Record high natural gas prices in Europe have led to several announcements by fertilizer producers this week of fresh production curtailments.
Yara International ASA said on March 9 it is temporarily curtailing production at its Ferrara, Italy, and Le Havre, France, plants as a consequence of record-high natural gas prices in Europe. The two plants have a combined annual capacity of 1 million mt/y ammonia and 0.9 million mt/y urea.
Including optimization and maintenance at other production facilities, Yara said its European ammonia and urea production is expected to be operating at approximately 45 percent of capacity by the end of this week.
The company said it will continue to monitor the situation and “to the extent possible, use its global production system to keep supplying customers and secure continuity in food supply chains, but curtailing production where necessary due to challenging market conditions.”
Hungarian producer Nitrogenmuvex also this week said it is temporarily halting output of ammonia, citing high natural gas prices.
Vienna-based Borealis AG, another European producer, is running its ammonia production at a reduced rate due to the high natural gas prices in Europe, and is considering halting output “for economic reasons,” according to a Bloomberg report on March 9th, citing a company spokesperson.
High natural gas prices caused Yara to idle a significant amount of European production last fall (GM Sept. 17, 2021), though it eventually resumed.
It is worth reminding that gas currently being used by ammonia producers in Europe is based on prices from a few weeks ago, when gas prices were lower.
Despite natural gas prices soaring to a record level earlier this week, CF Industries Holding, Inc., Deerfield, Ill., parent company of the U.K’s CF Fertilisers, has said there has been no change to its operational status in the U.K.
The company’s Billingham complex in Teeside, northeast England, remains online and is producing ammonia, nitric acid, and ammonium nitrate, as well as by-product CO2from the ammonia production process, according to a report by the U.K’s City A.M. newspaper on March 10.
CF said it is continuing to monitor energy market conditions and “to have conversations with customers about the current commercial environment.”
The U.K.’s carbon dioxide industry came to an agreement with CF on Feb. 1 to ensure a sustainable supply of CO2 (GM Feb. 4, p. 28). An existing agreement between CF and its industrial gas customers expired on Jan. 31 (GM Jan. 28, p. 29).
The new offtake and pricing deal with CF and its U.K. industrial gas customers, according to some U.K. media sources at the time – before the current Russia-Ukraine crisis – was announced by the country’s Department for Business, Energy, and Industrial Strategy, and was set to last until the spring. However, it is unclear if this is just conjecture on the basis that natural gas prices may ease with the onset of warmer weather.
CF’s two U.K. plants – the other is at Ince, Cheshire – produce an estimated 60 percent of the U.K.’s commercial supply of the by-product gas. CF has kept its Ince manufacturing plant in Cheshire in northwest England closed since halting operations there on Sept. 15 due to high natural gas prices (GM Sept. 17, 2021). The company also closed the Billingham complex on Sept. 15, but resumed production at the plant with the support of the U.K. government and the CO2 industry later that month (GM Oct. 15, 2021; Sept. 24, 2021).
Meanwhile, ammonium nitrate (AN) prices have skyrocketed over the past week in line with the volatility in European natural gas markets. CF Fertilisers this week posted a new price for AN at £900/mt (approximately $1,183/mt at current exchange rates) FCA for April deliveries in the U.K., a record high for U.K. AN.
Yara was reported to have increased its AN price in France to €1,205/mt CPT (approximately $1,324/mt at current exchange prices). Somesources were of the view that Yara is testing the AN market; if buyers accepted the higher price, then the company may restart the ammonia plant. If the higher prices were rejected, then Yara would keep the plants closed.
Dutch TTF front-month gas, the European benchmark, on March 10 had more than halved from the record high of €345 (approximately $379 at current exchange prices) per megawatt hour hit on March 7, after the Biden administration announced it would impose a ban on U.S. imports of Russian energy. The U.S. ban will include Russian oil, liquefied natural gas, and coal.
The U.K. also said this week it will end imports of Russian oil and oil products by the end of 2022, but other European nations have yet to take decisions on Russian energy import embargoes.
Milder weather forecast for some parts of Europe and robust wind and solar power output were also helping to keep gas prices in check. Traders were also waiting on news on talks between Russia’s and Ukraine’s foreign ministers, which were due to start in Turkey on March 10. Late-day reports on March 10 suggested the talks had made little progress.
The TTF front-month contract (currently April) was at €133 per megawatt hour as of 4:59 p.m. (GMT) on March 10, down 14.678 percent on the day.
Europe relies on Russia for around 40 percent of its natural gas, and around one-third of that gas transits Ukraine.
Russian gas shipments via a key transit route crossing Ukraine were reported to be flowing normally on March 10, a Bloomberg report cited Russian state-owned gas supplier Gazprom PJSC as stating. However, there were reports earlier in the week of Russian threats to cut supplies of natural gas via the Nord Stream 1 pipeline to Europe.
But “overall nervous sentiment about the future of European gas supply is still imminent,” Energi Danmark A/S wrote in a client note, as cited by a Bloomberg report.
“We expect fluctuations [in gas prices] to remain extremely high in the coming days,” the energy trading group wrote.