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#As we look at the factors, <UNK>, that could affect that, one of the big ones is just where Russia ---+ Gazprom, prices, their exports to places like the Ukraine and so forth.
There's another one that is kind of how LNG continues to evolve, and how much of the new production ends up moving off of oil-linked-based contracts more onto a spot basis.
Over time, it is about $3 or $4 to get any sort of reasonable capital recovery on LNG contracts.
So, if you say, Henry Hub trades at $3, that means LNG-importing regions should trade somewhere in the neighborhood of $7 or maybe a little bit above by the time you re-gas and distribute from their end to production plant.
So, as we look forward, our view is we're likely to be able to enjoy, call it, $4 plus or minus of advantage over most of the rest of the importing or gas-deficient regions.
I think, <UNK>, the other thing I think you necessarily have to look at when you talk about energy costs, you really got to look at oil.
And what we do know is with the low oil prices that we've seen, you're seeing oil exploration drop off by major oil companies that are not putting the kind of money into the deep water and the Arctic and these more frontier regions that they used to be, in terms of exploration development.
In addition to that, we've also seen development activity in North America with respect to onshore oil production come up as well.
Eventually, the problem solves itself.
The stuff that's on continues to decline, the declines don't get replaced with new projects, and, eventually, the oil market straightens out.
The question is, how far off are we from that happening.
Today, it doesn't look like it is near, but certainly, at some point, the piper has to be paid, because if the investment has not gone into the exploration and development, eventually the supply dries up while the demand is growing.
It is something we continue to investigate and look at.
As you could appreciate, these cases are fairly complex and take a long time to get there.
One of the issues of bringing a new damage claim is the demonstration of financial harm, and there is a baseline threshold in terms of profitability.
And the challenge a little bit is even though pricing is down, margins are down, profitability is down, our gross margins for the first half of the year were still 35%, for the second quarter over 45%.
And the problem is that, that level of profitability, the Commerce Department does not have a lot of time and interest in talking about the economic harm that we may have suffered.
So something we continue to look at, we've probed, but there is not a lot of, I would say, imminent movement likely to happen in that regard.
Slide 17.
India does show up in Other, in both 2015, 2016, and I think into 2017.
But I think there is only one or two plants that we're talking about that are net-new capacity that's coming online, so it's not a huge volume of production.
When you look at India, though, just for a quick comment.
They are a huge market, at over 30 million tons of consumption, with 21 million, 22 million of that produced, and 8 million, more or less, imported.
And when you look at the gas constraints, the energy constraints, power constraints, you have a hard time looking at that as an opportunity to build urea plants when you can import that at below their production costs, and that energy is not being directed to the public's better use.
There have been a lot of announcements on new capacity, but most years there are announcements, and most years those do not happen.
The other thing is, in India in particular, because there are such heavy subsidies and price controls in place, the return profile that you are able to potentially get there is really subject to government control, and there is no guarantees anywhere in a commodity market ---+ it's tough enough, even in a place like the US, but when you are operating in an environment where the end product may be subject to pricing controls, where it limits the price that you are able to charge in the domestic market, it is really a difficult thing to get your mind around wanting to put new capital in the ground over there.
Or that a new plant that was built two years ago, that still does not have gas supplied to it, has not operated ---+ that's a 1.2 million urea plant sitting idle.
So, I have a hard time ---+ I'm with <UNK>, how can you invest when you don't even have gas for your current plants.
One of the things that we see, <UNK>, is across a couple of different initiatives, one of which is before our nutrient stewardship programs that have been rolled out, which is to minimize the environmental impact or loss to the environment of nutrients, keep the applied nutrients where they should be in the field and available to the crop, changes around a little bit sort of the application intensity away from the fall and more of it into the spring, and over the course of the spring, instead of just one big dump.
But one of the benefits of the targeted precision ag is higher crop densities.
And so, if you are going to get the same kind of yield with higher density, you need to get an increase of nitrogen application in order to accomplish anything at the grower level.
So, when you see those trends moving in a direction that I would say is net-net positive for us over the long run.
It might change the form a little bit, or the timing of when that happens from the fall more into the spring, but that's one of the benefits that <UNK> talked about with our extensive flexible distribution network that we are willing to inventory product and take that risk off of the hands of the retailer and then capitalize on the opportunity when the application season does come.
For us, we look at all of those trends as being a net positive for our Business.
What we see, again, from China, every year is a different year and every year is a different pronouncement or program coming out of China.
If you look at the base model of China, we have unsustainable coal prices, unsustainable logistics, unsustainable issues in terms of pollution and just areas surrounding what is being produced and exported.
And so they are going to have to rationalize, and we see that taking place with 8 million tons coming off, and we expect additional rationalization, and if pricing remains at its current level, possibly permanent shutdowns.
The export tariff is about $12 per ton, so, if today ---+ and this number has been moving, but Chinese urea is quoted in the $195 to $200 range fob for granular.
So you cut that price down to, let's say, $185, you are still ---+ one, quality is poor, or less ---+ it is not received as well as our products or some of the products coming out of the Arab Gulf.
Is that enough for them to compete.
I don't think $12 is going to get them over the hump to allow them to compete on a consistent basis at the current market.
So we expect to see ---+ they need to have rationalizations, their domestic industry cannot support the total capacity they have, so like <UNK> said, they are operating in the 60% to 65% operating rate, and their exports are trending down.
All of those are trends that, in the in the lowest cost, probably, position that they will have with, again, coal being low, currency at around [CNY6.65], the only thing probably going forward, I would say, moderating is moderating up on all those issues.
So you can get $12 on your export tariff, you're probably not going to lose that to raw material costs and freight costs over time.
And, in particular in that regard, the subsidy on electrical use in energy-intensive industries is going away, as is freight.
So, to <UNK>'s point, we see a number of things that are offsetting to the higher-cost side, internal to China, that will either be a net increase in the cost structure in aggregate or at least offset any kind of reduction in the export tariff.
SABIC does a good job and they move their products all around the world, they have contracts into the US, they have contracts into Thailand and Australia, and so they try to [routively] move their product around the world.
I can't really comment on them raising prices other than that I think what you are seeing in NOLA, and is our market, of the low of $160,$165, we are now at $185 and probably even moving up from that.
So prices are slowly moving up, I think that's in recognition of when you look at the UAN and urea comparison, both those products are trading at a very good value.
And we're actually moving forward with maybe another question, looking at how farmers should be looking at nutrients for fall applications and even spring applications.
Yes, corn is down, at, let's say, $3.40 for a forward harvest position of corn, but ammonia has moderated equally down, and all the nutrients are down.
So on a nutrient basis it is still profitable to plant and we see consumption to be fairly strong.
The other issue on that one is we think that there is such a substantial portion of the global capacity that's operating at or below cash cost, that I think somewhere in the range that you are talking about is necessary just to keep supply available over the medium term anyway.
I think that is kind of what has to happen over time.
Let's start with the first piece, the answer to that is, yes.
Once we stop capitalizing interest, <UNK>, we will be back around $300 million a year towards expense.
As you know, our interest payments quarterly run around $75 million, $76 million a quarter, so that will not change, just will not be capitalizing anymore and then it will start to go to expense.
With respect to the cash from the refund, I don't really think of it that way, because cash is all fungible, the cash will come in the door, and it, along with the operating cash flow that we generate and other sources obviously will be used for a whole number of, obviously, running the operation and a whole number of other things.
But what I would do is just repeat <UNK>'s comment, we're going to build cash on our balance sheet, so we've got the flexibility to take out that $800 million in 2018 if we have to do that to defend our ratings.
When you look at the additions to ammonia that are coming on, not just SABIC's but Dyno's plant in Waggaman, our own, yes, there is additional capacity coming on.
Traditionally, the Arab Gulf ammonia tons stay in the east, and so supplying South Korea, Japan, and some of the [caprolactam] production there, and so ---+ they've done a good job of managing their production and supply, so any additional supply you have to watch and see how it goes, I can't give you a number on what that impact would be.
One of the benefits we have a little bit, <UNK>, in that regard, which is the seaborne ammonia trade does not directly impact our ag markets, because unless you have got the end-market cryogenic storage, which really only the producers have, you otherwise cannot move anhydrous ammonia from the Gulf or from Tampa up into the corn belt.
And so while it affects some of our industrial-based contracts business, it does not really affect our ag business that much.
The upgrades are running at Donaldsonville currently, so when the ammonia plant starts off, that does not really affect mix at all.
All it does is add additional new ammonia production to the network.
As you know, we have a pretty sizable supply agreement in place with Mosaic that is going to start up at the beginning of next year.
So a big piece of those tons are already spoken for, beginning next year, in terms of where they're going.
Relative to Port Neal, we have the urea plant attached to the ammonia plant, we would expect to run the urea plant absolutely full out, with the access being some incremental anhydrous that shows up in Port Neal.
But, generally speaking, we are going to want to run that urea plant flat out, and there is not a lot of ability to move the mix in Port Neal, there is a couple hundred-thousand tons that we can flex back and forth between urea and UAN, but generally speaking, the new plants are just going to come on and run at capacity.
When we looked at the 2018 bonds last time, we looked at it, <UNK>, effectively the maypole provision on it or the premium that it's trading at in the market were roughly about the same, and I think our philosophy is, A, we don't need to do that, and B, if I'm going to be paying somebody to use his money then I'm going to use his money.
There's not really a lot of economics in that, and there really is not a need to do it.
I think it's just a matter of having the liquidity available at the time to repay it, if we have to do that to defend our rating.
We've been exploring the export opportunities for the Company over the last several years in preparation for the additional capacity that's coming online.
And the upgrading capacity already has come online.
So this year you've seen us export all three of the major products ---+ ammonia, urea, and UAN.
Smaller for ammonia and urea, and, for UAN, we will hit a record this year.
And we are exploring all different kinds of markets.
We have been shipping product to Europe, to Argentina, as well as opening new markets in Colombia, Chile, and Brazil.
We're excited about the opportunities in South America, because we do believe in the benefits of UAN, and that is being received well, so the growth is there.
You will see us continue to grow those opportunities, but it is weighted against, obviously, net-back options and what is best for the Company.
So, I think urea will grow as we bring the capacity online, as if we have a differential again, like we've had in the first six months of this year where the US traded at discount to the international market, then we have a pretty good incentive to export the products out of the United States.
Today, I would say all going well will be less than 1 million tons of total exports for the year out of Donaldsonville.
