Egypt's Orascom Construction Industries announced plans Wednesday to  invest $1.4 billion in a fertilizer plant in Iowa, shunning overtures  from neighboring Illinois because of the state's budget crisis and  taking advantage of cheap U.S. natural gas and soaring grain prices.

The shale-gas boom has spurred a surge of investment by chemical  producers looking to tap cheap raw materials. Orascom said its proposed  plant in Lee County in Iowa's southeastern corner would curtail imports  of nitrogen-based fertilizer most commonly used to support corn  planting.

The Egyptian conglomerate is in the process of spinning off its  construction arm but has acquired a local building company to help  construct the new plant, which is slated to open in 2015.

Orascom has been planning its U.S. expansion for more than a year,  and Chief Executive Nassef Sawiris said the relative financial health of Midwest states played a key role in its final decision.

Iowa boosted its tax-incentive package to more than $100 million to  lure Orascom, though state officials said this was still less than was  offered by Illinois. The plant will create an estimated 165 permanent  jobs, along with 2,500 construction jobs over the next three years.

Mr Sawiris said in an interview that his company rejected Illinois's  overtures because of fears that corporate tax rates would increase as  the state tries to tackle its huge budget deficit. Companies including  CME Group Inc. and Sears last year threatened to relocate from Illinois  before a last-minute compromise on corporate taxes.

"We were quite concerned, honestly, with Illinois's budget," he said. "We didn't feel like Illinois at this stage was the right place for  us...so we decided to locate on the other side of the river."

The proposed plant is about four miles from the Mississippi River, providing easy access to the Corn Belt.

Nitrogen is a crucial ingredient for corn growth, and its demand has  soared as grain prices have jumped to record highs in recent years,  compelling farmers this spring to plant the most corn acreage since  1937. The U.S. is the world's largest corn producer and imported 54% of  its nitrogen in 2011, according to the Department of Agriculture.

"This is probably the largest single country with a deficit in nitrogen," said Mr. Sawiris.

Natural gas is used as a feedstock to produce the nitrogen used in  fertilizer, and low prices have spurred other investments. Deerfield,  Ill.-based CF Industries Inc. in August increased its projected capital  spending on new nitrogen capacity to $2 billion through 2016, up from a  prior forecast of $1 billion to $1.5 billion. Much of the new capacity  is expected to come online in 2015.

Mr. Sawiris said there remains plenty of room for new capacity as  farmers in South America try to boost crop yields to the level seen in  the U.S. He added that natural-gas reserves in Trinidad, a key supplier  of nitrogen ingredients to companies such as Koch Industries Inc., are  expected to run out within the next decade, which will increase reliance on U.S. supplies.