CF Industries Holdings Inc (CF) — Q3 2020 Earnings Call Transcript

Good morning. And thanks for joining the CF Industries year-to-date 2020 earnings conference call. I’m Martin Jarosick, Vice President, Investor Relations for CF. With me today are Tony Will, CEO; Chris Bohn, CFO; and Bert Frost, Senior Vice President of Sales, Market Development and Supply Chain. CF Industries reported year-to-date 2020 results yesterday afternoon. On this call, we’ll review the CF Industries year-to-date results in detail, discuss our outlook and then host a question-and-answer session. Statements made on this call and in the presentation on our website that are not historical facts are 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 what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you’ll find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Now let me introduce Tony Will, our President and CEO.

Thanks, Martin and good morning everyone. Yesterday we posted our financial results for the first nine months of 2020 in which we generated adjusted EBITDA just over $1 billion. We feel good about our position as we near the end of the year. As we review our results on this call, I’d like to remind you that we evaluate our performance based on half years and full years, rather than a single quarter. This is because there can be significant shifts across quarters due to weather or other events. However, that spikiness tends to smooth out over time. So longer time period provides a better picture of actual performance than focusing on an individual quarter. As of today, with two months to go and most of the fall ammonia season still ahead of us. We continue to expect that our full year 2020 results will end up within plus or minus a few percentage points of our 2018 performance for adjusted EBITDA. Our outlook hasn’t changed since back in February, when we first gave our expectations for the full year. Overall, the CF team continues to execute exceptionally well. Asset utilization remains high and our sales volumes through nine months are a new company record. We also continued to efficiently convert EBITDA into free cash. Most importantly, we are operating safely. Our 12-month rolling recordable incident rate at the end of September was 0.17 incidents per 200,000 labor hours, which is a new company record and substantially better than industry benchmarks. This is a tremendous accomplishment and we’re extraordinarily proud of our team's unwavering focus on safety, particularly in the face of the pandemic. Speaking of which, our pandemic-related precautionary measures have been working well, and we have not had a single known transmission of the COVID-19 virus within any of our locations. With these precautions in place, we were able to complete safely, critical turnaround activity at several locations during the quarter. As we look toward next year, the company is well-positioned for the opportunities ahead. As Bert will describe in a few moments, we expect solid global demand and widening energy spreads, which will create greater price realization opportunities during 2021, compared to this year. Given our position at the low end of the global cost curve, we believe these dynamics will support continued strong free cash flow generation. We are very excited about our announcement last week and our commitment to the clean energy economy, which provides a real growth platform for the company. As we discussed, hydrogen has emerged as a leading clean energy source to help the world achieve net-zero 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 our unparalleled asset base and technical knowledge to serve this developing demand. As we decarbonize our network and aggressively scale our ability to produce green and low carbon ammonia, we believe we will be able to realize the clean fuel value for ammonia rather than its nutrient value. In doing so, we expect to realize a substantial premium compared to the value of ammonia as a fertilizer or a feedstock. Last Thursday, we announced our first steps in seizing this growth opportunity with the green ammonia project at Donaldsonville being the centerpiece of our initial investments. We look forward to sharing our progress and our follow-on steps in the months ahead. With that, let me turn it over to Bert, who will discuss the global nitrogen market. Then Chris will follow to talk about our financial position and capital allocation before I return for some closing comments.

Thanks, Tony. Year-to-date, the global nitrogen market has been incredibly resilient in light of the pandemic. Demand for agricultural applications has grown in 2020, and industrial demand continues to recover from the disruptions in April and May. Looking ahead to 2021, we expect solid global demand led by North America, India and Brazil. We also project improving price dynamics as the global cost curve steepens with rising energy prices and wider energy spreads compared to North America. As we noted in the press release, we are projecting a healthy level of corn planting as well as increases in wheat and canola plantings in North America, supporting good demand in the region. We are forecasting approximately 90 million planted corn acres in the United States in 2021. This is in line with levels over the last 10 years and supported by improved farm economics due to higher corn futures, government payments and lower input prices. If weather conditions allow, we would expect to have a strong fall ammonia season due to the farm economics I just described and the attractiveness of ammonia prices today compared to the other nitrogen products. We expect that industrial demand will continue to recover in line with economic activity. We believe industrial demand for ammonia has been mostly tied to the state of the economy due to the pandemic. In contrast, demand for feed-grade urea and diesel exhaust fluid has been relatively resilient. Our year-to-date DEF sales volumes are up 6% compared to 2019, which would have been difficult to foresee in April when economic activity and miles driven declined so dramatically. Outside of North America, we continue to expect positive demand in most growing regions, particularly India and Brazil. We believe India is likely to exceed 9 million metric tons of urea imports through tenders in 2020. We also expect demand for urea imports into Brazil of approximately 6.5 million metric tons will continue to be supported by improved farmer incomes and the lack of domestic urea production. As we look at our cost curve projection for the next year on Slide 12, we see opportunities for greater price realizations during 2021 compared to this year. In 2020, the convergence of global natural gas prices in the first half led to a largely flat global cost curve. Formerly high-cost producers pursued this temporary margin opportunity available to them, increasing operating rates and pressuring product prices. In recent months, energy prices have risen across the globe, but at a much higher rate in Europe and Asia than in North America. These higher gas costs and the steeper global cost curve that results increase opportunities for low-cost producers like CF to achieve greater price realizations. Indeed, some of our most profitable years have been when our own natural gas costs were higher than energy spreads were wider. We are well-prepared as the nitrogen market dynamics adjust over the coming year and the direction of the global response to the pandemic becomes clear. With that, let me turn the call over to Chris.

Thanks Bert. For the first nine months of 2020, the company reported net earnings attributable to common stockholders of $230 million or $1.07 per diluted share. EBITDA was $982 million and adjusted EBITDA was $1 billion. For the third quarter of 2020, we reported a net loss attributable to common stockholders of $28 million or $0.13 per diluted share. EBITDA was $196 million and adjusted EBITDA was $204 million. As you know, the third quarter typically has our lowest realized prices, lowest volumes, and highest levels of maintenance and turnaround activity. This quarter was no different. However, both our year-to-date and quarterly results reflect the same overall factors. Lower year-over-year global nitrogen prices were partially offset by lower natural gas and SG&A costs. On a trailing 12-month basis, net cash provided by operating activities was approximately $1.2 billion and free cash flow was $756 million. At the end of October, cash on the balance sheet was well over $600 million and we are well-positioned to fulfill our commitment to repay the remaining $250 million on our 2021 notes. We expect capital expenditures for 2020 to be approximately $350 million as we maintain our high standards of reliability and safety. As we noted in the press release, this is lower than our initial estimate, due largely to the deferral of non-essential activity as a result of the pandemic. We expect our capital budget will return to our typical $400 million to $450 million range in 2021 and beyond. Each year, our capital expenditure budget includes not only turnarounds and other sustaining activities, but also investments in improvement projects that allow us to pursue strategic opportunities. Recent examples from the lighter category include the nitric acid expansion project announced this year and the diesel exhaust fluid unit completed in 2017, both at our Donaldsonville facility. The green ammonia project at Donaldsonville will fit into this improvement portion of our capital expenditure budget over the next three years, which allows us to maintain our overall capital expenditure at normal levels. That said, we expect that additional steps we will take to enable the production of green and low-carbon ammonia will require investment beyond this $400 million to $450 million annual range. We are excited to invest in the growth of the company, given the expected return profile. And we see a lot of opportunities ahead to do just that. So after the repayment of the $250 million in 2021 notes, we would expect that our primary use of cash in the coming years will be in support of our strategic focus on clean hydrogen and ammonia projects. With that, Tony will provide some closing remarks before we open the call to Q&A.

Thanks, Chris. Before we move on to your questions, I want to thank everyone at CF for their continued outstanding execution. Our team continues to demonstrate their focus, operational excellence, and the strength of our business during the most unusual of years. I also want to recognize the winner of our annual Wilson Award for excellence and safety. This year’s winner is our Courtright nitrogen facility in Ontario for their deployment of wireless technology to better predict and prevent equipment failures. This award is a great reflection of our safety culture at work. And I encourage everyone to view the impressive ideas from this year’s finalists, which can be found on our website. As the world focuses on decarbonization, hydrogen will be a key clean energy source and ammonia is a critical enabler for the storage and transport of hydrogen. CF Industries is the world’s largest producer of ammonia, and we will leverage our significant competitive advantages, which include the strength of our team, our operational excellence, technical knowledge, and unparalleled asset base, advantages that will enable us to deliver green and low-carbon ammonia at scale, years faster and billions of dollars less capital-intensive than many others looking at this opportunity. This will propel us to the forefront of hydrogen supply being a leader in producing clean fuels for a sustainable world and providing a growth platform to create shareholder value. With that operator, we will now open the call to your questions.

Great. Thank you very much. Just regarding the focus on ammonia as a fuel source, in the intermediate to long-term, just what appears to be there – which this ultimately appears to be a reflection of the Japanese efforts? Can you just speak to the potential intermediate-term growth of blue ammonia in the context of the current merchant ammonia market? So, generally just out of the 20 million or so tons, what percent of these will actually could be utilized for fuels, just given the required retrofit technology infrastructure, etc. It seems like the Saudis and ultimately you guys in North America are well positioned, but what about others? So just how should we be thinking about that? Thank you.

Yes, Chris, I’ll handle this and also ask Bert and Chris to chime in as we go here. But as you said, initially, I think the first sources of demand that we’re seeing right now are really coming from some of the Japanese utility providers. As you know, in the wake of the terrible tragedy at Fukushima, the nuclear fleet was decommissioned in Japan and that necessitated a movement back to coal-based electricity production. Obviously, that’s going the wrong direction from a greenhouse gas emissions perspective. And so they are very focused and moving aggressively toward alternative clean sources of energy to help offset the coal-based production of electricity, and injecting ammonia is one of those ways that they’re going to improve their footprint from a country perspective. But we see a number of other applications that are rapidly developing as well, including marine transport, where ammonia can be used directly as a fuel, as well as disassociated into hydrogen to be used as a fuel. And there are a number of other off-road and industrial applications that are being explored along with vehicle traffic. And so, our view is that this is actually going to hit a tipping point pretty soon. The more infrastructure that gets developed, the faster that’ll happen. And then you’ll see really rapid evolution. But obviously that can’t occur until you start developing the supply base. And so we’re on the front edge of this to be able to develop the supply base and help facilitate – really getting to the infrastructure and the tipping point faster. So we’re really excited about this opportunity. I think it’s the only way the world is going to make a dramatic dent in the overall greenhouse gas emissions profile. And we’re excited to be leading the efforts. Bert, Chris…

Thank you. No, that was helpful. And just a very quick follow-up, just very simple, given it’s been a year since UAN trade close of Europe, can you just give us a quick update on your projections for UAN parity pricing? Do you still set the discount in the U.S. in 2021? Or do you expect that to normalize ultimately?

Yes, what we’ve seen through 2020 is again that price discount relative to other nitrogen opportunities, especially in North America, we’ve seen a substantial increase – or kind of as North American production is ramped up, we’ve seen a continued import that has probably been in excess of what is needed. That pressure has lowered price. It was just about a year ago when the EU sanctions went into full effect and that price reflection was more of the impact in 2020. So I think with growth and what we’re seeing with acres in 2021, and depending on how the fall application for ammonia goes, we expect to see greater increases in UAN consumption, which should improve the pricing profile.

Hi. Good morning. This is actually Luke Washer on for Steve. You talked about average selling prices being pressured over the course of the year due to lower energy prices, spurred increased production rates. Was that meaningfully skewed towards one nitrogen product in particular like urea or ammonia? And with natural gas costs now coming back up, have you started to see that global supply starts to normalize? And what regions are you seeing that normalize?

Yes, I’ll give a little bit of an answer and then ask Bert to chime in as well. The places where you see it manifest in terms of lower prices, particularly in the highly traded commodities for which there’s a lot of additional supply. So that’s particularly in ammonia and urea. Obviously, for the previous question that Bert talked about, with the UAN rebalancing, there’s still some downward pressure on UAN as well. But I think in response, what you’ve seen is some of the higher cost producers or production facilities globally have actually curtailed or shut down. There have been at least three significant plants in Trinidad that have curtailed for an extended period of time. And the benefit that we see going forward is that you see energy spreads expand between North America and Europe and Asia in particular, even if the overall energy complex is going up, it’s the spread that actually matters a lot because that’ll push the high-cost producers into the low-performing sites. We think there will be pretty significant improvement opportunities in terms of pricing. And so we’re excited about getting of the normal energy spread differential back to where it should be.

Yes. I think, two things, the energy issue is the – probably the cost side where we fell to as low as $1.50 in North America, but also equally cheap in Europe and the UK, which brought on their continued high-cost capacity to operate. But the pandemic was a big impact. And in April and May, we went from $270 to $780, a short ton of canola. And by May and June, we’re down to $190 to $200. So substantial fall or decrease in pricing and then some inventory carry over and so you just had an imbalance and then a perception of where value lay and what type of risk would be taken on by either the retailer-wholesaler group. The one positive or two positives that have really pushed the market back into a normal operating rate have been India and Brazil. So we see the positive factors going into 2021 are the economic position. Hopefully, we get through this pandemic, good acre plantings and good international support with a higher cost curve that should improve prices.

Hey, good morning. This is Kendall Marthaler on for P.J. So just sticking with prices, obviously, your U.S. urea prices are at a pretty big discount to international prices right now. So how high do you think those could go to meet international parity in the first quarter next year? And I guess, in order to meet that parity, do you see any decline in international prices or is it mostly just growth in U.S. prices to get back up to parity?

So when you look at the urea discount today, you’re correct. We are operating at a $30 to $40 differential negatively to the world market. And again, those are related to the issues that I just mentioned for the last caller. But what is – where we are today and the most recent India tender in the $270 metric ton delivered to China story. And China’s operating rates today are around 55 million tons of supply with 4 to 5 million tons exported. What does that price level, with the RMB at currently $6.7 and coal costs where they — the marginal producers are going to be pressured and probably will not be participating in the international tenders that couple with increasing Chinese demand for urea and crop production, as well as production of NPKs. We don’t see China being as big of a force probably post-November in the international market. Again, coupled with good demand globally, where we see the key markets driving in Europe yet to buy, we see healthy demand going into spring that should tighten up the market. We’re at – I think through September 600,000 tons of imports into the United States, that’s probably below where it should be. And so at some point, we need to start catching up and digging in those tons from either North Africa or the Middle East or Russia. That should drive pricing as we get closer to spring. And again, corn plantings could be higher than what we’re projecting with a $4 corn position out there today.

Hi guys. This is Lucas Beaumont on for John. Just wanted to follow-up on the energy costs. So in terms of the normalizing differentials, do you see any risks around the normalization either from lack of availability or supply in North America as demand picks back up and some supplies shut in? Or on the demand side from Europe with the deteriorating kind of conditions they’ve lost 4 million to 6 million because they’re sort of increasing COVID-related shutdowns?

Yes. I think rising energy costs in North America is actually a good thing for us, because what that means is, the LNG cargoes from a replacement economic perspective start to become incrementally more expensive. And that’s really what’s going to end up driving the energy price differentials or that spread. What happened this last year was in the aftermath of the economic slowdown driven by COVID, you had very cheap natural gas costs in the U.S. and you had a lot of excess LNG cargoes floating around without a destination. And that led to a massive oversupply. The result of that was extraordinarily low-cost gas into Europe. There was a big chunk of the year where we were paying less for natural gas in our UK facilities than we were in North America, and that’s completely upside down from normal. So that led to the abnormally high operating rates in the rest of the world and excess supply, which kept nitrogen pricing down. I think in a rising natural gas price environment, where the demand is really trying to spur back on again. We’d expect a return to normal differentials, and that provides a much better price environment, even if our cost structure is higher. I think Bert mentioned in his prepared remarks, but some of our best years from the standpoint of profitability actually were with relatively higher natural gas cost in North America compared to a real low cost. So, we think this actually portends well for us looking forward.

Hi, good morning. With your focus now on green ammonia. If we think about down the road and kind of M&A opportunities in which you start, you’d be very cautious on maybe some smaller deals, but would this imply that you really wouldn’t do any kind of smaller nitrogen acquisitions, obviously taking gas as destock unless you thought you could have some strategic value to those assets. Like, how do you think about how your newest focus might affect your M&A strategy over the next decade?

Yes. I think Joel, it really comes down to the particular assets in question and access to renewable energy, access to sequestration and also access to end markets from a logistics standpoint. At the end of the day, this all really is a price value and what would the investment have to be compared to making those investments and modifications to our own existing asset base. As you know, we put a bunch of money into the maintenance of our assets when we finished up that acquisition. All of those assets are running at extraordinarily high utilization rates and on-stream factor. I don’t know that there’s another set of assets out there that are close to ours. One of the embedded costs of M&A is, you have to first start off with assets that are probably not as well maintained and get them up to our standard before you make additional investments on top to convert into low carbon and green ammonia. While it’s certainly a possibility, and again it comes down to price value, I really like our asset base and we’re excited about the opportunity to continue to reinvest in it.

Thank you very much. Tony, in the past, when the fall ammonia window was narrow, CF has talked about demand being made up in the spring. So I guess my question is, is the reverse true when you have a strong or wide fall window? Are we going to start to see some sales in the spring get cannibalized? And does that matter by product mix? And then second, can you just touch quickly on the kind of ban on Australian coal imports? Is that propping up the nitrogen cost curve right now? And is that at risk of going down if that dispute gets solved? Thank you so much.

Yes. You bet Ben. So I’ll start off a little bit here and then pass it over to Bert. But in general, if you’re a grower, you need a certain amount of nitrogen load. If you’re able to apply some of that in the fall, that requires less nitrogen in the spring. But we really like ammonia going down, whether it’s in the fall or the spring, because we have a differential asset base that allows us to realize terrific values for ammonia. If you end up with poor ammonia application, then we end up having to export ammonia and the price realization for that tends to be lower. In general, we sell everything that we make and we run our plants full on. We either get it in the fall or we get it in the spring. So basically, it’s the same number of tons that go down. There is sort of a love/hate relationship we have with ammonia on the one hand, we’ve got this differential asset base that allows us to exploit and realize terrific values. But on the other side, the less anhydrous ammonia that goes down, it means the more upgraded product that goes down. We tend to have better margins on upgraded products. In a strong ammonia market, we’ll do really well because we get great value. In an ammonia market that doesn’t move a lot, we’ll do really well because of the volume of upgraded products that we make. It’s a good kind of natural hedge position that we have based on our product mix. Bert, do you want to add anything?

Yes. I’d say, we’ve had some difficult ammonia seasons where it was either too wet, too cold, and that moved to spring. We’ve had some difficult springs where you had river floods and excess moisture and inability to apply. We’ve done well in both of those markets because of our adaptability to transition and put the right product into the market at the right time. Also to remember with precision agriculture, the impact of fall ammonia is less than it was 20 years ago where you’re probably applying less on that one pass-through and doing multiple applications, whether that be some ammonia in fall or spring, and then urea or UAN on top. The impact of a negative fall is less, and again, what Tony said, our ability to manage through it is pretty solid.

Good morning. Going back to green and blue ammonia, is there a market for that product in the ag and fertilizer space? Could there be some future drive to decarbonize farming that results in demand for the low-carbon nitrogen?

Hi, Andrew thanks. We see that’s a possibility, I would say, it’s not real strong right now, although there’s a number of growers and actually other entities that are beginning to look at the ability to do carbon sequestration within the soil and end up in a regime with a cap and trade system or so forth that can be a fairly valuable source of income for farmers. If you’re using lower carbon inputs, you can get additional benefits associated with in-soil sequestration. So that’s a possibility. I’d say, right now, that doesn’t really exist. But particularly if we end up projecting forward around a set of carbon regulations and legislation that may be developing here, I could imagine that might be something pretty attractive. Bert has had a number of conversations with customers of ours and others that are looking at modeling carbon sequestration at the farm level and the value that can provide.

Yes, that’s exactly right. We’re meeting with the leaders. As an input provider and a key part of that value chain, there is a recognition obviously for what we bring to the table with the strength of our network and team. But that value of live at the farm gate, so it’s how do you help that farmer achieve through seed technology, crop protection, nutrients, farming practices and then put together with or married with other opportunities, whether that be hedging or derivatives that are out there for weather and crop insurance, and then tracking the level of production correlated with the potential for what percentage of carbon is being captured. I think that’s measurable. That’s the next step for this industry. If we’re able to achieve that, we’ll play a critical role because of what we believe we can do with our network to help that solution.

Okay. That’s interesting. And then just maybe in regards to the rollout of the green ammonia capacity across the network. I guess, just versus the $100 million CapEx, initial CapEx for Donaldsonville, is that typical of the cost that you would need for future capacity? And just generally, like how would you finance that? You have cash flow, but if you want to build that up a little bit more significantly, it seems like you might need a little bit more cash than your general cash flow. So what would be your preferred approach for financing that?

Yes. Andrew, so in terms of the initial investment for – call it circa 20,000 tons per year, so $100 million. I think, as we talked about last week, a lot of that investment then becomes scalable. Subsequent improvements in capacity come at a discount as long as you’re adding to the same plants. So, in subsequent chunks, we can get some capital efficiency. But every time you move over to either a new complex or a new plant within the same complex, there’s going to be some baseline that you’re starting from. However, we would expect on our second and third ones of these that we’ll end up with learnings, efficiencies, and improvements. So, the subsequent investments, we would expect to come down in cost. But I think, at least for the initial one or two, we are generating plenty of cash to be able to self-fund those out of cash flow from operations. Chris, do you want to just talk about it?

Yes. I think also what we’re going to see here is efficiencies and innovation will come from the electrolyzers and even the renewable energy side, where those costs are going to come down as well. So based on the initial project that we’re looking at here, we feel confident of what we’re seeing from a return profile. I think that profile just continues to get better as we expand. And as Tony said, based on scalable units with having previous investments already in place, that’s going to put us ahead of many of our peer groups.

I also think, Andrew, as we look forward and expect there to be a significant premium associated with these tons, you’d expect to see growth on the EBITDA front that can certainly support additional debt. I know our focus the last sort of four or five years here has been really to delever. We’re back down once we finish the $250 million that Chris talked about, back down to a very comfortable level of debt. So if you’d correspondingly see some growth on the adjusted EBITDA line, that can certainly support some incremental borrowings that can be used basically to self-fund some of this CapEx that we’re looking at.

Yes. Thank you. Good morning, everyone.

Good morning, Adam.

So a question just on the urea market and just want to make sure I’m clear on the expectations on supply and capacity expansions. There are a couple of big projects in Nigeria that are supposed to start up next year, projects in India and Iran late this year, early next year that are starting up. So just want to make sure, when you talk about the global market for global nitrogen demand growth exceeding that capacity additions. Is that actually true in 2021? And if so, where do you see capacity closures in the next 12 months? Thanks.

Good morning, Adam. I agree with you on your list. You’ve got the Dangote plant that’s coming on, or it’s probably ready to come on, and the Dangote project in Nigeria, and then you have the projects in India. All of these projects have been delayed and we expect continued delays. The ancillary issues of connections, feedstock, startups, and the ability to export, like that seen at Dangote, have been significant challenges. The list of projects coming on is not too great, coupled with where we see growth and economic recovery on the industrial side and where we’ve articulated. We see a tightening market, and with the shutdown of 1 million tons of ammonia in Trinidad and a rising energy market, we’re looking at gas prices trending higher. This good spread should push higher-cost producers away from the market.

Adam, the other I want to tack onto that to Bert’s comments is that, there’ve been a number of plants in India that have come online in the last couple of years, but in aggregate, Indian production has not actually increased. So what you’ve seen is a number of the older, less efficient plants have shut down. In fact, Bert, this year was a record urea import for India.

Yes, we’re seeing above 9 million, but it’s going to be closer to 10 million. So a very good healthy demand.

Yes. Despite the fact that you’ve seen capacity additions, there’s been rationalization that has coincided with it. So, we’re not looking at those plants as being problematic from the standpoint of trade flows.

Good morning. Wondering one of the industrial gas companies announced green hydrogen this week as well, but sourcing biogas instead of electricity. So wondering if that’s an approach that you have considered and if you can talk a little bit about the plus and minuses.

Yes. I don’t know quite enough about what the consistency and regularity of the biogas production stream looks like, and whether you can actually run a commercial operation off of it. I know that for instance, the plant in India had all kinds of problems trying to get coal steam methane because of the lack of – sort of consistent regular compressibility of a gas stream into the plant, which created challenges and as you know, Jonas, it is never good for chemical plants to be up and down and see disruptive supplies associated with it. I don’t really know enough about what the source of gas looks like coming off of these bio sources. But it’s an interesting idea.

Yes. Hi. Just wanted to delve in a little bit more on the UAN strategy. I mean, are you guys sort of expecting more imports to come in as the year progresses? And I guess, just wondering if we start to see urea prices move higher or are you waiting for that or just any more thoughts in terms of how you’re thinking about managing your UAN pricing and the flow of imports and exports over the next several months. Thanks.

When you look at the UAN market in North America of about 15 million tons of demand, you break out domestic production, we’ve been receiving around 2.5 million tons to 3 million tons of imports, principally from Trinidad and Russia. There’s the side of demand with increased acres possibly in 2021. We think that demand will be stable to increasing, but looking at where the market is overall, there hasn’t been much new capacity coming in. You’ve had Acron, a producer in Russia, drop a urea plant to decrease their production in that market. You’ve had growing demand in Argentina and Brazil, which has helped support the market. And then you’ve seen some moves we’ve made with DEF and nitric acid to take that existing stream into further higher-valued products. As we’ve repatriated our tons from Europe, we have not fully pushed those into the market. That is how the market has been balanced. We see some good opportunities for our end market plants and continue to view UAN as a key, if not the key product of the company.

Thank you and good morning, everyone. Just want to just sort of ask on next year and make sure I understood Tony, what your characterization of the market was going to look like with the movement within the cost curve, because I’ve seen on your slide, you have it kind of moving up $5 to $10. I’m just wondering, when we think about the year, or what you’re trying to get across to us, that we’ll see higher lows during the year, as well as some higher highs. But when we think about your average realization for the year, it’s going to be more because the low end of the period is going to come up and it’s going to stay sort of in the middle range longer during the year than that might have been the case this year. Is that how we should be thinking about as we look at our quarterly models?

Yes. Vincent, that’s a great explanation. I’m going to throw it over to Chris here and let him talk about it.

Yes. I would agree with your characterization there. Essentially, what we’re expecting to see is – as Bert and Tony have talked about with these energy spreads beginning to widen $2 already in Europe and $3 for JKM. The expectation is it’s going to put pressure on margin and you should see lower operating rates by some of those mid-tier call it, sort of third and fourth quartile players. This year, as you saw, we’re at the low end of the range for the cost curve. We were right on top of each other from a differential. As Tony mentioned, we were paying less in the UK than we were here in the U.S. What 2021 is going to provide us, not only a higher end of the cost curve, but also during particular times of the year more pricing opportunity than what we’ve seen specifically this year.

Okay. And just as a follow-up. Does the shift into the green arena, we’ve been talking about, the desire to get back to investment grade. Does that sort of make that even more of a desire or does it make it less of a desire or does it not change anything in terms of how you’re thinking about your balance sheet overall?

Yes. I think we still have a strong desire to get back to investment grade. Having another source from a customer base that is fundamentally different helps get a little more diversification in terms of the end market with a higher margin associated with that base. Because we can go ahead and fund this first round of investments out of operating cash, we can continue to delever at the same time. All of those are positives.

Yes. I think as we mentioned, this first sort of wave is going to be within our $400 million to $450 million of CapEx. As projects specifically with carbon sequestration come online, there are incentives like tax credits. Remember, we already have the capture and the removal process in all of our plants, which allows us to leverage our existing investments. So I think both, when you look at the initial projects laid out, the incentives coming in, we feel pretty good about funding straight out of cash flow.

I think, Andrew, as we look forward and expect there to be a significant premium associated with these tons, you’d expect to see growth on the EBITDA front. That growth can certainly support additional debt. I know our focus the last four or five years here has been really to delever. Once we finish the $250 million that Chris talked about, we’ll be back down to a very comfortable level of debt. Correspondingly seeing growth on the adjusted EBITDA line can support some incremental borrowings that can basically self-fund some of this CapEx that we’re looking at.

Yes. Thank you. Good morning, everyone.

Good morning, Adam.

So a question just on the urea market and just want to make sure I’m clear on the expectations on supply and capacity expansions. There are a couple of big projects in Nigeria that are supposed to start up next year, projects in India and Iran late this year, early next year that are starting up. So just want to make sure, when you talk about the global market for global nitrogen demand growth exceeding that capacity additions. Is that actually true in 2021? And if so, where do you see capacity closures in the next 12 months? Thanks.