Yara International ASA
Q4 2020 Earnings Call Transcript

Published: 9 Feb 2021

[Thor Giæver:]

So hello, this is Thor Giæver, Head of Investor Relations in Yara. So this is our fourth quarter 2020 results conference call. We are – we have our presenters from earlier today here. So our CEO, Svein Tore Holsether; our CFO Lars Røsæg; and our EVP, Farming Solutions, Terje Knutsen. So we are ready to take questions now. So operator, if you want to kick off the Q&A. Thank you.

[Operator:]

Thank you. And your first question today comes from the line of Joel Jackson from BMO. Please go ahead. Your line is open.

[Joel Jackson:]

Hi. Good afternoon, everybody. A couple of questions. There's been a lot of media press Yara and what you might do for some buying potash from BPC from Belarus. Can you talk about that first of all, if you'll continue to buy about the same amounts? And also your comments on the potash market, you're a big buyer in Brazil, obviously. We're seeing a bifurcation of potash markets where Asian and South Asian prices are a lot lower than Brazilian markets. Of course, they're standard granular but any comments you can offer there would be helpful. Thank you.

[Svein Tore Holsether:]

Yes. So this is Svein Holsether, I can take the first part of the question and then I'll hand over to my colleague on the second part. When it comes to our sourcing from Belarus, there's nothing new to report since our statements around this matter, we're continuing to work with Belaruskali and they've also made commitments as to what they will do in order to ensure safe operations and that they are producing according to our code of conduct. And they've also last month made a press release with regards to special initiatives that they are doing to fulfill that and we stay in close dialogue with them but nothing new from our side since these statements. Then with regards to the potash markets, Terje perhaps you could share a few comments on that?

[Terje Knutsen:]

Yes. Yes first of all you could say that Yara has two main use of potash. We use it obviously, as a key raw material for our premium NPKs. And secondly, we – and particularly in Brazil, we are a big buyer of potash, which then is used either as direct application or as raw material to our blend business in Brazil. As I'm sure you are aware the potash market has been relatively more stable than the price increases that we have seen in other commodities like nitrogen and phosphate. And being a significant buyer, we obviously make sure that we follow the cost curve and take care of our margin both when it comes to the use of raw material as well as in a more direct application into Brazil. Yes. So I don't think maybe there is that much specific to say around the potash market as such.

[Joel Jackson:]

Okay. And my last question would be on the NPK premiums. You enjoyed very strong NPK premiums for a couple of years. We saw the premiums come down in the fourth quarter. Can you talk about what you're seeing into early 2021 here – into early Q1, excuse me? Are you recovering some NPK premium or back to what you've seen the last couple of years, or are you kind of holding similar conditions as we saw in the fourth quarter?

[Terje Knutsen:]

I think the advantage of Yara or what we really work hard to achieve is to position our NPKs as a premium product. And that means that, you would typically see less volatility than you see in the commodities. And that means that, when we have times of sharp increases, like we have seen over the last few weeks, we obviously correct our pricing. We look very much at, let's say the economy for the farmer depending on which crop is being produced, and then we correct our pricing to make sure that we stay in those segments that we consider long-term being strong segments for us to hold. And this is exactly, the phase we are now. It's typical that when prices increase as fast as what has been the case, we might have a time lag, but we are carefully monitoring all the segments we are in and adjusting as we speak. So the key here is that the fundamentals are good for the farmers. So we think that, yes, there could be a time lag, but farm economy is generally good and supporting the prices.

[Joel Jackson:]

Thank you very much.

[Operator:]

Thank you. And your next question comes from the line of Thomas Wrigglesworth from Citi. Please go ahead. Your line is open.

[Thomas Wrigglesworth:]

Thanks very much for the opportunity to ask questions live. Yes, so just a follow-up on that. Given you've spoken for many years about the supply-led market can we now assume that this is a demand-led market? And in light of that have the price increases that you've already announced into the market, for the first half more than offset the higher gas price outlook you provided with the results today? That's my first question. And my second question is, focuses on the new division that you're carving out the Clean Ammonia, how should we think about that division going forward? Will you allocate CapEx specifically to that division? Will you make – kind of give volumes as to Clean Ammonia volumes going forward? How should we think about the evolution of that division over the next three, four years? Thank you.

[Lars Røsæg:]

Yeah. So, maybe I can take the first part and then Svein Tore, can answer the second part. Yes, so I think we are moving from a supply-driven market that we have seen in the last years to a demand-driven market, which obviously is very positive. We see particularly the demand increase outside of China, which then is attracting also the Chinese product which again we consider a positive. And this is – many factors leading to this. But we see obviously, the quite significant increases in particularly extensive crop prices such as wheat and corn et cetera contributes to such a demand-driven market. When it comes to Europe, you are correct. We are adjusting price sort of continuously the last weeks as you have seen from the publications, and we do believe that that will offset the increase in energy cost.

[Svein Tore Holsether:]

So – and I'll address the question on the new business area. And I think there are incredibly exciting opportunities within this space to enable the hydrogen economy. And there are huge investments ongoing and large projects to produce hydrogen across the world, and it's also being talked about as the backbone of Europe's zero emission energy transition. I think it's – there's an important question that needs to be asked, and that is why do you produce hydrogen in the first place? And broadly speaking, the answer to that is that you have renewable energy at one place and you need to utilize it somewhere else. So, you need to transport energy from one place to the other. And hydrogen has many positive properties, but also some disadvantages, especially by it being a very light molecule in fact the lightest molecule which makes it challenging to transport over a distance because of the lack of energy density. And that's where ammonia comes in with a solution. So, when you turn hydrogen into ammonia you change the properties. It becomes liquid at minus 33 degrees Celsius instead of minus 253 degree Celsius. So, to transport energy over long distances, ammonia is the solution. And that opens up opportunities for Yara because we already have an existing infrastructure by being the world's second largest producer of ammonia. But when you look at our global footprint, we have a leading global ammonia position. And we have an infrastructure in place with production assets tanks and ships to enable this. And up until now, that's been used mainly to balance our own needs for ammonia, but it takes on a new role and a new opportunity to enable the hydrogen economy to grow. And we see opportunities to build on top of this. And as I say also internally if we believe in the hydrogen economy and the expansions in hydrogen, you have to believe in ammonia as well and you can almost think about ammonia as the LNG of hydrogen it enables transportation. And that's where we will play a role. And we're setting up a structure to manage this and to build our future position but we see that we have to do this in partnerships as well. And we've already announced a smaller project in Australia, in Pilbara together with ENGIE. We have announced a project in The Netherlands, Sluiskil together with Ashtead. And we're also now working on the complete conversion of Porsgrunn in Norway to 100% electrification. And also for that we need to look for partners and for incentives to be able to get this done. So, by establishing this entity we have the structure to lead the way and also to help to put structures in place to enable this.

[Thomas Wrigglesworth:]

And just one Terje on that. Will those partnerships ensure that the return on capital is not return on invested capital is not dilutive for the group?

[Terje Knutsen:]

Yes. So, we're approaching this differently than we would if we were to construct a greenfield or brownfield fertilizer plant. The dynamics in the renewable sector would be quite different. And I think -- I mean you can look at what happened in the solar sector, the important role that Japan and Germany played in order to get scale in the industry, which in turn made it cost competitive the grid parity. And when you look at the prospects from the hydrogen industry itself and the cost curves going forward, you can see a similar path. But that requires scale and Yara can with our project create scale and we could do that in an efficient way since we have some of the pieces already in place as we can repurpose parts of the ammonia plant. That said it's -- in everything we do it is with a solid business case to begin with. So, it has to make sense financially as well so that it provides the right capital return. We'll work creatively around that, have it financially put that together. And have a structured partner -- partnerships. But indeed, we also need financial incentives, as we will then be an enabler to create scale. So the same rules for return apply also in this area as in every area in Yara.

[Thomas Wrigglesworth:]

Thank you very much, very clear.

[Operator:]

Thank you. And your next question comes from the line of Lisa De Neve from Morgan Stanley. Please go ahead. Your line is open.

[Lisa De Neve:]

Hi. Good morning. And thank you for taking my question today. So I had another question on, the Clean Ammonia unit. So, first and foremost, I mean, how do you see ammonia prices evolving as the end market opportunities are clearly growing in this area? And on that note, I mean, my understanding is that you have about 8.5 million tonnes of gross ammonia. But in terms of net ammonia, I believe you have about two million tonnes of annual capacity. So, how do you see this net ammonia footprint evolving for yourself over time, given the opportunity you see in this market? And how big in terms of ammonia volumes is this opportunity for you, without expanding your ammonia footprint, or would you consider expanding your ammonia footprint?

[Svein Tore Holsether:]

And it -- that inventory when this happened. And we believe that, you have to make volumes available and in parallel develop the markets. But I don't think it's possible to first to develop the markets. And then, start to construct. But there are opportunities in many areas.

[Lisa De Neve:]

Okay. Thank you. And just to clarify, can you just tell me how big your net ammonia position is? So if you produce 8.5 million tonnes of gross ammonia per year, how much are you net selling in the market? Is that two million tonnes? And two, you mentioned something very interesting on the Porsgrunn facility that if you are able to convert it into green ammonia that the extra cost towards the customer would only be €0.01. Did I hear this correctly?

[Svein Tore Holsether:]

Yes. If you convert that to the cost of a bread in the supermarket, if the world was ideal and our cost increase to do this just went straight to the consumer. It's not structured like that today because today there is still too much silo thinking, too much cost-plus mentality. So with that, it would be much higher in the supermarket. But there's a lot of work happening now in the food systems to create greater transparency and link from the consumer, all the way back to the farmer and the input. And through this product, we're helping to visualize this and to help the consumer, also to make the right choices, when it comes to climate impact.

[Thor Giæver:]

And hi Lisa, this is Thor. Just on the net position. It's of course varies a bit with production levels. But directionally about between 0.5 million and one million tonnes long is where we are today.

[Lisa De Neve:]

Okay. Thanks very much for that.

[Operator:]

Thank you. Your next question comes from the line of Andrew Stott from UBS. Please go ahead. Your line is open.

[Andrew Stott:]

Yes, good afternoon everybody and thank you for your time today. I have a few questions actually. The first, sort of set was in the same theme which is this issue that came from an earlier question from Thomas, which is around return on capital visibility. So, can I check a few things? Firstly, the $1.2 billion midterm guidance, am I right in believing that doesn't include any of the potential plans on green ammonia? That's the first question. When you think about Porsgrunn as an example, how do you get paid for that carbon-free product? Do you think, it's possible to get a premium from your direct customers, or are you really relying upon carbon credits, government funding, et cetera? Thirdly, I'm sorry it's all linked to the same question. Would you suffer or would you take on a bit of return on capital dilution from those type of green projects, if you felt, you could have first-mover advantage? So, if you could capture the high ground on volumes through having this supply, but at the same price, would you do that? I know Svein Tore, you just said that, you're going to be disciplined. But for a period of time, would you be happy to accept a bit of return on capital dilution for a longer gain? That's the set of questions. I've got one more question, which is much more straightforward, which is Clean Ammonia division. Is there a chance here that, you're going to spin that Clean Ammonia division midterm in order to make it easier to attract funding in order to maybe monetize the green credentials, or is it purely just a case of separating out within Yara and keeping control?

[Lars Røsæg:]

Yes. Thanks a lot for your questions. So, this is Lars Røsæg. Our commitment to a maximum annual CapEx of $1.2 billion that includes what we're doing in Clean Ammonia. So it's not coming on top of the $1.2 billion, and then we've said that, we are looking at as Svein Holsether said earlier establishing the right partnerships and the right structures around those projects. And then, I think, I'll hand over to you Svein to comment on a couple of the others.

[Svein Tore Holsether:]

Yes. I think when it comes to the ability to get a premium for green fertilizer that's a market that needs to be developed. We can't put a burden straight onto the farmers, as it is today, where the farmers have an important role to play, but they don't have the sort of profitability, where they can easily absorb that increase in cost. And that's the reason for all the work that is now ongoing in the food systems to create that supply chain view of it what will it take to decarbonize food in total and then what happens at farm level becomes very important. But then we need to have incentives in place for the farmers, which partly could be paid from consumers and increase the awareness around the carbon footprint, but also from regulators and from governments, because do keep in mind that the planet is already paying a higher cost for food than what we pay at the cash register. And I encourage all of you to read the Food and Land Use Coalition report which shows the total value creation in the food system on an annual basis which is $10 trillion, but the hidden cost of the food system is $12 trillion. And that's related to health, but also emissions and environmental impact. So by redirecting some of that, it's possible to create incentives for farmers to enable them to farm differently and more sustainable without it necessarily meaning more expensive food for the planet. So we need to approach this holistically. And Yara is taking a key role also in this too to help to develop these markets. And I'm quite encouraged by everything that is happening now in the space and also looking at farmers as part of the solution, not only when it comes to using green fertilizers, but also through carbon farming using the farm field to sequester carbon and also through farm productivity where more food can be produced on less land and freeing up land and turning it back into nature with the corresponding carbon sequestration from that. So a lot of exciting opportunities. And -- but again, we need to have a product in place in order to drive this. And then back to your question, are we willing to take a lower return? Well, if you look at other industries, including now you see offshore wind project and so on, some of the early movers actually had higher returns because they moved early. We will evaluate everything that we see and always with the financial return in mind. But indeed we will also see the totality of the value of the first-mover position and so on. So -- but then it would still have to make sense on the longer term, even if it didn't have the straight short-term returns. So I hope that answers the question, Andrew.

[Lars Røsæg:]

Yeah. And on the last point, I mean, what we're doing here today is we're establishing a unit that we think entails some very exciting business opportunities. It's a $1 billion revenue and $120 million EBITDA business. And that's really our focus now on establishing that in the best possible way and certainly drive the value creation potential of that unit as good as we can going forward.

[Andrew Stott:]

So to come back on that apologies for my bluntness, but you didn't really answer the question. Is it a division you want to keep control of or would you look at spinning it?

[Svein Tore Holsether:]

We want to keep control of this unit. It plays an important role also in our existing structure and will so going forward as well. But we are open to and we will be open for partnerships to drive this. And I think that's what you see across all areas when it comes to renewables that this is best done in partnerships, whether that's based on industrial or financial logic. So that's our approach to this as well.

[Andrew Stott:]

Perfect. Thank you very much.

[Operator:]

Thank you. And your next question comes from the line of Jaideep Pandya from On Field Research. Please go ahead. Your line is open.

[Jaideep Pandya:]

Thank you. First question really is, could you give us some idea what is your net carbon exposure that you will have to purchase, assuming there's no change in the regulation from 2021 onwards? And then, subsequent to that, what do you expect -- so what are you budgeting sort of in terms of the next phase for 2020 onwards in terms of reduction of allowances? So do you think the 20% sort of headline number for nitric acid and ammonia applies, or do you think that this is going to be sort of a case by case? I'm sorry, but a related question really is just all three parts of one question, please. Obviously, a lot of your competitors in Asia are coal-based. So do you expect that you will sort of see a carbon border adjustment that is being discussed in other industries to protect companies like yourselves against the carbon leakage disadvantage? Thanks a lot for all this. And just one final follow-up is, considering what is happening in India with farm laws, do you think if the laws do go in place, will that make any difference to the way tenders are placed and the Indian demand? Thank you so much.

[Thor Giæver:]

Okay. Hi. This is Thor. I can start on the EU ETS side of things here, maybe, in the end I will ask for help. But -- so we have now -- we now understand the ammonia benchmark for 2021 and the EU ETS is 1.57 tonnes of CO2 per tonne ammonia. That is -- with that reference point we actually expect to be covered or even have a small surplus of allowances in 2021. And then, the second question, I mean, we -- as you probably know, these benchmarks do get adjusted from year-to-year and it is -- it's a bit more technical than just kind of arriving on one benchmark. And there a number of adjustments can be made and it's not necessarily linear for any given company every year. But you're, of course, right, it's prudent to assume that the trend over time is that these allowances get tightened and that's an important dynamic that we plan for as part of our broader strategy, really, which is aimed at providing sustainable food solutions. So as part of that, we are constantly working and we set ambitious targets to reduce our carbon footprint over time, both in terms of the production side of things and as we've touched on earlier, including green ammonia and also in the market and on the field. And then, the final -- on this topic you asked about border tax and I think, yes, there is -- this is still under, shall we say, construction and review in the EU. But, yes, there is a carbon border tax under design aimed at dealing with examples that you mentioned that if you have set limits for CO2 emissions within the EU on fertilizer production, then the intent of that regulation will be to then adjust for it, if you have imports from elsewhere that have a potentially a lower price or lower cost as such, but a higher carbon footprint. But these regulations are still at the drafting stage. So we don't know exactly how that will play out.

[Terje Knutsen:]

Yes. On India, this is Terje Knutsen. I don't think we will enter into a speculation whether the dynamics of the tenders will change as a consequence of what is going on. What we can say is that, we work relentlessly every day on the ground in India to improve profitability of the farmers. We are successfully working with our concepts and now also very much integrating digital solutions into our total offering. And by that creating real you could say solutions to again contribute to the target of the Prime Minister to double the income of the Indian farmers. And that work will continue. We are successfully growing our position and continue to focus on the farmer in a very farmer-centric strategy that we run in India.

[Jaideep Pandya:]

Just one follow-up on the carbon topic. Would you be able to share what is your carbon price assumption for the longer term, especially linked to the green ammonia type projects?

[Lars Røsæg:]

Yeah, we do not, as of today, have an internal carbon price in Yara. Having said that though, for all our projects and including the green ammonia ones, we do have a specific carbon evaluation as part of the capital process. Yeah, so, it's absolutely as we said that we have not disclosed our carbon assumptions externally, but of course, an active part of our evaluations.

[Jaideep Pandya:]

Thank you so much.

[Operator:]

Thank you. Your next question comes from the line of Chetan Udeshi from JPMorgan. Please go ahead. Your line is open.

[Chetan Udeshi:]

Yeah. Hi. Thank you. I just had three questions. First one was, there is a mention of some $100 million of fixed cost increase in 2021, and it says it's going to be a temporary increase. So can you maybe give us some more color on what you're spending on and why is this actually temporary? And again, I think the broader context here is, at what point do these temporary cost increases every couple of years become not temporary? I mean just on a broader strategic point that would be useful. And the second question was, your deliveries in Q4, was very strong. Have you sold much of your product forward for Q1 season or Q1 demand already in Q4 based on what you know at the moment, or in other words, do we expect or should we expect rather any lag in terms of when you will see the full benefit of the price increases that we've seen so far in Q1? And the last question will be on freight costs. Do you have any sense of the impact we could see on Yara's freight cost, total cost on shipments, given the increase we've seen in general in the freight market? Thank you.

[Lars Røsæg:]

Yes. Thanks a lot. And let me start. It's Lars here. So, on the fixed cost, you are indeed right that that's a temporary increase, and it's linked to the new initiatives we're taking announcing today and what we also launched at the investor seminar. And it has something to do also with classification between CapEx and OpEx. So, if you look at what we've said in Q3, we said that we would have a total CapEx spend of $2.2 billion for the combination of 2020 and 2021. What we actually said today is that that is estimated $100 million lower at $2.1 billion in CapEx, and then we have $100 million in fixed cost. So that means that, we are stable on commitments for 2020 and 2021 compared to what we said at $2.2 billion, but there is then an allocation between OpEx and CapEx. And then in June 2019, we launched our target of having a nominally flat fixed cost base until 2023. And we've kept up very stable and flatten even a bit ahead. And we are very strong in our commitment to that target and being back on that target in 2022, also then in the light of what I just discussed on sort of the allocation between CapEx and OpEx. And also, on the total commitment side, as I also said earlier, we have a maximum total CapEx of $1.2 billion here from 2022 onwards, and that also includes what we now are doing in Green Ammonia. And then on the second question, maybe I hand it over to you Terje.

[Terje Knutsen:]

Yeah. I think I can start, and then, maybe Thor has some additions. But we have had a strong quarter. I think that has been primarily due to good support from again, as we have said crop prices and the general conditions for farmers. No particular sales forward into that. So I would say that we have a quite normal time lag on the prices which would typically be in Europe 1 month, 1.5 month as a time lag. Yes, so I guess that's what we can say.

[Thor Giæver:]

Yes. And just to build on that. I mean -- so it's not, I guess, it's not forward selling. We wouldn't define it as forward selling, but it's just that when we from the normal time from we take an order and fix the price until we deliver the product which is what our P&L is based on is as Terje says 1 month to 1.5 months.

[Chetan Udeshi:]

Thanks. And on freight costs?

[Thor Giæver:]

Sorry, could you -- yes there was one more -- would you mind repeating the question because I don't think I got it completely.

[Chetan Udeshi:]

Yes. I just wanted to get a color whether you think the freight cost that you have in general which is I think, $1 billion per year, should we expect any material increase in that number this year just given the shipping rates today in most routes seem to be much higher than they have been in the last three months, four months? So just thinking whether it's -- is that something we should be taking into consideration in our numbers for 2021?

[Thor Giæver:]

Yes. We don't have any guidance on shipping costs. I mean as you know we have operations globally some of which are exposed to freight costs, but others that are for example in Europe where we are located in-land and competing against imports then you can also get the positive effect from increased freight rates because the competitive benchmark import increases in costs. So I think, you will often see that there are pluses and minuses in our operation here, but we don't have any guidance and such on.

[Chetan Udeshi:]

Understood. Thank you.

[Operator:]

Thank you. And your next question comes from the line of Alexander Jones, Bank of America. Please go ahead. Your line is open.

[Alexander Jones:]

Thank you. Good afternoon. Thanks for taking my questions. Two on green ammonia and then one on the dividend, if I may. On the green ammonia side, could you outline a bit about the customer reaction you've had since your announcement in December? Have you had incoming interest from potentially industrial customers or power customers that would be helpful? And the second question on that would be, could you talk a little bit about blue ammonia and how you perceive the relative advantages blue versus green and where you want to place your focus? And then the third question on the dividend. The payout ratio is higher this year than the sort of, 50% guidance that you've given through cycle. Does this reflect a bit more of an emphasis on dividends over buybacks at the moment, or any color you can give on that would be helpful. Thank you.

[Svein Tore Holsether:]

So it's Svein Tore. I could start on the question related to interest around this. And I think the incoming requests and discussions we've had since we made our bigger ambitions in this area public in December have reflected what we're seeing in the hydrogen markets in general. So there's a huge amount of interest and also a lot of discussions with relation to what this could lead to. And then I'm seeing both with regards to green fertilizer production, but also important is marine fuel with zero emissions. And then you asked about green versus blue. I think it's going to have to be a combination. It depends a bit on where in the world and what the application is. So far most of the discussions I've had within the food system there seems to be a greater interest for green ammonia, while if you discuss on energy sourcing at country level then there's probably more blue. So our infrastructure will facilitate both. And that's why we're also calling it clean ammonia because it could be both blue and green.

[Lars Røsæg:]

Yeah. So if I answer on the dividend side. So as you would know, we introduced a new capital allocation policy in 2019, where we lifted the flow from 40% to 50% of net income but we also said that we wanted to have a net EBITDA to net debt-to-EBITDA range I'm sorry of 1.5 to 2. And what that means is that improving returns and cash flow may lead to increased payout capacity in line with that policy. And on that basis of that policy we -- the Board now proposes NOK20 to the AGM. And then in addition to that what we said is that dividend, cash dividend is our primary lever with buybacks as a supplementary lever as has also been the case in 2020.

[Alexander Jones:]

Thank you.

[Operator:]

Thank you. And your next question comes from the line of Morten Normann from Carnegie. Please go ahead. Your line is open.

[Morten Normann:]

Thank you. A couple of questions regarding green ammonia. You also mentioned, your CapEx guiding of a maximum $1.2 billion going forward. How does that relate to potential retrofitting your ammonia production, or do you have any sort of a rule of thumb CapEx per tonne per ammonia capacity? The second question is regarding Freeport. You're importing hydrogen. What price do you pay? And is that blue green or gas based hydrogen?

[Svein Tore Holsether:]

I think it's too early to start to create a rule of thumb cost projection for green ammonia. And it's about time and scale as well for the whole hydrogen industry to ramp up and through that become more cost competitive for -- through CapEx. But indeed if you look at the established projections from the industry, it will come down to levels where it becomes very interesting in comparison with a profile approach to it. So our approach is that we need to have incentives in place that bridge that gap. Then there are some clear advantages with the opportunity to retrofit and that can be done in several different ways. Part of it can be done through incremental increases by producing hydrogen with electrolyzers next to an existing conventional Haber-Bosch ammonia plant where you can feed in hydrogen straight into that with minor modifications. And it depends a bit on the design of the plant ranging from -- some plants you can feed in up to 10%, some you can go all the way up to 50%. But it's -- the reason for the differences would be the design and the need to have the energy balance right in the ammonia plant. And then if you go for full conversion you just take out the front end of the ammonia plant and use the back end. So then what you need is reuse the whole Haber-Bosch synthesis you need an air separator and then an electrolyzer. And so that would be the investment cost to get that going. And we will come with numbers on this as we have matured it a bit further. As Lars indicated, we're approaching this with the mindset that we should do this within our existing CapEx guidance. And as I indicated earlier then that means that we need to think partnerships. It means that we need to think also incentives, and also a different way of financial structures around it to help finance this. And similarly, you can view that similar as what is happening on various wind power projects and similar to today.

[Morten Normann:]

Okay. And Freeport?

[Svein Tore Holsether:]

Yes. So the Freeport is set up so that there we don't have the front-end of the ammonia plant because we are sourcing hydrogen straight into the plant and that is based on byproducts from there and it's part of a huge chemical complex where hydrogen would be one of the byproducts that we're utilizing that and the payment structure of that is linked to natural gas prices. Five to six, so it's sort of you pay for the hydrogen, but you get it without the carbon.

[Morten Normann:]

Okay. And finally, I forgot, one thing. Could you please enlighten me a little bit on you saying that ammonia is the best-suited long distance hydrogen carrier, but ammonia only contains 18% hydrogen and you have an illustration in the presentation showing that the energy content in ammonia is twice as high as in hydrogen. But still don't you need to transport two to three times more ammonia to get the same energy content compared to hydrogen?

[Svein Tore Holsether:]

I think you have to look at it in terms of the properties of the product and how much you can -- so we're saying energy density is based on the volume of the ammonia versus the volume of pure hydrogen. And by adding that nitrogen molecule you're changing the characteristics, so that it has -- it becomes liquid at minus 33 degrees Celsius. And it's simply, the nitrogen molecules looks after the hydrogen molecules and keeps them in order so that you can transport more of them in less space.

[Morten Normann:]

Okay. Thanks.

[Operator:]

Thank you. And your next question comes from the line of Rikin Patel from Exane. Please go ahead. Your line is open.

[Rikin Patel:]

Yes. Hi, everyone. Good afternoon. And thanks for taking my questions. Just firstly again on green ammonia. If you take a scenario where you upgrade a facility like Porsgrunn to 100% green ammonia and then assuming the market is there if you wanted to add on incremental additional capacity, what would be the sort of theoretical maximum capacity that you could add based on the existing infrastructure? And then secondly, just on the new EBITDA initiatives you announced late last year, is there any update on the trajectory for earnings there in initiatives like the carbon marketplace for example? Thanks.

[Svein Tore Holsether:]

Well, when it comes to the capacity, it's a full conversion of Porsgrunn and that would quite likely utilize the production capacity of the ammonia plant. That said, we have seen and we're seeing in Freeport as an example that when you feed pure hydrogen into the ammonia plant that you're able to produce somewhat more than nameplate capacity at Babrala. I think you should see that as the project that we have in Norway. And then once that reaches full utilization, we'll also look into other opportunities for further investments in green ammonia and you could add like a modular approach to several of our plants to make it available elsewhere in the world as well.

[Terje Knutsen:]

I'm not sure, I catch exactly the second part of the question. But if it was related to what activities we do, we are -- as we also talked about at the ESG seminar working now very much towards creating and shaping a market for carbon credit. So basically working with climate smart farming at farm level and developing that as a potential both income for the farmer incentifying those farmers that farm in a more responsible way from a sustainability point of view, but also that we then participate as and create a market place for carbon credits.

[Lars Røsæg:]

Yes. And there is, of course, no change to the financial ambitions and potentials that we see as announced at ESG investor seminar.

[Rikin Patel:]

Great. Thanks.

[Operator:]

Thank you. And your next question comes from the line of Thomas George , a private investor. Please go ahead. Your line is open.

[Unidentified Analyst:]

Yes. Hello. Thank you very much. Can you say something about the electrification of the Porsgrunn plant? I'm thinking about the -- more about time line for FID, and also with the interest from potential partners. And then question number two, could be on the Action Africa initiative. What potentials do you see on this in Africa going forward?

[Svein Tore Holsether:]

Yes. So when it comes to the electrification of Porsgrunn launched back in December, obviously, we've done quite a bit of work ahead of that, but that was -- should also be seen as our invitation to bring in partners and to continue and further evolve the dialogue with the government in order to create incentives to get this done. We're still working on that and we'll give you further updates on the -- how that progresses. But obviously, we're looking for partners that can add both industrial and operational and financial know-how into the target, so more to come on that one. And with regards to Action Africa, it's been a very rewarding project for our whole organization to take place in. It also demonstrates the power of cooperation. This was done together with the World Food Program and the Norwegian government and by allocating 40,000 tonnes of fertilizers combining that with agronomic knowledge that produces enough food to feed a million people for a whole year. So that says something about the power of our products combined with our solutions. We've added a digital component to that, and where we can also give agronomic advice. We reached now more than two million farmers. And obviously, that creates a database and a platform to further do work on this in Africa and elsewhere, and we're also talking about partners where we can add additional support through this network. But I think it's a very clear illustration of what we're able to do when we cooperate between private sector organizations and governments.

[Unidentified Analyst:]

Thank you. But you could say that is there like a strong interest from industrial partners to the Porsgrunn plant project?

[Svein Tore Holsether:]

Yes.

[Unidentified Analyst:]

Okay. Thank you very much.

[Operator:]

Thank you. And we have one further question in the line and the question comes from Jaideep Pandya from On Field Research. Please go ahead. Your line is open.

[Jaideep Pandya:]

Thanks for taking the follow-up. I appreciate you won't be able to say much, but one of your key competitors has flagged their nitrogen and NPK business as non-core. So how do you see the competitive landscape in Europe? Do you think you have room for inorganic growth in ammonia nitrogen and NPKs, or do you think that this is not an area of focus for you, and therefore, we shouldn't expect any large M&A from you in Europe?

[Lars Røsæg:]

Yes. So on a general note, I think what we can say is that we are very much focused now on delivering on the strategic initiatives we have and on the agenda we have and on the targets that we have set out, yes.

[Jaideep Pandya:]

Okay. Thank you.

[Operator:]

Thank you. There are no further questions at this time. I will hand the call back to you sir.

[Svein Tore Holsether:]

Okay. Then I think all that remains to be said is thank you very much for joining us in this long and comprehensive Q&A. So, we really appreciate the interest and we look forward to keeping you posted. Thanks very much.

[Operator:]

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.