LSB Industries is a leading producer of ammonia and ammonia-related products for the industrial and agricultural markets. Formed in 1968, it has manufacturing facilities in Oklahoma, Arkansas, and Alabama.
Having joined the company in 2014, can you share your perspective on how the split of LSB Industries’ portfolio has evolved over the years?
Unlike many North American competitors focused solely on fertilizers, LSB has always maintained an industrial business. About half of our products are sold as fertilizers, while the other half go to industrial customers. Fertilizer markets are lucrative but inherently volatile and seasonal, with no long-term contracts. On the other hand, our industrial business operates on a cost-plus basis, providing stable and predictable earnings. Over the years, there has been a gradual shift towards the industrial side for its reliability, enabling better cash flow predictability and more strategic capital allocation.
This diversification helps us maintain financial stability despite fluctuations in fertilizer prices, which are influenced by global markets. As we move forward, we anticipate continuing this trend to ensure a balance between profitability and stability. This approach allows us to forecast cash generation over five years and make informed decisions about capital allocation.
How do LSB’s technologies and products impact everyday life, and are there any plans to diversify into new markets?
LSB’s products play a significant role in everyday life, though often unnoticed. Fertilizers, a core product, are essential for growing crops like corn, wheat, and rice. On the industrial side, LSB is the largest merchant marketer of nitric acid in North America, a key component in manufacturing polyurethane used in automotive, appliance, and home remodeling products. These products also serve as critical feedstocks for companies like Dow, BASF, and Ascend.
Fertilizers will remain a core part of our business, though their overall share may decrease as we diversify. LSB’s strategy focuses on maximizing profitability from production capabilities rather than prioritizing agriculture. Over time, we anticipate a shift towards a 70-30 or 75-25 industrial-to-agriculture mix. This change will be driven by emerging applications for ammonia, including power generation, marine fuel, and industrial decarbonization, which align with our goal of exploring stable, cost-plus revenue streams. Additionally, we are monitoring opportunities in non-agricultural uses such as low-carbon ammonia for power generation and sustainable aviation fuel, though widespread adoption may take several years.
What emerging markets do you see as potential areas of growth for LSB Industries going forward?
Power generation and marine fuel are promising markets for ammonia. Industrial users are exploring the import of low-carbon ammonia to avoid carbon border adjustment mechanisms. The marine industry is also evaluating ammonia as a fuel source. While the semiconductor industry doesn’t heavily rely on ammonia, applications like nitric acid might offer small growth opportunities.
Sustainable aviation fuel (SAF) is another long-term market. For LSB, the pathway involves providing low-carbon fertilizers to corn producers, who then would sell low-carbon corn to ethanol producers enabling them to produce and supply low-carbon ethanol to SAF producers. However, this market is likely five to eight years away from maturity.
By how much is your ammonia order book growing, and what challenges are you encountering?
Demand for low-carbon ammonia is growing slowly. The main challenge lies in buyers' reluctance to pay premiums for low-carbon products, which limits the development of this market. Government incentives or demand-side programs might be necessary to bridge this gap and stimulate growth. For instance, incentive programs to offset the cost difference between traditional and low-carbon ammonia. Without such measures, the market’s growth will likely remain constrained, and only a few facilities may be developed, potentially leading to supply shortages in the future.
Many potential buyers are unwilling to pay prices that justify the capital investment required for production. The construction costs for ammonia plants have doubled since 2012, now ranging between $2,200 and $2,500 per ton. This high cost of entry, coupled with buyers’ reluctance to pay premium prices, creates a significant gap.
How optimistic are you that government policies - like the Inflation Reduction Act (IRA) - can support carbon capture and sustainable practices to the necessary degree?
I’m confident that foundational elements like the 45Q tax credit for carbon capture and sequestration will remain intact despite a change in the US Government Administration. This program, in place since 2008, was enhanced under the Inflation Reduction Act (IRA), increasing the credit from $50 to $85 per ton and introducing cash pay options. These incentives make carbon capture projects economically viable.
Additionally, many 45Q-supported facilities will be located in politically significant states like Texas and Louisiana, where job creation and investment align with bipartisan interests. However, there could be significant changes to programs like the 45V green hydrogen credit with a change in the Administration. While these changes remain uncertain, demand-side incentives could further drive the adoption of low-carbon technologies.
Can you share some initiatives LSB is undertaking to reduce its carbon footprint?
We are advancing a carbon capture and sequestration project at our largest site, targeting the capture of 400,000 to 500,000 tons of CO2 annually by the end of 2026. In partnership with Lapis Energy, this project aims to reduce our company’s CO2 emissions by 25%. We’ve already secured a contract for the sale of a low-carbon ammonium nitrate solution to Freeport McMoRan and are exploring similar opportunities for nitric acid and other products.
Other initiatives include optimizing water and energy usage at our sites and exploring renewable energy integration. By developing low-carbon products and adopting sustainable practices, we’re positioning ourselves as a leader in reducing emissions within the chemical industry.
What role do partnerships play in your expansion strategy, particularly regarding new plants and markets?
Partnerships are crucial for us. We’ve partnered with Inpex and Air Liquide to develop a new ammonia plant, located on the Houston Ship Channel. Air Liquide will supply us with hydrogen and nitrogen, while Inpex provides financial backing and market insights in Asia. Using KBR’s ammonia synthesis technology, this collaboration ensures we leverage each partner’s expertise to produce and distribute low-carbon ammonia efficiently.
Geographically, we’re focused on exporting to Asian and European markets while maintaining production in the U.S., where we benefit from low energy costs and stable political conditions. We’re unlikely to build plants outside North America but will continue exploring global sales opportunities for our products.
