Nitrogen+Syngas 379 Sept-Oct 2022
30 September 2022
Winter is coming
“It is looking likely that there will be some kind of cap on gas prices to end users”
As we near the end of the third quarter of 2022, the attention of the nitrogen industry is focused on the coming northern hemisphere winter, and the prospects for higher natural gas prices as temperatures fall and power and heating demands rise. Vladimir Putin has been stoking these worries to try and force a climbdown from European countries over the sanctions that followed his invasion of Ukraine, with the flow of gas through the Nordstream 1 pipeline across the Baltic Sea gradually dwindling over the summer and finally stopping altogether at the end of August due to “technical issues” – an explanation somewhat undermined by the subsequent statement from spokesman Dmitry Peskov that gas would flow again once sanctions were eased. This is a familiar enough tactic; Russia has used gas stoppages to pressure Ukraine and Europe several times over the past two decades.
At time of writing, Europe was still receiving Russian gas via Ukraine, albeit at reduced rates, and the TurkStream pipeline across the Black Sea, where flows have actually increased to states more sympathetic to Russia like Turkey, Serbia and Hungary. However, the ongoing crisis is leading to forecasts of record gas prices as winter approaches, and with it likely continued shutdowns for ammonia producers across the continent. By the end of August, about half of European ammonia capacity and one third of nitrogen fertilizer production had been shut down by high gas prices, with CF Industries at Billingham in the UK, the last operating ammonia plant in the country, announcing a shutdown on August 24th. Yara was only operating 35% of its ammonia capacity across the continent.
EU energy ministers met in Brussels at the start of September to try and ease the coming pain for consumers and industry alike. Although Europe has managed to fill the targeted 80% of its gas storage capacity (85% in Germany), a cold snap, particularly if combined with the kind of stationary high pressure area that generates still air and a lack of power from wind turbines, could still hit hard. It is looking likely that there will be some kind of cap on gas prices to end users, though the prospects of shortages and rationing or targeted shutdowns of high gas consuming sectors like fertilizer production cannot be ruled out. Across the continent, mothballed coal-fired power stations are being pressed back into service, and Germany has finally belatedly agreed not to shut down its last remaining nuclear power plants for now, keeping them in case they are required over the colder months.
Across the Atlantic, although the US is now a gas exporter, the price of LNG has helped drag up Henry Hub prices to $10.00/MMBtu; levels not seen since the 2008 financial crisis, when the US was still an importer, and double that of last winter, with the government unlikely to intervene as it has in Europe. The knock-on effect of high prices is also being felt in Brazil, which imports virtually all of its nitrogen needs. India, which had been aiming to increase LNG import capacity by 40% this year, has seen those project completion dates pushed back into 2023, with high LNG prices potentially problematic for the country’s rapidly growing urea industry. At such a time, the news of the slowdown in the Chinese economy is almost a relief, as it may mean less pressure on commodity markets going forward.
The only good news for now is for producers in the Middle East or other places with low and fixed gas costs and no issues with availability. Egypt has been able to capitalise on its proximity to Europe to make some very lucrative urea sales. Longer term, it is also sure to be a spur to Europe’s accelerating move towards renewable energy and its use in fertilizer production. But for now, we have to get through the coming winter.
