Carbamide (Urea)

Summary of submissions

  • Separate activity definitions for ammonia production and urea production proposed under the Australian CPRS are not appropriate in the New Zealand context.
  • 0.2% of Ballance’s 150,000 tonnes per annum of ammonia production is sold; 99.8% is converted to urea.
  • The Australian industry is characterised by stand-alone ammonia production facilities.  In Australia ammonia is exported and there are a number of downstream production activities using ammonia feedstock (urea, ammonium nitrate, ammonium phosphate and use in sodium cyanide).
  • The NZ industry is characterised by a single integrated ammonia-urea plant – a situation that will remain at least until the end of 2014.  A physical split of the Kapuni site would not be possible due to heat integration, shared utilities and ammonia transportation issues.
  • There is no potential for bulk ammonia imports or exports to/from the Ballance Kapuni site, due to infrastructure requirements and safety concerns associated with a pipeline or storage.
  • Assessing the emissions intensity of separate ammonia and urea activity definitions would be problematic due to issues associated with determining an appropriate market price for ammonia, and uncertainty in estimating emissions for separate activities. 

Summary of analysis

A separate activity definition for the production of urea from ammonia was proposed in the industrial allocation consultation document, and an activity definition for the production of ammonia has subsequently been released in Australia.  Ballance is the only firm currently carrying out ammonia or urea production.  Ballance has sought an integrated ammonia-urea activity definition.

Is ammonia tradable?

The consistency of an integrated ammonia-urea activity definition with the matters to which the Minister must have regard is largely dependent on whether ammonia is considered as tradable.  In particular whether an integrated ammonia-urea activity definition is technology neutral, the impact it would have on business investment and the potential for bought-in intermediate inputs depends on whether ammonia is tradable.  We consider that a product should be classified as tradable if the product is currently traded in material volumes, or it is reasonable to assume that the product could be traded in material volumes in New Zealand in the foreseeable future. 

It is difficult to be certain as to whether bulk ammonia could be traded in New Zealand in the foreseeable future.  We have obtained specific advice from the New Zealand Centre for Advanced Engineering (CAENZ) on the potential for bulk ammonia trade in New Zealand in the future.  This advice indicates that ammonia imports or exports are highly unlikely due to relative transportation costs and lack of economic feedstock supplies.  Although the safety concerns associated with ammonia imports or exports to/from the Ballance Kapuni site would not necessarily apply to a new plant, significant port handling and shipping costs would still apply.  Furthermore, domestic trade of bulk ammonia would require significant new investment into the processing of ammonia into other outputs.  This is unlikely due to the scale of New Zealand demand relative to typical plant size, lack of other resources for downstream processes, and production capacity in Australia.

It is possible to make a decision either way as to whether ammonia should be classified as a tradable product.  On balance, we consider that bulk ammonia should not be classified as a tradable product. 

Matter Analysis
The requirement to define each activity by reference to a physical, chemical or biological transformation of inputs into outputs. Either an integrated ammonia-urea activity definition or separate ammonia and urea activity definitions are broadly consistent with this matter.  However, it could be argued that ammonia should not be specified as the output of an activity if it is not tradable and its production is co-dependent with the production of urea.     
he undesirability of activities being defined by reference to the technology employed, the fuel used, the age of the plant, or the quality of the types of feedstock used when the activity is carried out. Separate ammonia and urea activity definitions would be neutral as to whether ammonia and urea production were carried out using stand-alone production methods or an integrated method.  If stand-alone ammonia or urea production would not occur in New Zealand in the foreseeable future, an integrated ammonia-urea activity definition would not have the effect of referencing one potential method of ammonia and urea production when other production methods could be carried out in New Zealand.
The desirability of defining activities:
  • consistently and equitably across industries.
  • in a way that takes into account the impact that definitions may have on business investment,  geographical location, and the structure of activities.
  • in a way that takes into account the potential for intermediate inputs produced when the activity is carried out to be substituted for bought-in inputs.
 The basis for an integrated ammonia-urea activity definition would be that bulk ammonia is not tradable in New Zealand and there are significant barriers to stand-alone ammonia or urea production in the foreseeable future.  Therefore, an integrated ammonia-urea activity definition is not inconsistent with other activities.
[Withheld]   
Given the barriers associated with trade of bulk ammonia in New Zealand in the foreseeable future, it is arguable that an integrated ammonia-urea activity definition would not impact on business investment, geographical location and the structure of activities.  Similarly, it is arguable that bought-in ammonia could not be substituted for ammonia produced at an integrated ammonia-urea production facility.  In this instance, this matter is of particular importance in determining an activity definition.    
The desirability of there being no overlap between activity definitions. Assuming there is little potential for stand-alone ammonia production or urea production in New Zealand in the foreseeable future, an integrated ammonia-urea activity definition is unlikely to overlap with other activities.
Any other matters the Minister considers relevant, including activity definitions proposed to be used in Australia. An integrated ammonia-urea activity definition would differ from separate ammonia and urea activity definitions in Australia, although activity boundaries would be consistent with the cumulative boundaries of the ammonia and urea activity definitions in Australia.  Given the barriers to stand-alone ammonia or urea production occurring in New Zealand as it does in Australia, this matter could be considered as less relevant in this context.
We do not consider that practical concerns with calculating revenue and emissions are a sufficient basis to determine whether an integrated ammonia-urea activity definition, or separate ammonia and urea activity definitions, should apply.

Recommendation

We recommend that an integrated activity definition for ammonia-urea production should apply.  We also recommend that the potential for bulk ammonia to be a tradable product in New Zealand should be reassessed in 2016 and separate ammonia and urea activity definitions considered if appropriate.

Last updated: 10 May 2010