European natural gas prices are heading for the biggest monthly gain since September last year as Russia’s supply cuts put gas-dependent companies under stress and force governments across Europe to confront the prospect of major shortages.
Benchmark gas futures on the TTF in Amsterdam rose as much as 4.7% on June 30, taking the increase in June to more than 50%, Bloomberg reported. The front month contract – currently August – closed at €145.37 per megawatt hour (MWh) on June 30, up from June 24’s close at €128.505 MWh.
Moscow’s deep supply cuts during June are spreading a specter of fear through Europe’s economy, resetting growth forecasts, and impacting companies’ operations.
Vienna-based fertilizers major Borealis AG confirmed this week that it was currently running its ammonia production at reduced capacity. A spokesperson for the company told Green Markets that Borealis is closely monitoring the situation in the energy markets, including gas prices, as it did in the past months.
But the spokesperson emphasized the reduced production is not due to a supply shortage on the gas market, but rather that plant stoppages “might be considered at any time for economic reasons.”
Borealis produces ammonia at several European locations, but the spokesperson did not disclose if the ammonia production cuts were across the board, or if downstream products output had also been reduced.
In Germany, the country’s largest ammonia and urea producer, SKW Piesteritz GmbH, will consider implementing force majeure if natural gas supplies are cut and gas prices increase further, according to media reports. The company had not responded to Green Markets enquiries by press time.
German chemicals giant BASF last week said it expects gas prices to increase “massively” after the country’s government triggered the “alarm stage” of its emergency gas plan due to dwindling supplies from Russia. Germany is particularly reliant on Russian natural gas, taking over 50% of its gas supplies from Russia last year.
German energy giant Uniper SE said it is receiving just 40% of its allocated gas from Russian gas supplier Gazprom PJSC since June 14, and the group currently is in talks with the German government for a bail-out to secure liquidity.
Last week, the country triggered the second stage of its three-stage emergency gas plan, citing a deterioration of natural gas supplies, and raised its gas risk level to the second-highest “alarm” phase, Bloomberg reported (GM June 24, p. 1 and p. 33). The final stage would include gas rationing.
At present, natural gas is supplied to all of BASF’s European sites in line with demand, a company spokesperson was cited by a Reuters report last week as saying.
“BASF is monitoring the situation and will decide, depending on the situation, which adjustments may have to be made in the production value chains,” the spokesperson told Reuters.
A possible shutdown of the chemical major’s flagship Ludwigshafen site could be compensated by the company’s production facilities in Antwerp and in the U.S., according to Germany’s Baader Bank AG. BASF has ammonia production capacity of some 880,000 mt/y at Ludwigshafen, but it is unclear what the ammonia production capacity is at the company’s Antwerp plant.
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.
Certainly, the further escalation of natural gas prices is forcing European-based fertilizer producers to question whether fertilizer production remains economically sustainable.
Romania’s biggest fertilizer producer, Azomureş SA, last week decided it was not. On June 22, the producer announced it had taken the decision to temporarily suspend ammonia production as of June 23, following a rise in natural gas prices and a decrease in fertilizer prices with the onset of crop harvesting.
Azomureş is continuing to produce fertilizers at its Târgu Mureș site until the existing ammonia stock is depleted.
OCI NV is another producer reported to have halted some of its ammonia production. Earlier in June, it was reported to be halting production at one of its two ammonia units in The Netherlands due to spiking natural prices, but that it would continue downstream production using imported ammonia (GM June 17, p. 28).