In the midst of a scenario of high tension in the Middle East and threatened trade routes, a project in the heart of South America promises to change the rules of the game for global agriculture. The British company Atome has given the final green light for the construction of Villetaa fertilizer plant in Paraguay valued at 665 million dollars, which will completely eliminate the use of fossil fuels in its production.
A question of food safety. As detailed Financial Timesthe fertilizer industry’s dependence on natural gas is an Achilles’ heel for the global economy. Traditionally, most nitrogen fertilizer is produced by combining nitrogen from the air with hydrogen extracted from natural gas. However, Villeta will use renewable electricity to separate hydrogen from water (electrolysis).
For Olivier Mussat, CEO of Atome, the project’s focus goes far beyond sustainability. “It’s not an ecological story, it’s actually a food security story,” declared in FT. Mussat’s warning is no small matter, since between a quarter and a third of global nitrogen fertilizer exports pass through the Strait of Hormuz. With the recent conflicts, gas shipments have fallen, raising prices and raising alarms about a possible food crisis. For Latin America, an agro-export power but highly dependent on imported fertilizers, the project works as a “structural hedge” against geopolitical volatility.
The financial milestone that Wall Street observes. Atome managed to close a financing package that includes $420 million in debt and $245 million in equity. This backing comes from development lenders of the caliber of the International Finance Corporation (IFC) and the European Investment Bank (EIB), along with specialist hydrogen investment fund Hy24.
“We have shown that you can actually close and finance a green fertilizer facility on an industrial scale. It has never been done before,” Mussat said. For his part, Pierre-Etienne Franc, executive director of Hy24, explained to the press that having cheap and non-fossil energy sources offers “a route to green fertilizer that will be localized”, making the industry independent of raw material prices dictated by natural gas.
The technical feasibility. Green hydrogen has historically been too expensive to compete with its fossil counterpart. However, Paraguay’s competitive advantage changes the equation. The Villeta plant will operate with electrolyzers large-scale powered by the Itaipú hydroelectric dam (shared between Paraguay and Brazil). According to the company’s projections, electricity costs will be just under $30 per megawatt-hour under a long-term agreement.
This technical and economic feasibility was enough to convince the Norwegian fertilizer giant, Yara International, to sign a binding contract of 10 years to purchase the entire production of the plant, estimated at around 260,000 tons per year, a detail exhaustively covered by the industrial press.
The view from Asunción. For decades, Paraguay has exported its surplus energy generated in Itaipú to its neighbors, Brazil and Argentina, at very low prices. For the local pressAtome’s installation represents a historic paradigm shift. It means taking that clean energy and using it within the national territory to generate local jobs and produce a good with high added value.
Although Villeta will represent less than 1% of the global nitrogen fertilizer market when it begins production in 2029, its backers and market observers agree on something fundamental: if the Paraguayan model works, it could become the definitive template for freeing global agriculture from its dependence on fossil fuels.
Image | Atome
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