Dan Rizzo: All right. Thank you very much.
Mark Behrman: Sure.
Operator: Thank you. Our next question comes from the line of Andrew Rong with RBC Capital Markets. Please proceed with your question.
Andrew Rong: Hey, good morning. So maybe just a higher level. I’m kind of curious how you feel about your sales mix on ag versus industrial sales. I think in the past, maybe you’ve mentioned, like Industrial sales does tend to give you a little bit more stability, and maybe you don’t get some of that volatility that comes with the ag markets. And as that Lapis project comes online, and it sounds like there’s more industrial demand for low-carbon ammonia, could your sales shift towards the industrial side a little bit more?
Mark Behrman: That’s a really good observation. Yes. I think that as we focus more on being the leader of low-carbon products, and given that the US farming community might be one of the last adopters of paying for low-carbon products, I think you could and probably will see us skew more towards the industrial side.
Andrew Rong: And would the return profile on that be any different? You get more stability, or is it still just looking at those mid-teens returns, but it’s just a different cadence?
Mark Behrman: Yes. I mean, it’s again a great question. So if we’re able to sort of contract our feedstock costs in a way that we can also hedge out that cost from a selling price perspective. And so, therefore, we have kind of a locked-in profitability providing that we run at certain operating rates. What we’ve then created is more of an annuity, right? So it’s a stable base of earnings. And so for that, on a long-term asset of some significance or size, I think we’d have to take a step back and really consider a somewhat lower return profile but nothing significant.
Andrew Rong: Okay, that all makes sense. And just maybe just one quick one on Houston ship channel. I understand it’s ATR that’s being considered for the technology. Would the JV also consider using SMR with flu gas? And should that — if that’s the case, like should that work kind of run in parallel?
Mark Behrman: No, I think we’re committed to an ATR. And remember, it’s not a full ammonia plant. It’s just we’re going to own the ammonia loop. So Air Liquide is going to sell us under a long-term supply agreement, both hydrogen and nitrogen. And so the technology that they’ve chosen is they’ve got their own internally developed ATR technology.
Andrew Rong: Right. All right. Got you.
Mark Behrman: A lot of benefits to ATR technology, right? You can capture economically 95% plus of the CO2 generated, wherein in an SMR, you can economically capture about 60% of the CO2, with 40% which is generated during — by the use of flue gas in that process. It’s uneconomical to capture today. Now, I think we fully expect based on technologies that are being developed that at some point in time, we will be able to capture that flue gas or the CO2 generated in the flue gas process economically but we’re not there yet.
Andrew Rong: Understood. Thank you.
Mark Behrman: Yes.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Rob McGuire with Granite Research. Please proceed with your question.
Rob McGuire: Good morning.
Mark Behrman: Hey, Rob.
Rob McGuire: Can you update us on when the margin enhancement projects are expected to be completed in 2024? And just an update on the expected EBITDA from them as well?
Mark Behrman: Yes. So the first project would be the installation of several nitric acid tanks down at El Dorado. In fact, I was just down there about a month ago to see some of the construction going on. We would anticipate that kind of the July timeframe. How much we should see on an annual basis, probably $3 million of additional EBITDA somewhere in that neighborhood. The second project is up at Pryor. It’s an expansion of our urea plant from about what was 385 tons a day to about 485 tons a day. Although, today we’re running that plant a bit higher than 385, as our technical teams are really doing a good job to push rates. So that will provide about 75,000 tons of additional UAN. So we’ll make the margin difference between selling ammonia and then selling UAN, and it’s about $5 million of annual EBITDA addition.
Rob McGuire: Thanks, Mark. And then shifting to the Houston ship channel. How should we be thinking about the potential EBITDA generation for LSB on this project?
Mark Behrman: Well, that’s a great question. I mean, if you could tell me what the cost is. We’re only in pre-feed now, but if we used an $800 million cost, and I’m not suggesting that that’s the cost, I think we really need to go through our engineering, and we look at the types of returns that we would want. I would guess that, you know, for a very stable and steady stream of income, it’s probably somewhere in the neighborhood of $150 million annually.
Rob McGuire: Thank you. And then just lastly, if I may, on a question, in terms of the delay of El Dorado, how long can you retain that USDA grant before the USDA decides that they’d like to give that to someone else? Or is there a window there?
Mark Behrman: I don’t really have an answer for you because we don’t — we haven’t been approved for the grant. So where we are is we were asked to do an environmental assessment which took us about four or five months. And as I’ve said before, it’s not a traditional environmental review. So we submitted that. They’ve acknowledged that they’ve received it. I believe we’re in a 30-day comment period right now or heading into a 30-day comment period. We don’t anticipate many comments since we didn’t have really any comments in the first comment period we had. At that point then they’ll come back to us and tell us presumably that we are awarded the grant and what the terms are, so we don’t even know what those terms are that we would have to meet.
