Yara International ASA, Oslo, announced on Sept. 17 that it is curtailing production at a number of its plants due to record high natural gas prices in Europe. Including optimization of ongoing maintenance, by next week Yara will have curtailed around 40 percent of its European ammonia production capacity.
The company said it will continue to monitor the situation, with the objective of supplying customers while curtailing production where necessary.
CF Industries Holdings Inc., Deerfield, Ill., got the ball rolling on Sept. 15, announcing that it was halting operations at both its Billingham and Ince, U.K., manufacturing complexes due to high natural gas prices. CF said it does not have an estimate for when production will resume at the facilities.
For CF, shutting down these plants, which largely produce ammonium nitrate, will cause the company to lose some production volume, according to Alexis Maxwell, Green Markets Director of Research. The bigger potential impact will likely be on global pricing for fertilizer as concerns grow that other producers will follow suit, she said.
“The market will read this as other European producers are likely to shut down, and nitrogen prices will continue to rise on the supply-side shortage,” Maxwell said.
“We wouldn’t be surprised to see more nitrogen and chemicals production across Europe idled in the coming days until gas prices moderate,” Joel Jackson, an analyst at BMO Capital Markets, said in a report.
The Billingham facility, located in the Teeside chemical area, consists of an ammonia plant, three nitric acid plants, a carbon dioxide plant, and an AN plant. In 2018, CF invested some $55 million over a two-year period to upgrade the facility (GM March 9, 2018).
Ince, in northwest England, consists of an ammonia plant, three nitric acid plants, an AN plant, and three NPK fertilizer compound plants.
CF took full control of the two former-GrowHow UK Ltd.’s manufacturing sites in 2015 when it bought out Yara International ASA’s 50 percent stake in GrowHow, making GrowHow a wholly-owned subsidiary (GM July 6, 2015). CF acquired its original 50 percent interest in GrowHow when it bought Terra Industries Inc. in 2010.
Benchmark natural gas prices in Europe and the U.K. have tripled this year. The crunch worsened on Wednesday after a fire knocked out a key power cable connecting Britain to France, its top electricity supplier, boosting gas demand for electricity production within the U.K.
European gas and power futures tumbled Thursday, Sept. 16, on signs that energy-intensive industries are curbing consumption.
The move comes as Europe is facing an extreme squeeze for energy supplies, with gas and power prices breaking records day after day. The continent is running out of time to refill storage facilities before the start of the winter, as flows from top suppliers Russia and Norway remain limited. There is also a fight for shipments of liquefied natural gas, with Asia buying up cargoes to meet its own demand.
The crisis could have severe economic consequences. Soaring prices are exposing the risk of power outages this winter, according to Goldman Sachs Group Inc. Blackouts would likely send energy prices even higher, compounding concerns about inflation and adding to the rising costs businesses are already shouldering for raw materials.
High energy prices are creating “inflationary pressure on every other cost” that will end up being passed on to customers, said Pascal Leroy, Senior Vice President of Core Ingredients at Roquette Freres SA, a food processing company based in northern France. And France’s top sugar producer, Tereos, warned of surging natural gas prices raising production cost for the company “tremendously.”
Europe’s energy markets are also just the latest example of the tolls that soaring commodity prices are having on the global economy. Tight supplies of everything from aluminum to grains to oil have sparked concerns over a lasting run for inflation. Higher costs for heating homes will bite into consumer wallets at a time when they are also paying more food and many are still struggling from the pandemic’s economic fallout.