There is a threat of a severe bottleneck in the case of ammonia.
(Photo: imago images / Westend61)
Dusseldorf The massive increase in the price of natural gas is having a hard time affecting fertilizer manufacturers. The SKW nitrogen works Piesteritz are now also reducing production. The chemical company from Saxony-Anhalt is the largest German manufacturer of ammonia, the basic product of fertilizers. Other large providers from all over Europe have already shut down their plants because of the expensive natural gas.
The dynamics of the rise in gas prices are worrying, said Petr Cingr, chairman of the SKW management board, on Tuesday evening and added: “The level that has now been reached no longer enables economically sensible production.” Under these conditions, one sees oneself forced to cut production by a fifth.
This could only be the first step if the situation in the gas market does not improve. “We demand immediate action from politicians. Without government measures, there is a risk of production stop shortly, ”warns Cingr. The consequences could be far-reaching, especially for German agriculture, which is dependent on fertilizers.
The chemical manager warns that this could lead to a shortage of basic chemical materials and a dramatic rise in prices for all goods, including basic foodstuffs. “Whether the immediate commissioning of Nord Stream II or an alternative: Politicians are called upon here – and immediately.” SKW Piesteritz is also the largest urea producer in Germany and the market leader in the manufacture of Adblue, a denitrification agent for diesel-powered vehicles.
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Gas prices have been rising for months. On Tuesday, a megawatt hour (MWh) on the European TTF spot market cost over 90 euros, almost twice as much as at the end of August. After cold winters and empty storage facilities, the global economy, which has picked up much faster after the corona pandemic, is currently leading to unusually high gas demand all over the world.
Especially for liquefied natural gas (LNG), prices continue to shoot up. In China alone, demand rose by 26 percent in the first half of 2021 compared to the previous year. The country wants to use significantly more natural gas to achieve its climate goals and has to rely primarily on LNG imports by ship.
But while deliveries to China have increased by twelve percent since the beginning of the year, LNG deliveries to Europe were significantly lower than in the previous year. And that although the gas demand in this country has also risen to the level before the pandemic.
Bottlenecks cannot be ruled out
The effects on the European economy have long been felt. Companies that have not secured themselves long-term energy supply contracts or that rely on natural gas in two ways are particularly affected. This is the case with ammonia manufacturers.
For fertilizer producers, on the one hand, natural gas is an important energy source for operating the systems. But what is more important is that it is the crucial raw material for ammonia production. The required hydrogen is obtained from the gas with the help of water.
Now there could be a real bottleneck. Because numerous large providers have cut back their production or even completely stopped in the past few days. BASF, for example, has cut back production at the Ludwigshafen and Antwerp sites. The conditions for an economical operation of an ammonia plant in the region would have worsened considerably, according to the world’s largest chemical company with a view to gas prices.
The Norwegian Yara, the world’s second largest ammonia supplier, had already drawn the necessary conclusions from this and cut production by 40 percent. Competitor CF Industries from the USA completely closed two plants in Great Britain two weeks ago.
One of the CF plants is now supposed to start producing again with financial help from the British government. Because it’s not just about the fertilizer supply. Ammonia production is important for the supply of carbon dioxide, which is used in slaughterhouses and in the food industry. A persistent shortage would have a direct impact on the food supply.
Industry experts report that it is now becoming more and more difficult in Germany to sign new gas supply contracts at all. Because the price changes daily, you can often only buy what you need from day to day on the spot markets.
The high volatility of gas is also alarming manufacturers of petrochemical products. Several suppliers have stopped negotiations with their customers about new chemical supply contracts for 2022, reports the leading chemical market research company ICIS. Reason: In addition to the transport costs, the medium-term energy costs can hardly be estimated at the moment.
More: Gas price crisis: The LNG boom in Asia is only just beginning
