pool in order to use for power generation. That vessel costs about 4x the price of an LNG carrier and it carries only 1/3 of the energy content that an LNG carrier. So it is a very expensive way of shipping hydrogen, not to mention that on a 2.5-week voyage from Australia to Japan, about 2% of the cargo gets lost because they cannot just keep compressing and cooling to keep it in the liquid phase, so it's just vaporizes. And about 4 months ago, the vessel caught on fire leaving Australia going to Japan. It was, I think, the 4th or the 5th voyage and it caught on fire and the dangerous thing about hydrogen is that when it burns, it burns a colorless flame and a smokeless burn as well. So people did not know they were on fire until they started looking at the pressure drops in the vessels and the temperature gauge is going off. That's how they determined they were on fire. Luckily, they had some pretty good safety protocols on board and they got it put out and everything was fine after that. But in some of the issues that we need to be worried about when using hydrogen instead of ammonia as a shipping fuel around the world. Next slide, please Fred. So we are working on a couple of projects at LSB, one in El Dorado, Arkansas, where we're going to be capturing the processed CO2 from an ammonia plant that is existing today, and we're going to clean in it up, remove the 4% water, a pressurize it into liquid CO2 and then permanently sequester it right under our land. Our pipeline is going to be about 0.3 miles. It is going from the production site through the parking lot to the south of the property. We have 1,400 acres of land. So we determined -- our partner Lapis Energy, determined that there is enough storage capacity for about 15 million metric tons under our property. So in essence, the 450,000 metric tons of CO2 we're capturing annually or we're going to start in '25, we could do that for technically 100 years before we run out of storage space. This project is going to be very economical for us because we're going to be selling a product that today we're venting. And so the 450,000 metric tons a year are expected to increase EBITDA by about $15 million annually. The plat will not go down to 0, in terms of carbon emission because you still have flue gas CO2 being emitted into the atmosphere. But there is a lot of company working on different technologies to how to capture that economically. And that would be a game changer because once you capture the flue gas, and you can put it through this process of dehydration and compression in order to permanently sequester it. You can convert the conventional ammonia plant into a 0 or very close to 0 carbon emission plant. And that can be very beneficial when we're looking at the transition into low carbon, 0 carbon and still be able to use existing infrastructure. So in terms of time line for the project, let's look at the next slide, Fred. So here is in mid-February, our partner, Lapis Energy, they submitted a Class VI permit application to the EPA Region 6. We think about 3 weeks in early March, we received a letter back from the EPA saying that the application is fully complete. All the documents necessary for them to review are there, and they're moving into the review process. So we don't know how long that's going to take, but at least it's good news that within a short period of time, they came back and being the application fully complete. Right now, we're in the midst of the FEED study, determining of what needs to be done as far as engineering, equipment and installation. And detail engineering should start pretty soon. And once that start and depending on what we hear from the EPA, we'll be in a position to start ordering long length items like transformers, compressors and that type of equipment that will be needed. So all in all, we're in pretty good shape to start injecting sometime around the middle of 2025. The expectation again of the project is that it will qualify for the 45Q tax Credit, which the IRA, the Inflation Reduction Act in August '22 that have passed increased it to about $85 per metric ton in year 1, and then it will be escalated by inflation on an annual basis for the first 12 years of the project. Next slide, Fred. We're also working on a green ammonia project on our other facility in Pryor, Oklahoma. Why Pryor? Well, Pryor is in close proximity of multiple of wind and solar developments that are ongoing. So it is easier to get renewable electricity in that region. So right now, we have a conventional ammonia plant that produces 230,000 tons of ammonia a year. The idea is that we're going to reduce the amount of hydrogen that is made in the steam methane reforming unit. I am going to replace the hydrogen with electrolytic hydrogen from electrolyzers and that is going to turn the facility from 230,000 of gray to about 200,000 tons of gray ammonia and 30,000 tonnes of gray ammonia. We completed a feasibility study. But right now, we're working with EPC firms and looking in more detail at the technology because it's a very -- there are huge differences in terms of the cost. And also differences in terms of the risk associated with the scale levels of solid oxide versus alkaline units. So we're expecting to make FID very soon, sometime over the next couple of months. Once we [ home ] into a single technology and we make a selection on the EPC firm and then we'll be moving forward. A project like this can move really quickly. It doesn't depend on a Class VI permit. But it does have issues in terms of some long lead items like transformers, electrifiers, hydrogen compressors, for example. Those can be on a 12- to 18-month lead time and so we will be dependent on those for a start up. But we still think that there's a pretty good opportunity to start up sometime at the end of '24 or beginning of 2025 for operations in this. Next slide, fred? Yes. And then finally, we have some clean energy projects ongoing. We're purchasing currently renewable electricity for about 10% of El Dorado power, looking to expand that to for other facilities. We have the low carbon ammonia or blue ammonia project at El Dorado. We have the green ammonia project at Pryor. We're also working on expanding our N2O abatement at Cherokee, in particular, and that will continue to reduce our scope one emission. We have also clean energy developments ongoing right now. We're looking at the options or opportunity of reducing renewable natural gas as a feedstock. And we're also looking to continue to buy more renewable power for our operations. And then we're working on developing our clean energy strategy, which is what's next basically, can we pursue future growth opportunities in low/no carbon ammonia and hydrogen including new facilities or expansion of existing facilities today. And that's where we are, it's been a great journey. It's being very high-speed kind of journey that we've done in the last year, 1.5 years here at LSB. And it's all positive and we expect that our customers, our counter parties all value what we do in terms of the low carbon front.

Thank you. That's great. Thank you so much for that presentation. We're now in the Q&A portion of the call. I would encourage everybody to step forward if you have any questions. Fred can always flip back to the slide as a reference. But with that started. Scott, could you unmute your line? Scott McCloud and ask your question?

Yes. But my question is about the El Dorado project. What do you think the costs are going to be to get that up and running and fully functional?

So to be clear the way that the deal was structured with Lapis Energy is that there is no CapEx from LSB at all. Our partner will put up the entire CapEx for the capture facility, the dehydration plant, the compression of the CO2 and the injection wells along with the monitoring wells that are required for the EPA. So it's going to be a 0 CapEx kind of project from the LSB point of view.

That's a good use of cash. Okay. My other question, obviously, you've got 2 big projects on hand here. But where do you see because in last part of your slide there, so do you see future growth opportunities. Do you see that like in mergers and acquisitions, maybe purchasing something? Or do you guys have anything on the horizon that you're thinking about at this time?

Yes. So look, we're always looking at new opportunities, whether it's M&A opportunities, like the recent sale of Incitec Pivot Waggaman plant to CF Industries. We certainly would have liked to potentially purchase that asset. That would have been a good asset for us. So we're always in the mix at looking at some of these assets. And then we look at lot of new builds announced. So there are a lot of announcements that I'm sure either Rob or someone will ask a question about. But most of those have realized that they need a partner that's got ammonia expertise. So the ability to understand how to design and build and construct the plant, but also how to operate and handle in store and ship what is, in essence, a hazardous material. So we are in conversations with a number of folks about some of the new build announcements and yet to be determined whether we participate in any of those or some of those.

One thing to add on that new development of clean energy strategy also includes the potential expansion of existing facilities. Take for example, our El Dorado side, we have 1,400 acres. We have a small plant that only occupies probably 100 acres if that. So there's plenty of land for expansion. You're going to have a Class VI well potentially in operation in 2025. We have ample subsurface storage that you can build another ammonia plant, and already with the capture in place. Now that site also is connected to the NuStar pipeline. And the NuStar pipeline can run both ways, it can run north and it can run south. So if there is a potential of the developing terminals down south and then you can send that blue or low-carbon ammonia to markets that will have more value for a clean product if the local market isn't ready at the time.

I'm going to encourage everybody to step up. Please ask a question if you do. In the meantime, I'm going to have a couple of questions, I ask along the way. So please don't hesitate to interrupt me. So Jakob with the supply of clean ammonia, we're seeing a lot of our thumb nailing approximately 9 million metric tons of new capacity planned to come on in the U.S. in the '27, '28 time frame. Can you just discuss the supply of clean ammonia? And will that be created ahead of demand? Or do you think -- how do you see all that coming together?

Yes, good question. One thing that we have to be aware of, and I think it's Slide 7 in this packet. It clearly says that in order for this to be beneficial environmentally, you have to use some kind of low-carbon ammonia type. Right? If you use conventional ammonia, then you are not different than using diesel at that point in terms of CO2 emissions. So that means the only plants that will have low-carbon ammonia, lower carbon intensity ammonia, are the ones that could supply ammonia to these new energy front, right, our new energy market. And then the other piece of the pie to remind ourselves is that the ammonia as energy market, whether it is as a marine fuel or as a power generation fuel, is going to be a replacement fuel, meaning that there is already a fuel in place. And how quickly that grows that replacement will depend obviously on the infrastructure on the supply of the product, but also and even more importantly, about how quickly the governments that are looking to do that, and then looking at Japan and South Korea, in particular, how quickly can they set policy in place to allow this demand to move on and replace the existing carbon-based fuels. So Yes. Right now, we're looking at all the ammonia plants being announced in the gulf. A lot of them will be some kind, at some level of low carbon intensity depending on which one you're talking about. And everybody is concerned about that. Obviously, some of them will be delayed. Some of them I don't make FID. But let's keep in mind that Japan can have a control in terms of policy of how much that demand is going to grow. And they going to play with that in order to -- they cannot exceed the supply because we mentioned that conventional ammonia cannot be used for this. Otherwise, the environmental attributes or benefits are kind of wiped out. So they can go at a pace that meets that supply and then essentially kind of balance the market. Another point of concern that Japan has is that they don't want to be a disruptor of the ag market, like if they increase demand all of a sudden and there is a shortage of ammonia in the ag market and prices go up. They don't want to be seeing us being blamed for doing something like that. So they are going to face themself at a good place. Right now, all eyes are on JERA is the largest utility in Japan. Who are going to be doing a real world scale application test of ammonia in a coal-fired power plant in Q1 of 2024. They're going to run 1 gigawatt power plant with 20% ammonia and 80% coal for a month. And for that case, they need 40,000 tons of ammonia. And then the idea is that if that is successful, they're going to continue running at 20% ammonia, 80% coal all year around, which means that's 0.5 million tons of ammonia demand at 20% for one power plant and JERA has 14 power plants that they are looking to do these for. So all eyes on that test and that will determine how quickly the Japanese policy gets set, how quickly the demand get developed and obviously, we also need to develop infrastructure or how to deliver these products, terminally how to store them, how to -- there's a lot of tanks and pipelines that need to be put in place for this to grow as well.

And Rob, one thing I would add. There are a lot of announcements, but to build a world-scale ammonia plant, so call it 1 million to 1.2 million tons of production a year, depending on the infrastructure that's on site or lack of infrastructure. You're talking about $2 billion to $2.3, $2.5 billion to build. So we're talking about significant capital, most of which would be debt financed, but still a significant equity check that needs to get written. From our conversations with folks that are out there, I mean, when you got funds or CapEx requirements that are that large, most people will not greenlight a project until they have, I'd call it, 80% or more of the production spoken for in long-term priced offtake agreements. So I think what we'll see is there's a lot of announcements, but it's possible we could have 1 or maybe 2 plants that go spec, if you build it, they will come. But more than likely everyone is chasing the same initial buyers and those folks that actually get not letters of intent with buyers, but ultimately, real contracts will give us facilities that get built. And also a point of reference, I mean, back in the 2012 to 2015 time frame, when natural gas prices here in the U.S. started to drop really precipitously, there were about 36 announcements of new facilities, new ammonia facilities and upgrading facilities that were announced and 7 plants got built. So again, I think announcement to final investment decision and financing a project going forward. There's a very large gap there. And there's a lot of hurdles to really hit until you actually have the capital to go forward with the project.

So Jakob, I'm just going to move on to a couple of other questions in terms of the technology. Do the NOx emissions remain a problem when burning ammonia?

That's -- I get that question from time to time and it's very interesting because -- did you know how coal-fired power plants abate NOx? They use ammonia, so they mix ammonia in the exhaust stream and they do the electrical heat reduction [indiscernible] heat reduction where ammonia reacts with NOx to make nitrogen and oxygen or nitrogen and water. And so essentially reducing completely NOx. So yes, to answer your question, yes, if you're burning ammonia, NOx is a concern, but you also have ammonia on board that can treat that exhaust [ effluent ] and reduce it to the same way that you do in a coal-fired power plant today. So you will have that in place. Now the NOx is happening because of the temperature, right? And more importantly, when you're looking at ammonia engines, ammonia has a very high initial temperature requirement, which is good because it acts as an explode but bad because it acts as an explode inside internal combustion engine when you want it to explode. So you're typically going to be using a primary fuel, and Wartsila is the largest marine engine manufacturing in the world. They're using diesel as the primary fuel. So they put about 2% to 3% diesel into the cylinders to reach that temperature of ammonia and help it do a complete combustion and they can claim with the ratios and the temperature to get the NOx down as much as they can and then abate the rest with the ammonia that they already have onboard. MAN ES, the second largest marine engine manufacturer is doing a similar thing. But instead of diesel, they decided to use compressed natural gas, and there they do about 5% into the cylinder and that's the same thing. Now what it means is that these engines are now [ not ] 100% carbon free because they have 3% diesel, 5% natural gas. But the idea is eventually, when people develop [indiscernible] systems like cracking ammonia into hydrogen in which a company called Amogy, that's one of those prototypes in place, and they're being already used in real-world applications. You can crack some of that ammonia into hydrogen and then inject hydrogen in the cylinder, which means that you don't have to worry about the storage of hydrogen, you're going to make it and use it. And hydrogen obviously has the high [ flammability ], is the most flammable molecule. So it will create a temperature that can help to [indiscernible] to fully burn the ammonia and further reduce NOx.

So that's kind of the development on the...

Ammonia engine.

Jakob, what's the cost of using ammonia relative to the conventional fuels that are out there for power generation, bunker fuel and any other applications that you can speak to?

Yes. Good question. The short answer is that it's still -- we still don't have all the pieces of the parcel in order to give you a complete answer. But then, for example, these are -- one of the markets that we're looking at, in particular, is the in-line waterways in the United States where there is a lot of [indiscernible] traffic taking things up and down, The Mississippi River in particular. So they are -- they have been running on low sulfur diesel or USDA #2 for a while. So if diesel trades, I'd say, $2.75 per gallon, then the cost per megajoule of that compared to the cost of megajoule of ammonia, if ammonia trades at a long run average of, say, $350, $375 a metric ton. So that's kind of your base comparison. Now if you are making ammonia in a low carbon way, you're going to increase the cost of making it a little bit, but you don't know what that compares to say if the government instituted a carbon tax and now you're going to burn diesel fuel, you're going to pay a penalty because of the CO2 emissions. We still don't have that whether it is a carbon tax or whether it is a company wanting to abate that and going into the markets to buy carbon credits or carbon offsets in order to reduce that. In either way, that cost will be significantly higher on the diesel side than the ammonia side because you're making it in a low-carbon way. So we still don't know all the pieces in order to give you a straight answer. But as a baseline, if you're looking at diesel of $2.75 a gallon versus ammonia at $350 a ton, those are like compared to each other in terms of -- in the megajoule basis of energy.

I appreciate that. Thank you. And you showed your slide earlier, but I didn't see biofuels on it. We hear a lot about biofuels. Can you just talk about biofuels versus using ammonia in our future?

Yes. So still, I think ammonia as a marine fuel is very viable. It's large quantity. The vessels are very little man operated. I mean you have kind of a crew of a handful of people on a very large vessel. Using ammonia and a vehicle -- a passenger vehicle, it could be a much more difficult proposition, it's kind of like hydrogen as well. It can be very controversial, particularly simply because like let's say you're driving on a tunnel and then there is an accident and then there's a steel, it could be deadly in the case of ammonia because of the toxicity. In the case of hydrogen, it could be deadly because of the explosivity associated with it. So I think that will be a kind of a difficult proposition obviously in ammonia on a smaller application. I think electric vehicles are much more appealing, and it's been growing quite rapidly as of late. So that is difficulty. But one thing that the low-carbon fuel or the biofuel market has that is kind of presenting an opportunity, a learning opportunity for these low-carbon ammonia market to be developed. We see in terms of the low-carbon feel standards, for example, where a state like California, they go around and they look at all the ethanol producing facilities, and they rank them based on the carbon intensity and they give kind of a pass or certificate that says you are allowed to sell x number of tons, based on these calculations into the California market. Now that doesn't mean that the times are produced at that facility, the certificate comes to that facility, but [indiscernible] going from a closer facility to avoid unnecessary logistical cost, right? The same can happen in ammonia, where we're looking to certify these low-carbon ammonia. I envision exactly the same market where you're going to because you can differentiate between low-carbon ammonia or commercial ammonia by looking at the product itself or doing tests on the product itself. There will be -- they will be the same ammonia ton. What's different is the process by which it was made. And if you can separate that on a paper certificate or a virtual certificate, then you can trade it around like you're trading ethanol with the low-carbon fuel standards today or like the renewable energy companies are doing with the [indiscernible] on the electricity that come from solar or wind facility as opposed to natgas fired power plants.