Yara International ASA warned this week that there is “a clear risk of nitrogen shortages and further price spikes if the natural gas availability in Europe continues to deteriorate.”
The Oslo-based major said it has curtailed several of its production plants, currently amounting to an annual capacity of 1.3 million mt of ammonia and 1.7 million mt of finished fertilizer, and warned that more cuts may come (see related Yara earnings story).
The current curtailments in Yara’s ammonia and finished fertilizer production equate to around 27% and 18%, respectively, of the company’s European capacity, according to a Dow Jones report on July 19.
German chemicals giant BASF SE also is among several other European producers to have curtailed output (GM July 1, p. 1) and has reduced ammonia production rates at Ludwigshafen, Germany, and Antwerp, Belgium.
BASF, as cited by the Dow Jones report, said all internal and external customer needs were currently being met, but that further curtailments to ammonia production “would put additional pressure on an already extremely tight market.”
Germany’s Baader Bank AG said early this month a possible shutdown of BASF’s Ludwigshafen site could be compensated by the company’s production facilities in Antwerp and in the U.S. BASF has ammonia production capacity of 910,000 mt/y at Ludwigshafen and 610,000 mt/y at Antwerp, according to Green Markets’ database.
In the U.S., BASF has a 32% stake in an ammonia production joint venture with Yara – Yara Freeport LLC in Freeport, Texas, which started up in April 2018 (GM April 13, 2018). The plant, located at BASF’s site in Freeport, has a capacity of 750,000 mt/y, and each party offtakes ammonia according to their ownership share.
Jacob Hansen, the Director General of European fertilizer manufacturers’ industry organization Fertilizers Europe, in a July 20 statement warned that without a steady supply of affordable gas, “there is a looming risk for European fertilizer production and in turn food production in the European Union (E.U.).”
In the past weeks, European fertilizer producers grappled with historically high gas prices leading to another round of curtailments, the industry body noted.
“If natural gas availability is to deteriorate further, Europe risks experiencing fertilizer shortages that will impact Europe’s agriculture in the coming season,” said Hansen.
While acknowledging the European Commission’s efforts to ensure coordinated action to prepare for possible further gas disruptions, Fertilizers Europe is calling on the E.U. and Member States’ leaders to ensure that “the gas flows where it is most needed, protecting domestic users as well as prioritizing essential sectors of the economy.”
“Maintaining a well-functioning fertilizer sector across Europe is essential to avert risk of fertilizer shortages which could have a detrimental effect on Europe’s food sovereignty,” Hansen said.
The E.U. has forecast near-term gas shortages amid the risk of further gas supply cuts from Russia, with the European Commission noting in a statement this week that almost half of Member States already are affected by reduced Russian gas deliveries.
Amid its efforts to reduce the Bloc’s reliance on Russian supply, the Commission has proposed this week that Member States cut natural gas usage by 15% between Aug. 1, 2022, and March 31, 2023, and according to a report by the U.K.’s Financial Times, is preparing to tell Member States to cut gas consumption “immediately.”
The Commission will provide members next week with voluntary gas reduction targets, cautioning that targets will be “mandatory” in the event of severe disruption to supplies, according to the report.
This came amid uncertainty surrounding the reopening of the Nord Stream 1 gas pipeline connecting Russia with Europe via Germany. Early in the week Russia’s Gazprom declared force majeure on at least three European gas buyers, according to Bloomberg, a move that signalled to some that it intended to keep supplies capped. The continent had been bracing itself for Russia not to restart gas flows through the pipeline, but it was able to breathe a little relief on July 21 when gas flows resumed after the pipeline was closed for 10 days for planned maintenance.
Shipments are being made at some 40% of capacity as of July 21, Bloomberg reported, citing data from the pipeline operator.
However, while the restart has eased Europe’s worst fears that Russian President Vladimir Putin would keep the pipeline halted, much uncertainty continues about future gas flows through the critical link. Putin’s time of maximum leverage on gas supplies will occur as Europe heads into winter.
Europe should be prepared for Russia to stop supplying the region completely this winter, the International Energy Agency (IEA) told the Financial Times last month.
IEA Executive Director Faith Birol told the newspaper that “The nearer we are coming to winter, the more we understand Russia’s intentions. Europe should be ready in case Russian gas is completely cut off.”
European benchmark natural gas prices on the Dutch TTF gas futures in Amsterdam eased marginally on the restart of the Nord Stream pipeline, with the front-month contract (currently August) down 0.811% on the day at €156.295 a megawatt-hour (MWh) as of 3:59 p.m. (GMT).The front-month traded as high as €180.505 per MWh last week, on July 13.