Will Terra Industries Become a Leader in Clean Diesel Technology?

The following press release announces a distribution agreement between Terra Industries (TRA) and Brenntag North America for the exclusive distribution rights of Terra Industries’ Diesel Emission Fluid [DEF]. First, a little background on the use of DEF.

On January 1, 2010, EPA mandates that new on and off road Diesel powered vehicles will be required to comply with a new, lower level of emissions. To comply with the requirements vehicle manufacturers will be using a technology called selective catalytic reduction [SCR]. The SCR process requires a urea based substance be injected into the exhaust so the catalyst can capture nitrogen oxide [NOX]. DEF is the official urea based fluid that will be used in vehicles with SCR. NOX is the major pollution source from modern diesel engines (the 2007 emission rules eliminated the particulates) and SCR technology will remove over 90% of the NOX. All of the vehicle manufacturers offering Diesel engines will be using this technology.

Note: SCR technology has been used in European Diesel trucks for several years now with over 400,000 clean Diesel trucks currently on the road.

The new EPA rules will only apply to Diesel engines put in vehicles after 01/01/2001, so the initial use of DEF will be small and then grow as newer vehicles are purchased to replace older technology Diesels. Places like California will have mandates in place to force or encourage the retirement of older technology, higher polluting Diesel engines. Here are the projections for the amounts of DEF needed starting in 2010:

• 2010: 54 million gallons
• 2011: 172 million gallons
• 2012: 316 million gallons
• 2013: 463 million gallons
• 2014: 614 million gallons, and growing by 150 million gallons per year from there.

You can see the growth in demand will be there. What about supply? Terra Environmental Technologies is listed as one of the 5 manufacturers of DEF, along with Agrium Inc. (AGU), CF Industries (CF), Dyno Nobel, Potash Corp. (POT) and Yara North American, Inc. Brenntag is one of the 5 distributors of DEF I found listed. Brenntag is headquartered in Germany and is a global leader in the distribution of industrial and specialty chemicals.

Terra and Brenntag have a 2-way exclusive agreement for supply and distribution of DEF. It appears Terra’s penetration into this market depends on the depth of Brenntag’s sales connections. I know Terra management is high on this product as a growth market.

You probably noticed that the suppliers of DEF are all in the fertilizer business. DEF is a natural offshoot nitrogen based product from their nitrogen fertilizer production. Clean Diesel technology will be another growth area for some or all of these companies. I follow Terra Industries, but investors interested in this sector should get a warm fuzzy about another market for their product and start watching for DEF sales to determine which company will take the leadership in this product.

SCR and DEF information is from factsaboutscr.com

Note: TRA is a component of my site’s hypothetical Opportunities Portfolio.

Comments

[NOWHEREMAN:]

What about other technologies which provide the same result without the usage of another Food based solution.

Filters for instance?

2008 Dec 29 09:37 AM

[Kushmir Int...:]

aitvaras, most filters use rare metals such as palladium, rhondium and others to absorb the emissions. They cannot be produced very economically.

2008 Dec 29 10:09 AM

[Tim Plaehn:]

Nitrogen products do not come from food products. They are manufactured from natural gas.

2008 Dec 29 11:36 AM

[BerkeleyBob:]

I am a little puzzled. VW/Audi has a clean diesel certified as meeting California's current passenger car standards (I believe more stringent than the feds) which does not use urea injection. Mercedes does use urea. Don't know about BMW. Corning has made a few announcements about an improved diesel filter not using precious metals. It appears there is more than one approach to cleaner diesel emission which may in turn temper your enthusiasm for TRA.

2008 Dec 29 01:39 PM

[Tim Plaehn:]

Bob, that could very well be true. My experience is in heavy trucks where they all will be using SCR. I would guess that trucks use many times the diesel fuel that diesel powered autos do or ever will.

2008 Dec 29 03:36 PM

[EJM:]

Tim: where are the DEF gallons needed projections coming from?
Thanks

May 21 11:50 AM

[User 417867:]

Tim - a quick observation ... you mention in your article that all of the vehicle manufacturers offering Diesel engines will use SCR technology going forward. That is incorrect. Navistar/International is moving forward with EGR (Exhaust Gas Recirculation) technology on all of it's 2010 vehicles and will not utilize SCR technology thus negating the need for DEF. Thought that you might like to know this.

May 21 12:42 PM