In May 2000, Mitsui & Co., Ltd. ("Mitsui") marked its transition from trader to manufacturer of ammonia with the commencement of production at PT Kaltim Pacifik Ammoniak (KPA) in Indonesia. The winning combination of KPA's manufacturing capabilities and Mitsui's cutting-edge ammonia logistics strengths establishes Mitsui as a leading supplier of competitively priced ammonia in Asia, meeting robust demand for this key raw material for fertilizers and thus playing a part in resolving the issue of surging global food demand. Mitsui will continue to develop its presence in the global ammonia business, seeking new opportunities to expand its production and supply capabilities in Asia and elsewhere.

Ammonia storage tank at KPA

Ammonia-NH3, composed of nitrogen and hydrogen-has been used by humankind since the Roman era and remains one of the most widely produced inorganic chemicals today. Around 20% of global ammonia production is used in the manufacturing of plastics and fibers, but ammonia's overwhelming application, accounting for around 80% of total production, is as a primary ingredient for synthetic fertilizers, as it contributes significantly to the nutritional needs of terrestrial organisms.

Global demand for foodstuffs has been rising due to population increases and diversification of food preferences in China and elsewhere, and as there are ultimately limits to the amount of farmland available, improving the production efficiency of existing farmland is increasingly under the spotlight as a means of meeting rising food demand. Fertilizers, therefore, have an important role to play, and this in turn has cemented global demand for ammonia. Seizing the opportunities presented for the ammonia business, Mitsui took a decisive step forward by establishing KPA in 1997, aiming to manufacture reasonably priced ammonia for Asian countries and contribute to resolving global food issues.

Throughout the 1980s and 1990s, Mitsui was involved in occasional ammonia trading in the United States, Europe and Asia. In the early 1990s, the company began to look into ways to provide lower-cost ammonia to its customers in Asia. As ammonia must be liquefied by cooling to -33.35 degrees Celsius and transported in special refrigerated or pressurized vessels, the cost of transportation from distant locations such as the former Soviet Union was prohibitively high, so the natural solution was to become involved in ammonia production within Asia.

Ammonia is produced on an industrial scale using the Haber-Bosch process invented nearly 100 years ago for fixation of nitrogen in the air through the reaction of nitrogen and hydrogen. As the hydrogen required for this reaction is best derived from methane (CH4), or natural gas, Mitsui needed to find a location in Asia with abundant natural gas reserves in which to establish an ammonia manufacturing plant.

Ammonia manufacturing plant operated by KPA in Indonesia

With its rich reserves of natural gas, Indonesia seemed an ideal choice. Indonesia's state-owned fertilizer company, PT Pupuk Kalimantan Timur (Kaltim), was seeking to add another production line for ammonia using the country's gas resources, and needed a party with the capability to finance, develop and operate a manufacturing plant. Mitsui saw the potential for a complementary partnership and established KPA in Indonesia in 1997. KPA now has paid-in capital of around US$75 million, of which 75% came from Mitsui. KPA has 200 employees and the ammonia it produces is exclusively dedicated for export.

The project was developed using a build, operate and transfer (BOT) scheme under which ownership of the plant will be transferred to Kaltim between 2018 and 2022 after the project's overseas partners recover a set percentage of their original investment. Adopting a BOT scheme had benefits for all concerned. Kaltim and Indonesia in general could have access to technical expertise, and when ownership of the plant is transferred will be able to distribute ammonia in Indonesia itself. The plant contributes to the local economy by providing employment and vocational training, as well as boosting tax revenues. Mitsui, on the other hand, could source the natural gas it needed to produce ammonia at an ideal location for its export throughout Asia.

KPA was an opportunity for Mitsui to demonstrate its comprehensive business engineering capabilities. The First Projects Development Division of the Infrastructure Projects Business Unit marshaled its strengths in engineering, procurement and construction to develop the plant, in close collaboration with the Gas Chemicals Division of the First Chemicals Business Unit. This was an example of beneficial cross-organizational cooperation that resulted in the plant being built much faster than if construction had been outsourced to an external party, and at a more reasonable cost.

KPA came on-stream in May 2000, with a production capacity of 660,000 MT per annum. Mitsui handles all exports from the plant. The plant's biggest advantage is its prime location for supplying Mitsui's many customers in Southeast Asia, Taiwan, Japan and Korea. Combined with trading volumes, output from KPA brought Mitsui's total supply of ammonia to around 1.5 million MT per annum and established the company as a leading supplier in its focus region east of the Suez Canal-in the Middle East, India, Southeast Asia and the Far East-and on a global basis. Mitsui's ammonia supply volume accounts for around 30% of total supply east of the Suez and around 10% of global ammonia transported by sea.

Ammonia gas carrier

Entering the ammonia production business brought new challenges in logistics, and Mitsui responded by developing an advanced logistics system comprising three key elements. The first is Mitsui's dedicated fleet of five time-charter vessels of varying sizes-the No. 1 fleet in Asia by vessel space. Mitsui's ammonia customers may be in different countries and require different volumes of ammonia at different times, but they all share a vital need to have a constant supply of ammonia on-site for use as a raw material at their plants. This fleet enables Mitsui to offer flexibility to customers in terms of scheduling and delivery quantities, and to ensure an uninterrupted supply of ammonia.

The second is the involvement of wholly owned Mitsui subsidiary Daiichi Tanker Co., Ltd. in vessel operation. A specialist in advanced transport and technology, Daiichi Tanker takes charge of vessel maintenance, safety management, fueling, port-related business administration, communication with ship captains, and related areas, ensuring the highest professional vessel operation standards.

And the third is the role of Mitsui's Ammonia Department within the Gas Chemicals Division in coordinating scheduling and comprehensive inventory management for KPA and Mitsui's customers. The puzzles presented by ammonia logistics are complex-with vessels often making shuttle deliveries to numerous customers in different countries before returning to KPA. The Ammonia Department provides 24/7 solutions to this ever-changing puzzle, ensuring optimal use of Mitsui's fleet to provide timely delivery of the exact quantities each customer requires, while overcoming systemic challenges such as port-capacity requirements and natural ones such as typhoons.

Another view of KPA plant in Indonesia

Mitsui has successfully developed a strong ammonia business and aims to grow it further in the future. As the next step, the company plans to add a sixth vessel to its fleet in July 2008. Over the longer term, a key question is what Mitsui will do after KPA is transferred to Kaltim between 2018 and 2022. The company is currently exploring numerous options. One is to establish new dedicated ammonia plants in Asia and elsewhere. Another is to consider producing ammonia using leftover natural gas from gas fields used for LNG production. This is a viable option because ammonia only requires around one-quarter to one-sixth of the gas needed to produce LNG. Yet another is to use a combination of these approaches. But whatever option it decides to take, Mitsui seems certain to expand its role in this important business.

The posted information is as of the date of issuance. The information may change without notification.