Fertilizers Europe, the Brussels-based European producers’ organization, warned on Aug. 26 that the European fertilizer industry is in a “full-fledged unprecedented crisis” because “the European gas market is bust,” with natural gas prices soaring over 1,000% from levels a year ago.
The industry body estimates that over 70% of European fertilizer production capacity has been curtailed or shut down as “record high prices of natural gas, which represent 90% of the industry’s variable production costs, makes it impossible for European producers to compete.”
At least six European nitrogen producers have announced initial or additional ammonia/and or nitrogen production cuts from Aug. 22 onward due to soaring natural gas and energy prices across the region. They include Yara International ASA, CF Fertilisers UK, Vienna-headquartered Borealis AG, Lithuania’s Achema AB, Hungary’s Nitrogénművek Zrt., and Poland’s Grupa Azoty and Anwil SA (GM Aug. 26, p. 1). Anwil early this week, however, announced it was resuming fertilizer production (see related story), while another – Slovakia’s Duslo – also suspended production (see related story).
With the cost of natural gas 8-10 times higher in Europe compared to the US and even more compared to other fertilizer industry hubs, the European producers are not able to compete on the domestic and global market, said Fertilizers Europe.
The industry body’s General Director Jacob Hansen warned that if the situation prevails, Fertilizers Europe fears that remaining producers could also be affected.
Fertilizer Europe is calling for “an urgent and decisive” European Union-driven crisis management action to restore fertilizer production.
It said this is key to secure the EU’s strategic autonomy for fertilizer and to ensure Europe’s long-term food security. It urges the European institutions and EU Member States to take immediate action to avert energy and fertilizer crisis.
“The current crisis begs for a swift and decisive action from EU and national policy makers for both the energy and fertilizer market. The gas market needs to be looked at to address today’s challenges, support domestic industry, and restore market confidence,” said Hansen.
“The policy makers should also seriously consider crisis management policies for fertilizer industry to minimize long-term repercussions for EU food security,” he said.
Hansen added “moving away from dependency on Russian energy and raw material supplies cannot be achieved by closing plants and moving jobs outside of Europe.
“An urgent correction of current gas policies is therefore needed to address this very serious crisis. Europe needs a strong domestic fertilizer industry to continue producing food and in the long run to develop Europe’s hydrogen economy using green ammonia supplied by fertilizer industry,” he continued.
Dutch TTF front-month gas (currently October), the European benchmark, this week eased back from the €339.195 a megawatt-hour (MWh) high hit on Aug. 26. That was close to the all-time high of €345 per MWh seen in early March, and came amid an impending three-day outage at the key Nord Stream 1 pipeline that supplies Russian gas to Europe via Germany.
Flows through the pipeline were suspended at 4:00 a.m. Moscow time on Aug. 31 for scheduled repairs at Nord Stream 1’s only operational gas compressor unit at the Portovaya compressor station, according to Russia’s Prime business news agency, citing Russian gas major Gazprom PJSC.
TTF’s front-month gas contract closed at €252 per MWh on Sept. 1, but this still compares to just €52.9 a MWh a year ago and just €20.3 on Jan. 4, 2021.
This week’s Dutch gas futures easing follows news mid-week that the EU has met its gas storage filling goal two months ahead of target.
But analysts have warned the bigger factor for the region’s energy security will be whether European countries can cut consumption enough to ensure that stored gas lasts through the coldest winter months, Bloomberg reported.
Full gas storage could sustain European countries for roughly three months at best, and stored gas in Germany could meet just 80-90 days of average demand, according to Oxford, UK-based Aurora Energy Research, as cited by Bloomberg.
Furthermore, concerns remain widespread that Russia may find another excuse to further reduce gas supplies to Europe.
But some are optimistic that Russia will not cut gas to Europe completely. Gazprom CEO Alexey Miller said in a statement on Aug. 31 that the state-run gas major expects this year’s revenues to exceed 2021 levels even as export volumes drop, Bloomberg reported.
In late-breaking news on Sept. 2, Russia’s Gazprom PJSC said its key gas pipeline to Europe would not reopen as planned, according to Bloomberg. The pipeline was due to reopen on Saturday after maintenance. But in a last-minute statement late on Friday, the company said a technical issue had been found and the pipe cannot operate again until it is repaired.