Ben Isaacson — Analyst, Scotiabank
Thank you very much. Good morning. My question is on your new mid-cycle price of $410 a short ton for CF. Can you talk about how much of that change is related to capital cost inflation versus how much is related to any structural or sticky changes that you see as a result of the conflict in the Middle East? Thank you.
Chris Bohn — President and CEO, CF Industries
Thanks, Ben. Maybe for starters, I'd just take a step back and just say, as I look back at our performance since the beginning of 2020, we've averaged over and above that $1.7 billion free cash flow that we have as the mid-cycle by quite some amount. It's not as if the empirical data and how we've performed and really how we've set up the company by increasing our production capacity and also lowering our fixed charges to get our free cash flow conversion where it is, hasn't been successful. Sometimes we don't always feel like that's being recognized, but we have been performing at that. What I would say is, construction costs, the gap between the U.S. and the rest of the world, has closed.
You're seeing labor, procurement timing, different things with being able to use module yards where that difference between a U.S. project and a global project has changed drastically, I think. Then to your point, there are certain costs associated with these geopolitical events that are going to remain structural. If you look at freight, for instance. Freight, we have basically from the Middle East to the Gulf now is about $70, where a year ago it was $35. Do we expect that to snap back to $35 and not have any type of structural piece to that? Probably not. Is that $5-$10 there? Is there a few dollars in insurance costs, different vessel configurations, and a risk premium based on where those assets and really the supply offtake is happening?
I think as we look at it really from a NOLA price, we're saying we've moved from $355 NOLA urea on a short ton to $385. Of that $30, there's probably $10 that may be associated with structural changes that don't go away as a result of these geopolitical events. The remaining amount probably exists due to higher capital costs and really a closing of that gap between U.S. construction and outside the U.S.
Andrew Scribner — EVP and CFO, CF Industries
Maybe let me add a little color. Hi, Ben, this is Andrew as well. As you look at that price going from $355-$385, the underlying assumptions that we have is this is for a call it a 1.3-1.4 million ton capacity site with a CapEx estimate of about $2.6 billion-$2.8 billion. If we assume $350 natural gas and a 10%-12% financial return, that's how you get to the $385 price. You use our economics and it gets to our EBITDA of $2.9 billion. One piece that I want to call out of what's in there and what's not in there is we also gave some color context around $400 million over time by 2030 that will get you to $3.3 billion.
Out of that $400 million, $300 of that is Blue Point and $100 is additional carbon capture benefits we'll get out of Donaldsonville and Yazoo City. The way to think about that, what's not in there, and I'll do this illustratively, you likely saw that we're pursuing a FEED study for DEF. Because that has not been officially green lit yet, that is not in that $400 million. If we get to that point through an investment decision, it will go in there. Likewise, in that $2.9 billion, as we're starting to realize the benefits of Donaldsonville on carbon capture, that's actually shifted left into that $2.9. It's really a function of the capital cost, and as Chris mentioned, there's probably some context around a little bit of geopolitical premium there, but it's really the capital costs and sort of the realizing the benefits on carbon capture. Hopefully that helps.
Ben Isaacson — Analyst, Scotiabank
That's great. Thank you.
Joel Jackson — Analyst, BMO Capital Markets
Hi, good morning. It seems like looking at yourself and your peers results, ignoring some of the lower volumes in Yazoo City, there's a bit of a buyer's holiday in nitrogen Q2, and we all know what happened with commodity prices, nitrogen prices across the quarter, urea as the war started and prices came down. I wonder if you could talk about that. What does that set up for the second half of the year coming out of the last, I don't know, five, six months of volatility?
Bert Frost — EVP and Chief Commercial Officer, CF Industries
Yeah. Interesting view, Joel. I think that did happen in different places around the world as prices escalated, especially in April and May. You definitely had a pullback in Central and South America, where the necessity to purchase it's really to put into inventory because applications are further and later in the year, specific to the big applications in Brazil. You also had pullbacks from Australia, from Southeast Asia, and the Northern Hemisphere was completing the application season. We did see some movement in North America, as I mentioned in my comments, with movements amongst products with additional urea. We pivoted and produced more urea as well as DEF, that limited us a little bit to what our UAN availability was. I think overall prices did impact some places where you could defer demand, and we saw that happen.
We see a little bit, I would say, as the data's coming in with a possible small cut in consumption in North America. Not as big as relative to the other nutrients. The second half, we're bullish on the second half. When you look at what we've put together with our UAN fill program, the team did a great job of working with our customers, organizing that, and getting it executed well. When the average price on that is probably close to $300, and our program extends into Q4. Good, solid demand, good movement. We're already seeing that. I mentioned in my prepared remarks about the fall ammonia season with a very good uptake for that, and we're just now positioning product in our terminals to serve that demand in November.
When we look at where we are in the ag cycle, where we are with pricing, and the customer uptake on the retail wholesale side for us, which we know has been pushed down into the farmer, we see good positive traction through 2027.
Joel Jackson — Analyst, BMO Capital Markets
Thank you.
Martin Jarosick — VP of Treasury and Investor Relations, CF Industries
Operator, next question, please. Yeah.
Lucas Beaumont — Analyst, UBS
Thanks. Good morning. I kind of just wanted to sort of follow up on the outlook there. I mean, I guess just given kind of the soft demand here in the second quarter, like a more compressed kind of timeframe for deliveries in the second half, we've got the still impacted global supply issues and now increasing cost care support as well from European gas. I guess, just how do you kind of see the setup there for pricing as we move into the fall and spring? Is there a point here where the market's going to kind of rapidly tighten and expose low inventory levels as demand picks back up? I guess when do you think that would sort of be timing-wise, and is that setting us up for much higher in-season U.S. premiums again coming up? Thanks.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
Good morning, Lucas. This is Bert. Regarding the soft Q2 demand and the deferrals that I mentioned in the southern hemisphere, we do believe that's going to catch up, and you're seeing that in India with the most recent tender. We anticipate India to be an import demand of 9-10 million tons, which is over what they were last year. We're seeing positive movement in South America. I expect to see some grain movements, some grain pricing movements, which will incentivize additional consumption. You're right, the compressed deliveries, it's going to be a port lineup for some of these folks. The values have come back down to attractive levels and as I think lower pricing will incent demand.
You're right, the EU gas structure is at a disadvantage with $18-$20 gas at a differential to the world makes European operations constrained that we believe in. Probably a higher level of imports there. With where we are in the ag cycle with pricing for the feed grains and the consumption of nitrogen, we're constructive for the back half of this year as well as 2027. I do think there'll be some tight pricing to come. When you look at we still lost 5 million tons from the Middle East or from those countries that were unable to get LNG. We're seeing a little bit of movement out of China for exports to replace some of that, but that's probably in the 5-6 million ton range, so kind of a net zero.
With those places that are constrained with LNG or cannot afford, you'll see probably some production cut back. Balance on balance, we see a tight market through next year.
Chris Bohn — President and CEO, CF Industries
I think Bert talked about just what's happening in Europe as we see those prices come down, but not the feedstock cost of that come down. You'll probably see more constraints on that as we've seen over the years where we're seeing curtailments and shutdowns occur. On top of that is probably the one area we don't know is really what happens in the Gulf area. As Bert mentioned, that's a significant amount of volume that still needs to supply the world here. If you're seeing curtailments in Europe and still some on and off again stuff in the Gulf area, that's really what's going to determine pricing from that. Volume wise, as he mentioned, I think we feel very strong about what we're seeing.
Lucas Beaumont — Analyst, UBS
Great. Thanks. Just on Yazoo City. The repairs have sort of been pushed back a little bit into the first half of 2027. I was just wondering kind of what the sort of swing factors there are in terms of sort of hitting the timeline, anything to share sort of on the business interruption insurance that are there in terms of the income and cost coverage. Are you looking to do anything different at the site sort of with the rebuild that could sort of deliver benefits to you after it's finished? Thanks.
Chris Bohn — President and CEO, CF Industries
Okay. This is Chris. I'll take some of the first parts of that question and then turn the insurance discussion over to Andrew here. I think the biggest part is we've gotten more information. When we put out that we thought it'd be late 2026, that was preliminary information on what needed to be done with the particular site and what the procurement timelines would be. We've seen with a lot of projects globally here, you are seeing procurement timelines extend some, and that was primarily for electrical gear, and that's why we've moved it into the first half of next year from a timing standpoint, just as we've gained more information and better insight into that. Related to the site itself, we are changing how that site's going to be configured We will no longer be prilling ammonium nitrate down there.
We'll be doing ammonium nitrate solution along with ammonia and DEF down there. Really what we're building out in that particular location is probably increased flexibility, both from an operational and a logistics standpoint, where we'll have a broader customer base that we can start to supply throughout the years here. I think we're excited about what the opportunities and what we're changing at that particular site to make it a more sustainable site long term. I'll turn it over to Andrew now to talk through some of the insurance side of it.
Andrew Scribner — EVP and CFO, CF Industries
Yeah. Hi, Lucas. I'll give a little bit of color on kind of three buckets: accounting, I would say the insurance piece, and a little bit of how to think about capital. From an accounting standpoint, in Q4 of last year, we recorded a $25 million impairment on machinery and equipment. Then you'll see or have seen in Q2, we took another further impairment of $23 million for equipment we'll no longer be able to use. Total, that's just shy of $50 million of impairments that we've taken. On the insurance recovery to date, it's been about $75 million. We had $25 million of property damage that we recorded in Q1 and received in Q2. Then we've had $50 million of business interruption insurance. When you look at it to date, it's been about a 2:1 ratio.
Longer term, it'll probably play out more like a 3:1 ratio. That business interruption insurance covers us for about 18 months as you look at that. You will note, I just want to make sure this is clear, we are not including in our capital guidance an assumption for Yazoo City, and there's kind of two fundamental reasons. One, we expect the insurance recovery to offset that capital build cost. Two, the timing is dynamic. When you look at the timing of the capital between the back half of this year and first half of next year, it'll be dynamic, and the insurance recovery is going to be dynamic. When you look at that over a longer timeframe, they will offset each other, but that's why we're not specifically guiding that right now.
Martin Jarosick — VP of Treasury and Investor Relations, CF Industries
Operator, we're ready for the next question.
Rahi Parikh — Analyst, Barclays
Hi, all. This is Rahi on for Ben. On S&D, are you seeing any impact from the extra Texas capacity this year, like Gulf Coast Ammonia, Woodside? Is this just largely offsetting Trinidad volumes? Maybe medium or long term, how do you expect this to affect supply and demand once the impacts of Iran settle down? Thank you.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
Yeah. When you look at the Texas plants, there has been a long lead to their full production, and I don't think they're still at full production. Those tons have been absorbed. They've been moving around the world. They've had some contracts. Now with Yara purchasing the Gulf Coast plant, I assume a lot of that product will go to Europe offsetting production cutbacks. You're correct. There have been offsets throughout the world, Trinidad is one, that have taken tonnage off market. On the demand side, there's also been some negative impacts with, as you've heard from the phosphate producers with their cutbacks due to limited supply of sulfur and sulfuric acid. That has limited phosphate production, which therefore has limited their ability to consume more ammonia.
The market has come off the highs of Q2 and is today balanced in the $600-$700 range, depending on destinations. We see these two plants, the Gulf Coast plant and the Woodside plant, both coming up to full production. It will be absorbed into the market.
Chris Bohn — President and CEO, CF Industries
I think longer term, we've talked about this, that the global S&D is tightening independent of what was happening in the Gulf during this particular timeframe. If you look at a slate of new projects that are projected to come online between now and 2029 or 2030, there's just not enough to meet demand. If there were some sort of resolution in the Gulf, as Bert mentioned, you're going to have other demand pieces that will grow because you can have sulfur, some more phosphate there. We still think that there is just very much a tightening that continues to go on between now and the end of the decade in the nitrogen market here.
Rahi Parikh — Analyst, Barclays
Got it, thanks for the color. Just a quick follow-up for Yazoo. Can you just walk us through the thought process that you're going to make AN, UAN, et cetera there? Why not just do urea, given the margin structure has been superior in the last 10 years? That should be it from us. Thank you.
Chris Bohn — President and CEO, CF Industries
Yeah. From a urea standpoint, you're right. Urea is really the catalyst as to why we're going to see the global nitrogen market get tighter. There are upgrade projects that we're looking at, one of which is even for DEF. That's a urea project at Courtright. As you look at Yazoo City, the urea plant there would have to be a full-blown new urea plant, world-scale plant there. We look at what we have opportunity-wise that Bert's commercial team has put together, both from an ANS, a UAN, and DEF, that it wouldn't really make sense to put in that type of capital at that particular site.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
I also think when you look at how we're configured and structured asset-wise and our distribution of those assets and the modes and how we move the product through rail, truck, barge, vessel, or whatever pipeline, Yazoo is a unique asset in that it's our main or our only ANS plant. As we work through this new structure, we're going to be improving the load outs, improving capabilities, and having different access to different modes, and that'll give even more flexibility to Yazoo City.
Rahi Parikh — Analyst, Barclays
Makes sense. Thank you.
Kristen Owen — Analyst, Oppenheimer
Hi, good morning. Thank you for the question. Wanted to follow up on capital allocation. This is clearly an and strategy, not an or, just given the strong cash flow you've generated thus far. You raised the dividend, you're increasing the buybacks, and you're coming into peak CapEx period. The one that I actually really wanted to ask about is this FEED study on DEF. Can you just give us a little bit of background here, how you're thinking about the demand and economics for, say, industrial applications versus over-the-road applications? I know we've got some EPA changes coming up, just a little bit of color on the DEF study.
Chris Bohn — President and CEO, CF Industries
Yeah. I'll let Bert start on the market and what we see that's interesting us in the market and the different areas where it is, and then I'll speak a little bit more specific to the project itself.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
DEF has been an interesting product for us in that it's just about 15 years old in terms of how long DEF has been an active part of our portfolio, we produce it at different plants. The growth from basically zero to today, 2.2 million tons of urea equivalent tons. This is in effect, two world-scale plants of urea are now being consumed in North America, where that just didn't exist 15 years ago. When you look at the growth of demand as new power units come into service, the dosing rate has increased from a very low level 15 years ago to, well, zero before that. As these power units get replaced, an average power unit can last nine to 11 years, that replacement rate is slow, but we see that taking place.
With the additional dosing rate continuing to increase for better efficiency, that's miles per gallon, as well as emissions control. We see this market by the early part of next decade, 2030, 2031, hitting 3 million tons or over. A lot of growth opportunity. Again, where we're positioned asset-wise, Courtright makes a lot of sense to serve the East Coast market, which is a heavy demand market.
Chris Bohn — President and CEO, CF Industries
The one thing I would add is this isn't really our thoughts on the growth of DEF in isolation. Essentially, we've worked with OEM engine manufacturers all the way down to the retail side to make certain that we're aligned as to the growth that we see going forward. I think all parties are seeing the same thing there. As Bert mentioned, Courtright provides a unique opportunity for us. Today, Courtright has a net long position in ammonia that is a little bit logistically constrained, both by what rail line it's on and therefore having a lower margin ammonia that comes out of that particular plant. Because it's such a low margin ammonia that comes out of that plant, it's providing a better opportunity to put in an upgrade unit there.
The rail line it happens to be on can feed the East Coast, the Mid-Atlantic area better than any of our other sites that are producing DEF today. As we look at this, provided what comes out of the engineering and design study from a capital cost, but we feel that this is gonna be a project that is not only gonna grow into a market that is an industrial ratable market, very strong for us, but is additionally something that's gonna be well above our cost of capital, just given the configuration of that site today.
Kristen Owen — Analyst, Oppenheimer
That's super. My follow-up question is on your expectations for mix in the back half of the year, just given what you said about the fill programs, what fall application looks like. Obviously, the economics moved around quite a bit here in Q2, just how you're thinking about mix of product in the back half of the year would be helpful. Thank you.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
Yeah. I would say we're looking at a normal slate in terms of the economics as we look product by product where the economic advantage is against our order book, which is a very positive order book. I would anticipate a normal slate for the back half. We're gonna work on our inventory levels, which built up during Q2. I think that was one of the issues on the write-up was that we had a limited volume on UAN, what we did was move more of that to urea and DEF in Q2. Any inventory we have, we expect to disgorge on the back half of the year and run at normal rates.
Kristen Owen — Analyst, Oppenheimer
Thank you for the time.
Christopher Parkinson — Analyst, Wolfe
Great. Thanks so much for taking my question. Totally understand the second half outlook in terms of steady demand, a lot of lost tonnage out of Khorasan as well as some of the Iranian tonnage to see the market tight for the foreseeable future. At the same time, I'm curious on your interpretation of the U.S. and coastal benchmarks typically trading at a discount. It seems like the international opportunities, especially in the third quarter, should have been a little bit better, should be at least improving in terms of that prospective market tightness. I'd love to hear your perspective across both ammonia and downstream in terms of how you see those dynamics playing out just in terms of the ripple effects from lack of production in the first quarter or two. Thank you so much.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
Yeah. When you look at what the tonnage that was lost, urea and ammonia out of the Gulf, as well as tonnage lost due to lack of LNG to those countries or companies that rely on LNG to produce, it's substantial. Back to how do you backfill that supply? Some of it is through, I think the Chinese tons that everybody's expecting to come out, as well as Just solid operating rates. In terms of trading values and looking into what markets we would move our tons to, you mentioned that we're trading at a discount in NOLA. We are. You've seen us build an export book on urea that's probably higher than normal.
When I look at where these benchmarks go and where we are in terms of pricing for the world, I think you're going to see a market that improves and in terms of is tight and will tighten as this demand that's been deferred is purchased and moved.
Christopher Parkinson — Analyst, Wolfe
Got it. Just as a quick follow-up to that, I'd love to hear your perspective that, in the U.S. alone, and I apologize if I'm missing one, you've seen basically seven cancellations in terms of low carbon or blue ammonia over the last several quarters and perhaps a project or two are technically on lifelines. Chris, I'd love to hear your perspective on just your intermediate longer-term outlook. It also seems like the demand side of it has been a little bit more quiet versus some positive events back in 2025. I'd love to just hear your dynamics in terms of market development, your position, how you're thinking about the overall Blue Point complex, and any incremental opportunities you see fit based on the fact that a lot of others have given up. Thank you so much.
Chris Bohn — President and CEO, CF Industries
I think to start with, Chris, the ones that have given up are participants that were not necessarily in the market to begin with. Okay. If we go back a few years ago, I've said this before, there was like 107 green and blue plants announced, of which I think there's four in construction today, of which ours is one of them. There was a lot of hype about what clean energy was going to be. Our analysis never showed more than we were thinking maybe seven of that 107 would be built. I think we've been more pragmatic in this. As you look at that clean energy market, it's really similar to the DEF market that Bert mentioned.
The million tons that'll be going both to JERA and Mitsui, our partners, is a million tons of incremental demand that didn't exist just a few years ago. We're continuing to see some growth opportunities in Japan and other pieces of Asia, but it's going to be at a slower pace than what I think the original hype was on that. What benefits us is whether we have a low carbon ton or a conventional ton. We produce it the same way, we store it the same way, we transport it the same way. All those operational efficiencies that we have as an organization to lower our cost per ton on new construction and also the distribution of it, reside with us and accrue to us that others don't have.
I think that's why you're seeing us continue to be bullish on both Blue Point and maybe even a Blue Point 2, is because of those assets and really that ability we have to move that product and to produce that product.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
Well, I would say low carbon or not, or gray or conventional, however you want to define it, we are competitive globally. Even with the premium, we're competitive globally, and we're proving that by our contracts that are in place and what we're sending to different places today. That will only grow, and I do believe that the low carbon value, especially in Europe, is going to continue to be valued and grow, and that demand will grow as well.
Christopher Parkinson — Analyst, Wolfe
Thank you.
Vincent Andrews — Analyst, Morgan Stanley
Thank you. Good morning. Chris, I wanted to ask you on the dividend and maybe separately on another part of capital allocation, just sort of what your thought process is. Obviously, as the share count comes down, you can pay a higher dividend without spending more money. Is that just the plan going forward? Should we be anticipating maybe getting to more annual dividend increases versus I think the last one was maybe 2023? Separately, from an M&A perspective in the U.S., obviously there's a limited number of assets, but one just traded. Do you still have scope from a regulatory perspective where you think, if other things became available, you would still look at that? Or should we be thinking about volume growth from here being more along the DEF or as you just mentioned, Blue Point 2?
Chris Bohn — President and CEO, CF Industries
I'll just start with the dividend part and then actually, let me start with the second question first, and then I'll go to the dividend and pass it over to Andrew as well. On the M&A scope, we did see the Gulf Coast Ammonia plant transfer to Yara or is in the process of that. We do believe that we still have some room from an M&A scope. I think if anything, what CF has demonstrated just based on the prior answer I had given is that assets in our hands produce more production volume. Whether we go back to what we did when we acquired Terra back in the day, with the investments we made, our best practice teams, or just looking recently at Waggaman where we've increased that consistent production there, but by over 30%.
Our ability to increase volume within a market, I think, is a key to allowing us to continue to do particular assets acquisition. As we look at those asset acquisitions, we want to be someplace that isn't in the third quartile or someplace out that from an operations standpoint could be constrained as time goes on. We like our low-cost position. We like the low cost, low risk that North America from a geopolitical standpoint brings. That's primarily where we're going to focus going forward, both organic and inorganic there. From the dividend, before I turn it over to Andrew to get into some of the specifics, I think one of the underlying reasons is just our faith in where we see our mid-cycle and our free cash flow generation, not just this current year and next year, but over the entire cycle.
We just see it stronger that we've been very focused on reducing fixed charges, of which dividends are one of them. I think as we're seeing that free cash flow conversion and generation goes up, just makes us more confident in increasing it as time goes on there.
Andrew Scribner — EVP and CFO, CF Industries
Hi, this is Andrew. The piece that I would share is our overall strategy on capital allocation has not changed. The hierarchy of driving strategic growth, share repurchases, and dividend. When you think about the dividend, I think of it as two fundamental principles. One, we want to be competitive with the marketplace. The increase that we did took it from a 1.8% yield to 2.1%, compared to the S&P of 1.1%. The second principle, what I would share is we're conscious of what we spend in absolute. You can look and you can probably see there's a range that we tend to target. It's not a hard and fast rule, but it's a range. That range allows us to fuel growth into the top of our pyramid on strategic growth. Those are the kind of principles we apply as we look through it.
Chris Bohn — President and CEO, CF Industries
It should also be noted, as we've said in the past, we believe our shares are still incredibly undervalued. This whole geopolitical swings that we trade off of rather than the underlying fundamentals that we see going forward, we're going to continue to be aggressive in share repurchases as our number one outlay of our capital allocation towards shareholders.
Andrew Wong — Analyst, RBC Capital Markets
Hey, good morning. Thanks for taking my questions. Just kind of following up on that last thought there, Chris, and in the presentation, too, there's a couple slides where you highlight the valuation disconnect that you see versus some of your peers. Can you just talk about maybe why you think that that's the case? What's driving that disconnect? What can you do at CF to kind of close that gap?
Chris Bohn — President and CEO, CF Industries
Well, what I would say that we can do to close that gap is continuing just to perform as we do at the highest level. Like I said, if you look at our free cash flow over the last six years on average is significantly higher than what we're suggesting the new mid-cycle is. This isn't just a one year, two year type of thing. For us, it's to continue to move forward and perform as we do from an operational looking for margin enhancement, whether that be a DEF project, other utilization or debottlenecks, or whether that's organic and inorganic growth that has return profiles well above our cost of capital. One of the reasons why I personally believe we trade in this is I think people are still trading 10 years ago on CF. We've increased our production volume by almost 40%.
We've reduced our share count by almost 60%. Yet people are still thinking we're this over-levered company that is doing expansion projects. We're a significantly different company today based on what our capital structure is, our free cash flow conversion. That hasn't happened by accident. It's come through very methodical. Our SG&A and our working capital are the lowest in the industry, and by the industry, I mean basic materials, I mean chemicals, everything. There's almost this ignoring of that just to say, well, they're a fertilizer company and we're going to place them against these three or four other peers, which I think is a complete mistake. As long as our shares are undervalued, we'll continue to buy our shares back.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
I also think there's a misunderstanding of our assets and the leverage points that we have in terms of where our plants are located, the diversity of the products that we make, the modes that we're able to ship, and then the terminals we're able to distribute as well as export to any country in the world. We have all this flexibility on top of some of the lowest gas costs in the world. We are going to be a low-cost producer in a high-valued market with the best farmland in the world. When you put all those together, it's a unique mix that only we can satisfy and the rest of the world can't. None of our operating competitors can do that. That's why I think we should be valued differently.
Andrew Scribner — EVP and CFO, CF Industries
As you can see, we're $500 million into a $2 billion program. As we try to look at our intrinsic value and what it should be, we're looking at DCF analysis, comps, replacement value. Every calculation that we do suggests that there's an opportunity there. We'll continue to be opportunistic as we go.
Andrew Wong — Analyst, RBC Capital Markets
Great. I appreciate all that. Maybe just one on costs. When I look at COGS and I ex gas and D&A, it does look like it's trended up a little bit in the past couple quarters. Can you just speak to that? Is it mostly just the Yazoo City or anything like maybe some extra turnarounds or anything like that? Thanks.
Andrew Scribner — EVP and CFO, CF Industries
Let me give some color on costs in Q2. If you strip out the impact of volume and gas, our fixed costs were up about $75 million. I'll do this kind of simply and illustratively, but I'll give you the context. Let's call that $70 million for the context that I'll share. About 10 of that was distribution and logistics, and that was probably the smaller piece of the puzzle where you saw some mode mix going from barge into rail, and then the rate on rail itself has gone up a bit. The other 60 is about a 50/50 split between higher purchased ammonia costs flowing through, and the rest is fixed cost absorption tied to Yazoo City being down. That kind of gives you the three pieces that are coming through there from a COGS standpoint.
Chris Bohn — President and CEO, CF Industries
I would say that purchased ammonia, obviously we have benefits of that that flow through the revenue line, and it is providing a margin, but it does provide higher COGS during that timeframe. Additionally, one of the turnarounds we started during that time was Ammonia 6. Ammonia 6, obviously, it's almost comparable with two plants. The cost associated with that in the years in which we do Ammonia 6 are always going to be slightly higher from a turnaround standpoint.
Andrew Wong — Analyst, RBC Capital Markets
Perfect. Thank you.
Matthew DeYoe — Analyst, BofA Securities
Good morning, everyone. I just wanted to reconfirm. For CapEx on Blue Point, what's your mix on fixed versus non-fixed EPC work?
Chris Bohn — President and CEO, CF Industries
Yes. Oh, go on.
Matthew DeYoe — Analyst, BofA Securities
Yeah, sure. No, no, go for it. I apologize.
Chris Bohn — President and CEO, CF Industries
Well, what I was going to say is, essentially, when we looked at the Blue Point project, the one thing we tried to do was mitigate our overall costs related to that. We did that a couple of different ways. One was through our partnerships, where we partnered with Linde and even Oxy's 1PointFive on the CCS unit. Additionally, even with Mitsui and JERA, where they're providing some insight and administrative benefits along with as we go to the module yards in Asia. I think that is one area where we look to lock down on some of those costs. What we have fixed is roughly probably about 50% of the CapEx related to that, and that is in a couple of different areas. One is in the engineering and the module yards.
The other is in some of the lump sum turnkeys that we try to do on the infrastructure pieces, whether it be the tank or some of the dock and bridge work and things like that. We feel pretty confident about how we're managing through this. As I mentioned earlier, we have our long lead items for Blue Point purchase. Some of those things that we're seeing with extension of lead times or increases in costs related to those, we started some of those critical items having contracts in place even pre-FID on the project itself.
Matthew DeYoe — Analyst, BofA Securities
Just as a quick follow-up. Labor and assembly and build-out, I assume that's just impossible to fix now in the Gulf?
Chris Bohn — President and CEO, CF Industries
The portion that will be labor in the Gulf is going to be significantly lower than what we saw when we did the expansion projects back from 2012-2016. That's because a lot of the work from the modular piece is going to be done overseas. As a result of that, you're probably going to have maybe a third of what the labor component was compared to what we saw last time. That does a couple of things. One, that allows you to probably get more skilled labor in there because you have a smaller headcount set you're trying to do there, just limits the high cost labor that would be in the Gulf Coast right now.
Matthew DeYoe — Analyst, BofA Securities
All right, I appreciate it. If I could, Bert, I was just wondering about the underlying assumptions for 9-10 million tons in India this year, because they obviously ended last year with pretty good balances given all that buy. I'm just kind of wondering if that 9-10 million tons assumes maybe shipments from last year into this year, or that's really like a back half loaded bid period.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
If you do it on their fertilizer year, which is April through March, they had the tender for 2.5 and a tender for 1.770. Total to date is 4.27 tons. They just announced the tender last week for an additional 1.7. You can do that math. That's roughly 6 million. We expect another tender by the end of this year. They also tendered twice in the calendar year, once in January and once in February. If you go into their fertilizer year, that would extend into January through March, and they did almost 2.2 million tons. When you add those all up, that gets you to 9-10 million tons expected. You have to remember, they are an LNG importer, and they were running it suboptimally on their domestic operations.
We estimate they lost 1.5-2 million tons of domestic production. Rolling all that up, and we're still not sure what can come out of the Strait on the forward market, I would say 9-10 million tons is a pretty good estimate today.
Matthew DeYoe — Analyst, BofA Securities
Thank you.
Mazahir Mammadli — Analyst, Rothschild & Co Redburn
Thank you for taking my questions. I just wanted to ask a follow-up on the mid-cycle EBITDA targets. What is the sort of mid to long-term market balance is assumed in that? I'm just going to give you an example. For example, India is striving to be more self-sufficient over the medium to long term. In urea, you have a number of projects that are in development that should theoretically come online by the end of the decade, and that would theoretically remove demand from the global market. Is stuff like that factored in? How should we think about it?
Chris Bohn — President and CEO, CF Industries
I think if you look at the overall supply growth over the next four to five years, India does have a few projects, one of which is green, that I think you have to start to put probabilities on what is the timeframe in which that's going to go. Even with all the announced projects that are happening right now, you're going to have a deficit or an extreme tightness in the S&D balance as we see it going out through 2030. Just because India wants to become self-sufficient and other countries as well, doesn't mean that there's not a capital cost that's incurred in order to drive and build those particular plants themselves. If you look at it from an economic standpoint, it may make more sense to continue the import or these particular projects can be delayed.
How we look at the mid-cycle is we do build in what we have in flight when we're working with engineering teams, and usually you have a very good visibility, I would say, out five years, because that's about the time it takes to build a plant. We start to manage that as time goes on and readdressing that. Today, really as you look at the next few years, there's a plant in Qatar, there's one in UAE, there's our plant, and then one in Nigeria. Outside of that, I would say the others are a little bit at risk, whether that be Russian plants or some of these Indian plants that are talked about to come on before 2030.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
As well as there's constrained areas around the world that we've identified in previous conferences or calls. When you look at Europe and the gas spread and the age and the inefficiency of some of those plants and their long-term viability, as well as what's coming out of, in terms of LNG-constrained areas like Bangladesh and some of the Southeast Asian plants that are also, I think, challenged. On a going forward basis, not every plant, which we saw the Brazilian shutdowns, they're talking about revamping. I don't think that's very viable long term with the way gas flows there. There's Trinidad that's also limited on gas. You have new capacity coming in and old capacity, which we believe won't be operable over the long term, as well as demand increases over time.
Mazahir Mammadli — Analyst, Rothschild & Co Redburn
Great. Makes sense. Thank you. I just wanted to sanity check something regarding Section 45Q. When I look at Q1, there is $19 million of Section 45Q income, which if I sort of divide it by the $85 a ton CO2 price, gives me a CO2 capture of slightly more than 200,000 tons. As far as we know, Donaldsonville is around 500,000 tons CO2 per quarter. Is that calculation missing something or is Donaldsonville CO2 still ramping up?
Chris Bohn — President and CEO, CF Industries
Well, I think there's two points there. One, the revenue through the first half of the year is about $45 million associated with the 45Q, not the number that you suggested. The second part is this year we do expect the overall CO2 to be lower throughout the Donaldsonville facility, primarily because of the turnarounds that took place there. I mentioned earlier Ammonia 6, which is effectively two ammonia plants with its production went through a turnaround. It's completed that turnaround now, that turnaround began in June and went through July as well. As a result of that, you're going to have lower CO2 that was available in order to sequester during that timeframe. I think the numbers themselves, which show through in the other operating income line are correct at $45 million.
The one thing I would mention is that we are not taking it to a Class VI as of right now. As that is at $60 per ton. We do believe, just to maybe follow up on that the Class VI approval will be happening later this year, and that'll move to the $85 a ton. Economically, we're indifferent because our transfer today is at a zero cost with Exxon, and it'll move up to the contractual rate once the Class VI is in place.
Mazahir Mammadli — Analyst, Rothschild & Co Redburn
Great. That's very helpful. Thank you.
Edlain Rodriguez — Analyst, Mizuho
Thank you. Good morning, everyone. Chris, in terms of the valuation, should we then expect to be more aggressive on the buyback going in the second half of the year? Because the pace seems to be a little slower in the first half. More importantly, as you noted, late into the second quarter, we saw global urea prices decline. What was most surprising to me was that in the U.S., prices not only declined, but they were below last year's level. That was despite all the supply disruption we had globally. How do we explain that?
Chris Bohn — President and CEO, CF Industries
From the share repurchase, I'll start with that, I'll let Bert touch on the urea piece. On the share repurchase, we have significant amount of cash on our balance sheet. We have a program, as Andrew mentioned, is still open with plenty of room there, we believe that we are trading underneath our intrinsic. Checking all those boxes, we expect to be into the market. Now, having said that, when I look at how we're trading off of what happens on a tweet or basically what Pakistan is saying or something coming out of Oman or whatever, we're trading in the last six weeks between $100-$140. We're going to be opportunistic and grab more shares as we see some of that volatility exist. We are committed to repurchasing shares. We have the cash flow to do it over and above what we're seeing from our strategic initiatives, we'll continue to do that.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
Yeah. Regarding the Q2 price correction, you basically reverted back to where we were in the lows of Q1 went up due to the hostilities in the Gulf, reverted back down. A lot of that, I think, was trading off of rumors of peace and openness to the Gulf. We were at the tail end of our season, a lot of trader liquidation taking place. I don't think a lot of physical tons moved at that level, we since corrected back up to the $400-$415 level where we are today. I think that's where we'll plan out. As we talked about in earlier calls, earlier questions, the tightness, I think, will be more pronounced as we get to the back half of the year.
Edlain Rodriguez — Analyst, Mizuho
Great. Thank you very much.
David Symonds — Analyst, BNP Paribas
Yeah, thank you. Just another one on longer-term outlook. China is still adding capacity for the rest of this decade. Is your view that they can start to export more than the 4-6 million tons you expect this year in the next few years? Or do you think they add capacity to replace older plants at this stage? Thanks.
Bert Frost — EVP and Chief Commercial Officer, CF Industries
I think yes and yes. I think they've proven their ability to build new plants. The amazing thing to me about China is the growth and demand. Today they're running at about, we target them at an 82%-83% operating rate, where we run at 98%-99%. You have to take their factor in terms of their capacities. They do have some older plants. There have been, over time, a replacement of urban plants or inefficient plants into newer, more world-scale plants. The growth and demand over the years, where they're over 60, [63, 64 million tons] of consumption internally, the capability to export is there. I think what the Chinese government has learned is exporting energy in the form of urea, but you're importing energy in LNG and coal, it's not a value-creating game.
What they have determined or what they, over the last several years, have communicated is the urea and the energy basis and the subsidies they've given should be benefiting the Chinese farmer and the Chinese consumer, and that has happened. The domestic price in China is significantly lower than the global price. Over the last, let's say, year or two, they've controlled it through these export quotas and allowing certain times, levels, and values to be exported, which the global economy needs. Where they will be longer term, I think that where they are today in that 4-6 million tons probably for this year and the next, and will be determined later in the future.
I don't think they have identified urea or ammonium sulfate or any of the fertilizer products as an area to focus the attention and, again, keep that for the Chinese consumer and farmer.
David Symonds — Analyst, BNP Paribas
Got it. Thanks.
Martin Jarosick — VP of Treasury and Investor Relations, CF Industries
Thanks everyone for joining us this morning, and we look forward to seeing you at upcoming conferences.