Energy and commodity price benchmarking and market insights

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1 Energy and commodity price benchmarking and market insights London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg Market Reporting Consulting Events

2 Fertilizer price volatility are China and the weather really to blame?* Miami, Florida Stephen Mitchell and Lauren Williamson 4 December 213 *This presentation and its content are the copyright of Argus Media, Inc. You may not, without prior written permission, forward or distribute this information externally or use the content for any commercial purposes.

3 Agenda The US in global context Why Nitrogen is key Price: the intersection of supply and demand Demand and supply drivers The outlook road to US self-sufficiency?

4 About Argus Petroleum LPG/NGL Petrochemicals Power Natural gas/lng Coal Bioenergy Emissions Transportation Fertilizers Metals Leading international and independent price reporting organisation Founded in 197 over 4 years experience Over 12 publications Consulting services and events Over 5 employees Customers in 11 countries 2 offices around the globe

5 Argus FMB Fertilizer International presence, global coverage FMB founded in 1982; Argus acquired FMB in reports, 2+ price assessments Robust methodology Extensively used in indexation of physical and financial markets

6 Argus FMB North American Fertilizer Price transparency Robust methodology Wide industry consultation Used for physical, financial indexation Thorough analysis Agricultural fundamentals, freight Barge deals tables and import lineups Global resources Led by Houston team, supported by London, Singapore, Moscow Capitalizes on wider Argus portfolio of related markets

7 The US in the global context

8 World nitrogen trade - million tonnes product Production Traded Urea UAN Amsul AN/CAN Ammonia Source: IFA

9 US urea highly import dependent prodn import prodn import Source: TFI

10 US ammonia supply import dependent prodn import prodn import Source: TFI

11 st US UAN supply production leads the way prodn import prodn import Source: TFI

12 Second largest urea import market Country mn tonnes India 8.5 US 6.5 Brazil 3. Thailand 2.4 Australia 1.8 Turkey 1.5 Mexico 1.5 Pakistan 1.3 The US accounts for approx 16% of world urea imports India apart, no other market of equivalent size Source: IFA

13 US urea imports by major source - tonnes

14 But the largest ammonia importer Country mn tonnes US 6.6 India 1.8 South Korea 1.2 Morocco.8 Turkey.8 Belgium.7 France.7 Taiwan.7 The US accounts for approx 33% of world ammonia trade Source: IFA

15 Global merchant (traded) ammonia Direct Application 11% Technical 28% AN/CAN 12% US NH3 end-use Industrial 29% Anhydrous or aqua 2% DAP/NP/ NPKs 49% Fertilizer feedstock 51%

16 US ammonia imports by major source - tonnes

17 And the largest UAN solutions importer Country mn tonnes US 3.5 France 1.7 Argentina.4 Germany.3 Canada.3 The US accounts for nearly half of world UAN solutions trade Source: IFA

18 US UAN imports by major source - tonnes

19 US principal urea suppliers Country st Canada 1,496 Oman 1,28 Qatar 924 China 79 Kuwait/Bahrain 867 Saudi Arabia 471 Russia 395 Indonesia 383 Trinidad 373 Egypt 282 Source: TFI

20 Top Urea Exporters million tonnes Source: IFA

21 For the US N leads the NPK

22 Nutrient as % of total mn st nutrient consumed US sees relative consumption stability Avg total nutrient consumed 21.4mn st/yr N 12.1mn st P25 4.4mn st K2 4.9mn st K P N Total Nutrient Source: USDA

23 mn tonnes P25 nutrient mn tonnes K2 nutrient Regional self-sufficiency on P, K N. Am Potash US Phosphate Production Apparent Consumption Production (DAP+MAP) Apparent Consumption Source: IFA

24 mn t P25 mn t P25 Phosphate macrotrends Production Apparent Consumption Source: IFA MAP DAP DAP MAP Total US overall production in decline Recent DAP production decreases relative to MAP increases Increased MAP consumption

25 mn tonnes N nutrient mn tonnes N nutrient Net importer of nitrogen 6 US Urea Note production decreases in early 2s Production Apparent Consumption US Ammonia Production Apparent Consumption Source: IFA

26 Jan 1997 Jul 1997 Jan 1998 Jul 1998 Jan 1999 Jul 1999 Jan 2 Jul 2 Jan 21 Jul 21 Jan 22 Jul 22 Jan 23 Jul 23 Jan 24 Jul 24 Jan 25 Jul 25 Jan 26 Jul 26 Jan 27 Jul 27 Jan 28 Jul 28 Jan 29 Jul 29 Jan 21 Jul 21 Jan 211 Jul 211 Jan 212 Jul 212 Jan 213 $/short ton $/mmbtu N fertilizer benchmarks vs nat gas Squeezed margins Urea barge Tampa ammonia Henry Hub gas Meanwhile shale gas revolution prompts decoupling Source: Argus, EIA

27 Price where supply and demand meet up

28 Urea prices are global and the US price is set by imports, for now Black Sea Nola AG $/tonne 4 3 2

29 US Urea July 212-date s tons 12 $/st fob Nola 5 1 imports prices Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2 Source: GTIS, TFI, Argus FMB

30 US prices lagging for much of 213 $/tonne AG fob Nola netback Nola price needs to be above AG to attract spot urea Price currently lagging AG by $2-3/t 2 Jy A S O N D J F M A M J J A S O N D J F M A M J J A S O N

31 213 Monthly Urea Trade Balance trade heavily skewed in the second half t 45 4 Supply Demand Price $/t Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2

32 Fluctuations in price increasing over time 6 5 Urea price annual hi-lo spreads - $/t fob

33 But price volatility has not increased - $/t fob Year Low High Variation from mean average % % % % % % % % % %

34 The 4Rs meet the 3Fs (food, fuel and fertilizer) Demand-side drivers

35 $/st fob $/bu Corn v fertilizer Urea Nola avg DAP Nola avg corn $/bu Strong positive correlation Cash crops, esp corn, create price ceiling Increased volatility since 25-6 Source: Argus, USDA/Univ of Illinois Data compares annual avg

36 US consumption P,K consumption decreasing 25, 2, 15, 1, K2 P25 N 5, Source: USDA

37 mn st product N product trends Urea increases stabilizing avg 5.5mn st Solutions stable to increasing avg 1.9mn st : 1967 : 1974 : 1981 : 1988 : 1995 : 22 : 29 : AN in steep decline NH3 in decline avg 4.1mn st; aqua <17k st Anhydrous Aqua Nitrate Sulfate Nitrogen solutions Urea Source: USDA

38 Why nutrient demand is stable to decreasing 1) Improved agronomics 2) Better technology Fertilizer and seed Digital era, apps, online tools 3) Environmental stewardship 49 Water quality trading/nutrient trading schemes across US 4R voluntary initiatives 4) Evolving regulations Limiting when high ammonium products are applied i.e. specified dates or soil temperatures Heavy oversight on NH3 tanks, spills, air permits, etc AASSP developed in 27 to prevent theft for drugs Closer monitoring of AN facilities, unclear policy changes, curbing consumption

39 Mn short tons product Preferences evolve Crop switching on price swings Product preference trends - highly weather dependent UAN benefits, nearly tripled since 197 NH3 logistical constraints, hazardous material, direct apps in general decline AN safety risks, political fall out Source: APPFCO NH3 Urea AN UAN Consumption of more product tons of lower N fertilizer to compensate

40 Nitrate availability over time NH3 NH4 NO3 1 9 UAN Anhydrous Anhydrous + inhibitor Urea Urea+inhibitor UAN AN 2 1 Weeks 3 Weeks 6 Weeks Source: University of Kentucky

41 Corn Cotton Soybean Wheat Corn Cotton Soybean Wheat Corn Cotton Soybean Wheat Corn Cotton Soybean Wheat Corn Cotton Soybean Wheat mn nutrient short tons US nutrient consumption by crop mn acres 87.9mn acres, -11% fertilizer but +N 6 4 K2 P25 N Source: USDA

42 Farm economics 5 4 Crop price is not the only driver. Profit/acre Cont. corn Rot corn Rot beans Wheat DC beans Est yield/acre Harvest price Revenue Fertilizer cost Other costs Profit $/acre Source: Purdue University, Sept 213

43 mn acres planted Planted acres trend change in early 2s Corn, Soy Wheat, Cotton % Corn Cotton Soy Wheat Source: USDA

44 $/unit N $/bu Renewable Fuel Standard (RFS) Policy a top driver 25 RFS: 7.5bn USG by 12 27: 18bn USG by 14 and 36bn USG by 22 Now??. Reduction proposed to 17mn USG of which 13 bn USG cornbased Corn, N pricing N avg (NH3, UAN, urea) Corn R2=.87

45 Market enmeshment Increased market factors increase price volatility Ethanol corn demand, but high corn prices ethanol margins Ethanol limited by blend wall, tying gas/products into the mix Plus forces of nature Jun 28 Oct 28 Feb 29 Jun 29 Oct 29 Feb 21 Jun 21 Oct 21 Feb 211 Jun 211 Oct 211 Feb 212 Jun 212 Oct 212 Feb 213 Jun 213 Oct Ethanol crush spread cent/bu Ethanol CBOT cent/usg Corn CBOT cent/bu Urea Nola $/st (right axis)

46 More demand drivers US urea consumption up, urea carryover minimal Additional 1.1mn st (1.34mn t) consumed y-o-y Where did it go? NH3 demand destruction added +56,st additional urea consumption N reapplied because of leaching High corn acres planted DEF consumption increased +2,st urea

47 mn USG ' st urea Diesel Exhaust Fluid (DEF) urea (k st) N. Am DEF mrkt (mn gallons)* * = Industry estimates More policies on emissions, NOx abatement Existing producers expanding for DEF product flexibility Negligible net impact on US ag urea market in the nearterm

48 Self-sufficiency, net-exporter or not quite? The supply-side

49 mn st product Why more supply? Around 18mn st nitrogen market Import reliance exposes US to volatility in global markets This is especially true on urea and ammonia Exports Imports urea AN UAN 28 NH3 amsul Source: TFI, GTIS, Argus FMB Production

50 $/st $/mmbtu The profit motive Spring 212: Urea highs >$7/st while Henry Hub drops <$2/mmBtu NH3 COP Urea Nola Henry Hub 1 5 Sep 28 Mar 29 Sep 29 Mar 21 Sep 21 Mar 211 Sep 211 Mar 212 Sep 212 Mar 213 Sep 213

51 Bcf/d US natural gas production growth Offshore only 5pc of total, -13pc from 7 Profitable liquids (NGLs) drives regional growth Production moved to inland shale deposits *Gross output includes NGLs and non-marketed natural gas 2 1 Jan-5 Dec-6 Dec-8 Nov-1 Nov-12 GOM Lower 48 Source: US EIA, Form-914 data

52 Bcf/d $/' cf Shale driving output Bcf/d high in Aug, +3.1% y-o-y Antrim (MI, IN, and OH) Barnett (TX) Fayetteville (AR) Woodford (OK) Haynesville (LA and TX) Marcellus (PA and WV) Eagle Ford (TX) Bakken (ND) Rest of US Industrial price Source: EIA

53 Natural gas consumption Residential 19% Commercial 13% Pipeline 3% Lease and Plant 6% Electric Power 31% Over 24 QUAD cf/yr Residential/commer cial account for 32% Power and industrial sectors 28-31% Industrial 28% Vehicle fuel <1% Source: EIA 211

54 Quadrillion Btu/yr $/mmbtu to industrial US energy price, consumption to 24 - EIA Residential Commercial Industrial Transportation Electric Power Dist Fuel Oil Coal Nat Gas Production +1.3% AAGR, but net exports by 22 Nat gas still one of lowest priced hydrocarbons To hit $1/mmBtu in 23 (constant dollar terms)

55 Projects considered more than 4! Debottleneck Brownfield Greenfield Non-traditional Koch Oklahoma, Iowa, Nebraska CF Industries Louisiana OCI/ Iowa Fertilizer Mississippi Power LSB Oklahoma CF Industries Iowa Yara BASF USGulf Summit TX Clean Energy (coal) OCI Texas Incitec pivot/dyno Nobel Louisiana CHS N Dakota Southeast Idaho Energy PotashCorp Ohio Koch Oklahoma EuroChem Louisiana Bionitrogen Florida, Louisiana, Canada Rentech Nitrogen Texas, Illinois Invista/Koch Texas Ohio Valley Resources Indiana Agrebon/Progressive Nutrients CVR Kansas (petcoke, comp) LSB EDC Arkansas Austin Powder US Nitrogen Tennessee (LDAN) N Flex Dakota Gasification (coal gasification) Agrium Texas Northern Plains Nitrogen/N. Corn Development Corporation N.Dakota Agrium Redwater Canada (on hold) CVR Kansas Project N/Farmers N.America W Canada Agrium Kenai Alaska Project Cronus Illinois/Iowa PotashCorp Louisiana (comp) Agrifos Texas Mosaic Louisiana (on hold) Fatima/Midwest Fertilizer Indiana Yara Canada (on hold) La Coop Federee/IFFCO Canada Aditya Birla Nuvo Canada Agrium Midwest (on hold)

56 Feasibility factors Likely Established companies with easy access to capital Less likely Little-known entities Debottlenecks, brownfields Projects with delayed funding Early construction and start up High product flexibility Agile logistics for possible export and various transport methods Local, trained workforce Located further from nat gas hubs Non traditional hydrocarbon sources Lack of nearby industrial labor force Higher construction cost areas Secured, nearby demand

57 A few key projects Company Year Capacity st/yr CF, Louisiana 216 NH3 1,3 Urea 1,3 UAN 1,8 CF, Iowa 216 NH3 849 Urea 1,3 UAN 1,8 Iowa Fertilizer/OCI 216 NH3 Urea UAN DEF Incitec Pivot/Dyno Nobel, Louisiana 216 NH3 88 Agrium, Texas 216 NH3 38 Urea 64 Koch , various

58 mn t Nitrogen The next few years % Likeliest Additions Debottleneck 3% Brownfield Greenfield 42% US demand Capacity US production Total Proposed 3-5 years 5+ years The first projects up will deter others Majority of announced/intended projects will not come to fruition Production as proxy for capacity utilization variability. Excludes already on hold projects. Source: TFI, GTIS, Argus FMB estimates

59 Assumptions and expectations Only marginal US N consumption increases, more industrial Many projects aiming to decrease net ammonia and upgrade to other products Export potential depends on capacity utilization and season Americas NH3 trade to evolve Trinidad will need new outlets Outlook based on today factors, barring unforeseen changes

60 Marketplace outlook

61 Marketplace evolution imports Increased production closer to demand center More buyer security More price stability Need for producers to have regular purchasing/offtake agreements Production site Expansions Terminal hub imports Off-season nitrogen exports possible

62 $/st Warehouse avg $/st fot Terminal hub premium to Nola Nola $/st fob price Jul-212 Oct-212 Jan-213 Apr-213 DAP Urea Urea DAP Avg spread Strong barge-terminal price correlation to date But terminal to Nola barge premium to narrow with new internal supply Terminal pricing may not reflect barge freight differentials

63 Price response Near-term: more influence from international developments Medium-term: domestic expansions to pressure pricing Near self-sufficiency on UAN Long-term: off season or opportunistic nitrogen exports Urea barge export equivalent price to have relevance

64 $/t NH3 in transition Ammonia Tampa cfr E Corn Belt fot Yuzhny fob CF-Mosaic deal means less significance in Tampa cfr price which will impact Trinidad pricing A new spot price market for the Americas?

65 US urea outlook US urea imports running estd 2% behind through December But 1% ahead of five-year average US prices consistently lagging international market by $2-3/t Prices will have to rise in the US in Q1 to attract the urea needed

66 Global outlook 214 additional urea supply Firm additions Safco V, Saudi Arabia - 1.2m tonnes/year - 2H 214 Kaltim V, Indonesia - 1.2m tonnes/year - 2H 214 Uncertain AOA, Algeria - 2.6m tonnes/year - Work suspended China - Full year exports allowed by tax changes Iran - Sanctions suspended, access to more markets

67 Global outlook demand changes Increase Europe + 5,t due to competitive pricing Brazil + 3,t in 213, 5% additional growth in 214 India + 1m tonnes, imports the only source of additional supply Australia + 2-3,t due to favourable growing conditions Decrease US 45,t due to changed cropping patterns Source: Argus FMB estimates

68 Urea capacity development million tonnes World Slowing rate of increase to 22 China US MENA Elsewhere Source: Argus FMB estimates

69 Urea capacity development million tonnes World China Slowing rate of increase to 22 China goes into reverse US MENA Elsewhere Source: Argus FMB estimates

70 Urea capacity development million tonnes World China US MENA Slowing rate of increase to 22 China goes into reverse US builds to replace imports Elsewhere Source: Argus FMB estimates

71 Urea capacity development million tonnes World China US MENA Elsewhere Slowing rate of increase to 22 China goes into reverse US builds to replace imports M East growth falls off Source: Argus FMB estimates

72 $/mn Btu Gas price spread in the global market 2 Europe/Far East struggling Feb 8 Aug 8 Feb 9 Aug 9 Feb 1 Aug 1 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 NBP Henry Hub Japan LNG Source: Argus Media

73 Feb 8 Jun 8 Oct 8 Feb 9 Jun 9 Oct 9 Feb 1 Jun 1 Oct 1 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Oct 12 Feb 13 Jun 13 Oct 13 $/mn Btu US favorably placed in the global market Asia: Limited production, high demand, oilindexation Europe: Declining production, price-sensitive demand, market pricing US: Shale gas, growing price-sensitive demand NBP Henry Hub Japan LNG Source: Argus Media

74 Top urea exporters 212 mn tonnes High gas cost temporary plant closures in

75 Key Takeaways for 214 and beyond More of same in , strong correlation to global prices Domestic volatility impacted by policy and crop decisions Product preference to change on weather and long term trends US capacity to upset market next 3-5 years Price wars? Middle East to fight for share, but China to rebalance Benchmarks to evolve Farmers to benefit with lower cost nitrogen

76 Any questions?

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