OCI NV, Amsterdam, on Aug. 2 joined other major European ammonia producers, including Yara International ASA and BASF (GM July 29, p. 1), in acknowledging that it has ammonia production offline due to high natural gas prices. OCI in its earnings release (see related story) said it is operating at 40% of capacity, but that it is well-positioned to bring in imports in order to produce downstream products.
“In Europe, we estimate that around 7 million mt of ammonia capacity out of a total of 19 million mt is currently shut due to high gas prices, and given elevated futures and risk associated with Russian gas supply, more capacity may be shut down since selling prices remain below gas-based production costs,” OCI CEO Ahmed El-Hoshy told analysts in the company earnings call.
Producer group Fertilizers Europe on Aug. 2 said it counts over 10 European fertilizer plants that have curtailed or closed in July due to high natural gas prices. However, the group said that the situation does not justify the E.U.’s actual or future suspension of the existing, well-established, and justified tariff and trade defense measures applied today. It said the E.U. needs to support a strong local fertilizer supply as the best guarantee of fair and free competition for fertilizer supply to farmers and their provision of food security and food supply to European citizens and the wider world.
Giant U.S. producer CF Industries Holdings Inc., however, believes a European tariff cut is on the way. “I do see a tariff cut coming to Europe, they’ve already announced they’re working on urea and ammonia, and we would expect UAN would be in the same position just because of the need of the tons and the requirements of Europe to meet their agricultural fertilizer needs,” CF Senior Vice President and CFO Chris Bohn told analysts on Aug. 2. The E.U. imposed definitive antidumping duties on UAN imported into its member countries from Russia, the U.S. and Trinidad and Tobago in 2019 (GM Oct. 11, 2019).
CF also said that it has built its largest export book ever across all of its products. Fellow U.S. producer Nutrien Ltd. also reported that it has been exporting UAN, with plans to also export ammonia.
In the meantime, European natural gas headed for a third weekly gain as persistent concerns over Russian supply heighten the risk of shortages, according to Bloomberg. Benchmark futures slipped on Aug. 5, but were about 3% higher for the week. Prices surged after Moscow last week slashed supplies through the key Nord Stream pipeline to just 20% of its capacity, citing issues with equipment. But Kremlin insiders have privately said that the cuts are to pressure the E.U. over sanctions on Russia, while Berlin has repeatedly said it sees no technical reasons for the reduced flows.
The cuts are reverberating through Europe, lowering industrial output, driving up inflation to the highest in decades, and threatening to push major economies into recession. The E.U. has been racing to stockpile gas for the winter, cutting fuel consumption and boosting imports of liquefied natural gas. The bloc has filled about 71% of its storage sites, in line with the five-year average, which has helped keep prices from rising even further.
“The market appears to have consolidated a bit following the massive increases caused by the reduced flows on Nord Stream,” analysts at trading firm Energi Danmark said in a note. “Further price jumps are, however, very likely if gas supply from Russia to the E.U. cedes completely.”
The reduction in Russian flows to Europe has helped push up LNG prices everywhere, increasing costs for the E.U. and other major buyers, analysts at Morgan Stanley said in a note. “With no easy path to meeting Europe’s rising call on LNG, we expect global prices to remain elevated and volatile,” they said.
Dutch front-month gas, the European benchmark, was 1.3% lower at 196.58 Euros per megawatt-hour by 1:16 p.m. in Amsterdam. The UK equivalent contract slipped 0.9%, but is also poised for a third weekly advance.
In related news, one of Nord Stream’s turbines – critical to boosting flows through the link – is still in Germany following repairs in Canada, amid a stand-off over its return to Gazprom PJSC. The Kremlin said on Aug. 4 that it would like to get the unit back, but the company needs documents to show that it isn’t subject to international sanctions. Three more turbines that are still in Russia and need maintenance could be subject to the same sanctions risks, according to Gazprom.
“Anything that the Russians are saying on this is basically an excuse not to provide gas to the European Union,” said Eric Mamer, spokesman for the European Commission. “Of course, there is blackmail on the side of Russia when it comes to the supply of energy.”
Traders also remain on edge as several gas facilities that are crucial for Norwegian supplies to the U.K. and continental Europe are scheduled to start seasonal maintenance next week. The works would add to the market’s tightness.
Still, there is some better supply news from elsewhere. A major LNG export terminal in the U.S. (see related story), shut this year after a blast, signaled this week that it could restart in early October at almost full capacity. That should bring a relief to Europe just before winter demand starts to kick in.