So that’s a value adding transaction, whereas buying shares back at market price by definition, is sort of NPV zero. Our view is if you look at the aggregate amount of cash that we generate and shareholder participation, sort of the ratio of the number of shares outstanding. Our shareholders have been much better off based on the combined approach that we’ve taken to both disciplined add capacity and also take shares out of the marketplace. And that has created a lot of value relative to an exclusive pathway of one versus the other. And so we’re going to continue to evaluate the attractiveness of adding capacity on a basis of can we generate returns on a risk-adjusted basis above our cost of capital because generating more cash flow simply allows larger share repurchases in the future and it’s not necessarily a point in time comparison about where we’re trading in that moment because as you well know, these assets go 40, 50, 60 years in length.
And so we really need to take a view of do we fully expect it to be a positive IRR and PP positive transaction to invest in a new plant because we can always default to buying shares back. And by the way, because of how well the business is operating, it’s not an either/or question for us, we can actually do both at the same time.
Operator: The next question is from Steve Byrne with Bank of America. Please go ahead.
Steve Byrne: Yes, thank you. Bert, I got a couple of questions about your near-term outlook. Could it — could the strong ammonia fall application season you rode the spring demand for urea perhaps more than UAN. Is that why maybe your UAN production was so robust in the fourth quarter. And when you look out at imports coming into the U.S., you commented about low inventory levels. some lower production in the U.S., we’re hearing that there might be a much less level of imports this spring than in prior years. Is that consistent with your view? And how much have you sold forward into the second quarter?
Bert Frost: Okay Steve, well good morning and some very good questions and top of the — of our mind today. Because as we look outside in Sunny Chicago, it’s 43 degrees and we’ve got good soil moisture, and I would anticipate an early spring based on historicals and what we see throughout the Midwest. What that means is you’re pulling forward demand. That encompassing earlier opening to river barges means product can move. So a lot of synergistic things happening at the same time. Our outlook is positive. 91 million acres of corn and good moisture and wheat country and as well as good value surpassed. You’re going to see nitrogen applications in all the segments, probably at or above normal. When you look at the fall ammonia level.
As we said, that was our — probably our second best fall ammonia in 10 years. But when you put that into context of how many tons could go out, there is a substantial amount of demand to be satisfied with ammonia, UAN and urea in the spring. So our probably a couple of hundred thousand tons more than normal, we believe we were one of the last companies standing due to our logistics capabilities and distribution networks, which we leveraged very well with product in place, and then we’re able to run all the way through November in Q4. And so I look for a very positive spring demand for UAN and urea as well as ammonia. The imports have been lower, and that’s been fairly consistent, but when you go back and look at it in totality, the low level of inventory we believe that we carried in, coupled with the low level of imports to date, and we’re tracking vessel nominations in what we think are coming in, in Feb, March and April, it’s going to be a challenge.
And then, again, weaving into that an early spring impacts that even more. And so our forward call is we’re probably going to see and we are seeing some price appreciation you’re going to see demand coming forward earlier, and we’re prepared or being prepared for that eventuality even with some of the loss of production we experienced in January, we believes others in our industry experienced as well, but these are the challenges we face, and we will meet them.
Steve Byrne: And maybe just one quick one for you, Chris. in that flue gas carbon capture analysis that you’re doing there’s a variety of technologies out there. Are you looking at several different technologies? And are you also looking at potentially using oxygen in the boiler instead of urea?
ChrisBohn: Well, I’ll say the engineering team has reviewed several different engineering types for the flue gas capture, but we are focusing on one specific as we’re moving through the FEED study rather than doing multiple FEED studies with additional technology providers through that.
Steve Byrne: Thank you.
Operator: The next question is from Josh Spector with UBS. Please go ahead.
Josh Spector: Yes, hi guys, good morning. So I wanted to follow up on the additional FEED studies for carbon capture. And I just specifically asked about if there’s been any changes in what you’re hearing in terms of policy in Japan. I thought Japan was kind of leading the way that clean ammonia 60%, 70% lower carbon was something they were comfortable with accepting with their first move to reduce coal intensity, maybe other countries wanted to push it further. So has anything changed on the Japan side and how that relates to your first potential investment here?
ChrisBohn: Yes. From Japan side, I don’t think they’ve come out necessarily with the strict — what are their requirements for carbon intensity. We’ve had plenty of discussions not only with our partners, but with the government related to that, there’s a few different scenarios that they’re playing through. But as to exactly what they want, that hasn’t come. They have, as you mentioned, preliminarily said that they would be willing to accept a lower carbon intensity or I should say, yes, a lower carbon intensity amount there, whereas some of the other nations specifically Korea are looking for carbon intensity that basically has 90% reduction. And that’s why we’re looking at some of these other options as well to do that. So more to come on the clarity, as Tony mentioned in his prepared remarks and his questions about what’s happening out of Japan.
Now, one of the things that is occurring in Japan right now is the cabinet has moved forward with a package for this towards the diet. So we should see some sort of approval from essentially the diet in the next several months. And then from there, Medi would be able to allocate those funds and we begin to put in applications for the projects with our partners. So — nothing has changed from where we stood three months ago or six months ago, but we are looking at many different alternatives, as Tony mentioned.
Josh Spector: Okay, thanks. And just on Waggaman. I mean I don’t believe you mentioned at all that anything update on what you’re doing in terms of potential CCS at that site. So just curious if you have any thoughts there on what that could look like timeline wise? And if there’s anything to note about why CapEx or even OpEx, I guess, as you think about sending it on pipeline to get sequestered if that’s meaningfully different versus what you’re doing in Donaldsonville or similar?
ChrisBohn: Well, I think Waggaman is just another site within our whole entire network now. So we’re viewing Waggaman similarly how we’re reviewing all our sites when it comes to CCS, that being specifically Yasu City, and Medicine Hat in Alberta, some of the projects that are a little bit further along but our team is evaluating CCS at Waggaman, but again, similar to how we’re evaluating at all other sites. What I would say from a pipeline and sequestration, I think with Louisiana getting primacy on Class 6, we should be seeing a little bit more expedited approvals of those Class 6, specifically in Louisiana and that’s going to help move things along much more quickly. And I think based on some of where those Class 6 wells, particularly are also going to direct us where we’re going to put more of our time on each of our network sites for CCS.
So more to come on that, but we continue to evaluate and be very optimistic about Waggaman just as we are at Donaldsonville today.
Josh Spector: Okay, thank you.
Operator: The next question is from Jeff Zekauskas with JPMorgan. Please go ahead.
Jeff Zekauskas: Thanks very much. Who are the natural buyers for your green ammonia? And how do you think about the price at which you might sell it?
Bert Frost: So what we’re working on now is just that the volume of product that we will be producing could be digestible in a vessel, which could go to Europe. We’re working with some of the ethanol producers for a low-carbon corn value chain, which we believe will lead then to sustainable aviation fuel and low carbon fuel products. We’re talking to some of the food companies and some of their labeling ventures and how do we do that and incorporate that? So both blue and green or let’s just call it low carbon and no carbon products, we’re moving forward. And we think we have quite a few opportunities to market those products out of value over conventional products.
ChrisBohn: Yes. And I think if you look at it, Jeff, both similar with blue and green, we’re going to be the first to market with these. And as you look at the green, there’s just not a lot of supply there. So as Bert mentioned, you’re probably going to see a premium based on that product that is significantly above our cost, I would say, just because it’s a smaller amount. As we bring on Blue will be the first in the world with any measurable amount of volume with that. And I think there’s a lot of activity, as Bert said, on the demand pull side that we’re beginning to see that we feel fairly confident that we’ll be able to receive some sort of premium on it what that is, that is yet to be determined 100% at this time.
Jeff Zekauskas: Okay. And then natural gas prices have fallen pretty sharply, but you also hedge. Do you expect much hedging penalty in the first quarter?
Bert Frost: So how we talk about gas is just that. We do hedge and we saw that the reason why in January with the spikes up to $50 in our Iowa facilities and actual availability or lack thereof in some other facilities. So hedging and securing supply during the cold months of Dec, Jan and Feb are important. But you’re correct on the reverse side of that is those hedges were taken at higher value than we are in the cash market today. So your first quarter value for gas will be over what the cash value is and more to come on that.
Tony Will: I would say though, the offset to that Jeff is we’re not — we’re clearly not 100% hedged. We do, to Bert’s point, like to do basis hedging more than Henry Hub necessarily hedging. And so we are benefiting from the drop in the daily cash rate on a piece of it as well. And so in some cases, it’s not fixed price. There could be some swaps or some collars that are in there. And so we do get to participate in a portion of that reduction in gas costs. But really, what we’re trying to do is protect the margin against unusual weather events that can blow out against us. And if you end up giving up a nickel or a dime along the way in order to protect against the potential blowout that’s a reasonable insurance policy from our perspective, but Q2 forward is open.
Jeff Zekauskas: Okay, great. Thank you.
Operator: Your next question is from Richard Garchitorena with Wells Fargo. Please go ahead.
Richard Garchitorena: Thanks. Good morning. My first question was just on the update to the Mitsui JV and the Clean Energy Project. So it looks like the initial CapEx estimate from the FEED study is roughly $3 billion. Just curious, where did — does that compare to the original estimate when you signed the MOU back in early 2022, how much capacity does that entail and then also, what protocols are you putting in place to maintain that cost estimate as you progress through development?
Tony Will: Yes. So we have not made a final investment decision on that yet. We have an estimate that we think is within kind of plus/minus 10%-ish of the final cost. But we have not made a decision to proceed with that. And therefore, there’s nothing that we’ve done to kind of “lock in” that price because no decision has been made to progress. Relative to when we initially began talking with Mitsui and created kind of the MOU around the joint venture to pursue this project. We had, I would say, some very high level estimates of where we thought the cost might come in, but we certainly had not gone through the process of doing the FEED study to get an accurate cost estimate. And so it was just directional at best. I would say that the cost to complete, including the site level and a scalable infrastructure that Chris mentioned in his comments, is a bit higher than what we had maybe initially thought.
