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Yara makes a profit on energy optimization


Oslo (2006-07-11): Yara International ASA has booked a positive operating income and EBITDA effect of NOK 300 million in second quarter by utilizing optimization and arbitrage opportunities related to one specific energy contract. Yara has earlier guided that energy costs in second quarter are expected to increase by some NOK 600 million compared with second quarter last year.

Yara has the right to resell a portion of its ordinary energy purchases. The company has in the second quarter exercised this right and gained an arbitrage profit of NOK 300 million. The profit is booked within the Upstream segment.

The company will every quarter, as part of the accounting treatment of derivative contracts, value one of its larger energy contracts at market value. This contract comprises about 20 percent of Yara’s energy consumption in Europe. Expected difference between the purchase price for gas and the forward price for the same gas volume, adjusted for uncertainty and liquidity limitations in the forward market for gas, will be accounted for in Yara’s income statement.

The major part of the second quarter profit has already been realized as Yara has sold gas forward for fourth quarter 2006 and first quarter 2007, and also sold the rights to utilize energy optimization opportunities for the rest of 2006. The sold volume of gas constitutes about 3 percent of expected energy purchases by Yara in Europe over the next 12 months, in those periods of the year when forward prices are at their highest. This energy sale will not necessarily influence the company’s ability to actually produce ammonia in Europe, as Yara has the possibility to buy gas spot.

The accounting rules of such energy contracts will for the future give a somewhat higher short-term volatility in the Upstream segment. The flexibility to better optimize the energy portfolio is expected to give Yara an interesting future business opportunity.

Yara International ASA is a leading chemical company that converts energy and nitrogen from the air into essential products for farmers and industrial customers. As the number one global supplier of mineral fertilizers and agronomic solutions, we help provide food for a growing world population. Our industrial product portfolio includes environmental protection agents that safeguard air and water purity and preserve food quality. Yara’s global workforce of 6800 employees represents great diversity and talent enabling Yara to remain a leading performer in its industry.


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