Chemical producer BASF Group and fertilizer specialist Yara International are teaming up to build a major new ammonia plant at BASF's site in Freeport, Texas.

The two companies said on Thursday that the facility will use hydrogen as raw material, significantly reducing capital expenditure, maintenance and carbon dioxide emissions compared to a traditional natural gas-based ammonia plant.

A long-term supply agreement for nitrogen and hydrogen has been signed with Praxair Inc.

Torgeir Kvidal, president and CEO of Yara International, expects this project to further strengthen the firm's position in the global ammonia market and increase its footprint in the United States.

The ammonia plant will be owned 68 percent by Yara and 32 percent by BASF. It will have a capacity of about 750,000 metric tons per year and the two owners will off-take ammonia from the facility in accordance with their holding in the business.

The total capital investment for the plant is estimated at $600 million, in addition to which Yara will build an ammonia tank at the BASF terminal. That will take the total investment by the Norwegian company to $490 million. BASF, meanwhile, will upgrade its existing terminal and pipeline assets.

"Through the joint investment with Yara, we can take advantage of world-scale production economics and the attractive raw material costs in the United States." explained Wayne T. Smith, member of the Board of Executive Directors of BASF SE, responsible for the Chemicals segment.

Construction of the plant is expected to be completed by the end of 2017.