CF Industries Holdings, Inc., Deerfield, Ill., will continue to operate its Billingham, U.K., complex at Teeside through at least January 2022, after its U.K. subsidiary, CF Fertilisers, reached carbon dioxide (CO2) pricing and offtake agreements with its industrial gas customers in the country.
Last month, the U.K. government agreed to an exceptional three-week arrangement with CF Fertilisers that allowed the company to restart the ammonia plant at Billingham (GM Sept. 24, p. 1). On Sept. 15, CF announced that it was halting operations at both its Billingham and Ince, northeast England, plants in response to high natural gas prices (GM Sept. 17, p. 1). The plants produce ammonium nitrate as an end product. Ince also produces NPK fertilizer compounds.
The restart followed an interim agreement with the U.K. government reached on Sept. 21 providing “limited financial support” that allowed CF to continue operating while the CO2 industry moved towards a pricing deal.
CO2 is vital for many of the U.K.’s food processing and drink sectors, as well as the country’s hospitals and nuclear power industry, among others.
CF Fertilisers’ Billingham Complex is capable of producing 750 mt of CO2 per day for commercial use as a by-product of the ammonia production process. According to the U.K government statement on Oct. 11 that announced the CO2 pricing agreement, CF Fertilisers’ two U.K. plants produce around 60 percent of the country’s commercial CO2 requirements.
“The price agreed for CO2 reflects the vital importance of this material to the country’s national economy,” the U.K. government said.
U.K. Environment Secretary George Eustice told Sky News last month the U.K. food industry knows there is going to be “a sharp rise” in the cost of carbon dioxide, “probably going from £200 (approximately $273 at current exchange rates) per metric ton, eventually closer to £1,000,” he said (GM Sept. 24, p. 35).
The agreement will ensure that major CO2 supplier CF Fertilisers can remain operational while global gas prices remain high, and gives the company enough breathing space to agree to a longer-term, more sustainable solution, said the U.K. government.
“The deal reached with CF this week alleviates the U.K’s near-term CO2 supply concerns,” said CF President and CEO Tony Will in an Oct. 11 statement. “We look forward to working with the U.K. Secretary of State for Business, Energy, and Industrial Strategy Kwasi Kwarteng and the U.K. government in the future as it develops a longer-term solution for CO2 supply and to support sustainable and competitive U.K. ammonia and fertilizer production.”
CF said its Ince Complex will remain offline, however, and the company does not have an estimate when production will resume at the facility.
Ensus U.K. Ltd.’s Wilton plant on Teeside, which can produce up to 40 percent of the U.K.’s CO2 requirements, reopened last week following temporary closure for planned maintenance, further securing supplies.
Several other major nitrogen fertilizer producers have cut production in recent weeks in the face of soaring natural gas prices, including Yara International ASA, Borealis AG, Lithuania’s Achema, BASF, and Ukraine’s Odesky Pryportoyvi Zavod and Odessa Port Plant (OPP) (GM Oct. 1, p. 1).
Last week, German ammonia producer SKW Stickstoffwerke Piesteritz GmbH said it would cut production by 20 percent to offset rising gas prices (GM Oct. 8, p. 1) and Romania’s sole fertilizer producer, Azomures SA, and part of the Swiss crop trading group Ameropa AG, said it had cut production in half due to soaring natural gas prices (GM Oct. 8, p. 30).
On Oct. 11, Croatian fertilizer producer Petrokemija dd said its plants will remain shut down until further notice, “in order to optimize and align business operations to the conditions on the gas market and record-high prices of natural gas and CO2 in Europe.”
The producer said sufficient mineral fertilizer quantities have been secured to maintain the supply to domestic and regional markets during downtime.
Petrokemija had planned to restart its ammonia and urea plants at its main Kutina production site once repairs were completed following a technical problem that caused the plants to be shut down on Sept. 22 (GM Sept. 24, p. 7). It said at the time that its other fertilizer plants were continuing to operate normally.
The technical problem is now fixed, according to this week’s statement. The urea plant is understood to have production capacity of around 500,000 mt/y.
In July, the company had been targeting the restart of ammonium nitrate production at the end of September after suspending production for safety reasons at the end of February following a strong earthquake that hit central Croatia in late December last year (GM July 30, p. 33).
Fertilizers Europe, the Brussels-based organization that represents 17 fertilizer producers and eight national associations, is warning that temporary closures in the face of “sky-high” gas costs could become permanent.
“For the E.U. fertilizer industry, natural gas traditionally accounts for up to 80 percent of production costs,” Fertilizers Europe Director General Jacob Hansen said in a statement on Oct. 13. “The exceptionally high gas prices have made fertilizer production in Europe uneconomic, leading to significant temporary curtailments and plant closures across Europe.
“If this situation is not addressed urgently, there is a real risk that temporary closures will lead to permanent closures or relocation of our sector outside Europe,” he warned.
The energy price toolbox proposed by the European Commission to address the energy price shock, while “a step in the right direction,” Hansen said, “falls short” of providing immediate measures to significantly reduce the impact on industry and citizens.
He noted that the energy price toolbox is “very much a compendium of existing policy options available to E.U. member states.
“What the European industry needs is rapid and targeted measures minimizing the effects of the looming crisis,” said Hansen.
The E.U. fertilizer industry seeks, among others, “urgent corrective action” by the Commission and Member States, “including serious consideration for making emergency kick-start state aid permissible, commercial diplomatic pressure on the major gas suppliers to Europe, and support for E.U. farmers to deal with the volatile market environment,” he said.
In related news, European natural gas futures fell after Russia said on Oct. 15 that spot sales from Gazprom – Europe’s biggest gas supplier – could possibly resume at the company’s electronic platform in November-December, once domestic storage is filled, Bloomberg reported, citing Russian Deputy Prime Minister Alexander Novak.
The exact timing will be decided by Gazprom, based on requests, needs, and emerging balances, Novak said.
The U.K. front-month futures contract (November) had fallen 5 percent to 244.5 pence a therm as of 12.01 p.m. (GMT). The Dutch TTF gas futures front-month contract (November) was down 5 percent to €96.75 per megawatt hour at 12.12 p.m.
A warmer weather outlook for Europe is also weighing on gas prices, with forecasts of an autumn heat wave from London to Paris next week. This could provide an extra boost to the region’s gas storage levels, with data showing net withdrawals from inventories started this week, according to the Bloomberg report. Withdrawals from European storage typically begin in the second half of October.
The milder weather could provide some reprieve to the deepening energy crisis in Europe. European gas inventories will start this winter about 78 percent full, the lowest seasonal level since at least 2009, according to Bloomberg.
With additional gas flowing from Russia seen as critical to easing the supply crunch across Europe this winter, traders will focus on whether Gazprom will book additional transit capacity in auctions on Oct. 18.
Bloomberg cited Consultant Wood Mackenzie Ltd. last week warning that Europe still may face gas shortages this winter if cold weather depletes storage levels to zero, leaving the region entirely dependent on additional flows from Russia.
Energy consultancy Energy Aspects Ltd. warned in a note that low European withdrawal capacity could force heavy rationing of European gas in the industrial sector to preserve supply for higher-priority sectors.