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Nitrogen+Syngas 387 Jan-Feb 2024

31 January 2024

Russian nitrogen capacity and exports

RUSSIA

Russian nitrogen capacity and exports

In spite of nearly two years of western sanctions, Russian exports of nitrogen fertilizer have recovered almost to pre-war levels, while high prices led to record earnings in 2022.

With huge reserves of natural gas, Russia has long been one of the world’s largest producers of ammonia and downstream nitrate fertilizers and chemicals. In 2021, Russia accounted for 12% of ammonia production globally, as well as 14% of urea and that year it was also the world’s second largest ammonia producer (after China) and the largest exporter. In 2021, Russia exported 4.4 million tonnes of ammonia, representing 30% of all traded ammonia.

Initially it was assumed that the imposition of stringent sanctions following the invasion of Ukraine in February 2022 would led to a major drop in Russian exports of ammonia, urea and ammonium nitrate. Although fertilizer products were not themselves subject to sanctions, the closure of the trans-Ukraine pipeline to the Black Sea at Yuzhnyy, near Odessa, and banking and financial sanctions which made payments difficult were expected to dramatically reduce shipments of fertilizer to the west.

As we discuss elsewhere in this issue, the major impact in 2022 was upon natural gas prices in Europe, with a knock-on effect on European ammonia production. By August 2022, ammonia prices were at $1,200/t and around half of Europe’s downstream nitrogen production was idled. Russian ammonia exports were indeed affected, and reduced to low levels during 2022. The UN Food and Agriculture Organisation says that Russian ammonia exports fell by 76% in 2022 compared to 2021. However, exports of fertilizer from Russia declined only by around 15% overall in 2022, according to the Russian Fertilizer Producers Association, and the much higher prices that were being achieved, particularly on the nitrate side in Europe, meant that export revenue for fertilizers actually increased by 70% in 2022 in spite of this. The direction of exports did change substantially, however, with a substantial increase in supplies to India, Southeast Asia, and the Middle East, primarily Turkey. Ironically, the shutdown of EU fertilizer production meant that EU countries also increased their purchases of nitrogen fertilizers from Russia, mainly exported via the Baltic Sea.

Prices began to drop in the last quarter of 2022 and across 2023, and European production began to return. Nevertheless, Russian exports in tonnage/volume terms increased in 2023. Transit of ammonia from Togliatti Azot to Yuzhnyy formed part of the talks around the Black Sea grain export agreement between brokered by the UN between Russia and Ukraine. However, talks collapsed

Quotas

Russian exports have been restricted not just by sanctions by also by domestically imposed export quotas. Russia had imposed fertilizer export restrictions back during the gas price spike of 2021-22, aimed at keeping sufficient volumes of fertilizers in the domestic market. While the quota for urea was above the normal seasonal export amount, the quota for export of Russian AN for the six months from December 1st 2021 was just 744,000 tonnes; less than half the amount that would usually be exported over that period. This was followed in January 2022 by a complete ban on AN exports during February and March, later extended to April. On May 1st exports were allowed again, but the quotas from late 2021 were back in force, and these were extended from July 2022 to December 2022, with only 8.3 million tonnes (product) of nitrogen fertilizers and 5.95 million tonnes of complex fertilizers permitted to be sold overseas; approximately 60% of what would normally be shipped pre-sanctions. Sanctions continued through 2023; in May 2023 a total export quota of 16.3 million tonnes was agreed for the six months to the end of November. The restrictions were again extended from December to May 2024, setting the quota for the six month period at 16.95 million tonnes, including 9.81 million t/a for nitrogenous fertilizers and 7.14 million t/a for complex fertilizers. The Russian Fertiliser Producers’ Association has proposed replacing quotas with a licensing system, but the Russian government has decided to stick with the quota system for now. Russian domestic fertilizer demand rose by 20% in 2021 and 2022 according to the Russian Fertilizer Producers Association.

Changing trade patterns

With transit through the Black Sea subject to severe restrictions and the port of Sevastopol subject to intermittent Ukrainian air attack, Russia is trying to rapidly develop new export port capacity in other locations along its coastline. At Ust-Luga, west of St Petersburg on the Baltic Sea, where a major fertilizer export terminal has been under construction to join existing dry bulk and container export capacity, capacity is being expanded from 7 million t/a to 8 million t/a by JSC National Transport Company, part owned by EuroChem with the addition of 1 million t/a of ammonia export capacity.

On the Sea of Azov, a tributary of the Black Sea, the port of Tuman is being developed by Uralchem for ammonia export at a cost of $825 million. First ammonia is due to be shipped this year, with the project completing in 2025 with a final export capacity of 2 million t/a of ammonia and 3 million t/a of urea. Finally, a terminal to handle fertilizers is to be built in Primorsk Kray in the Russian Far East as part of the Nakhodka mineral fertilizers plant project, one of the major investment projects currently under development in the region.

Nitrogen production

Russia is a key player in the ammonium nitrate market. In 2021 it produced 12.3 million t/a of ammonium nitrate and 550,000 t/a of calcium ammonium nitrate, of which it exported 4.3 million t/a of ammonium nitrate (1.5 million tonnes N), which represented almost 50% of the international market. Production was at a similar level in 2022, but exports dropped to 2.8 million t/a.

On the ammonia side, Russia produced 19.9 million t/a in 2021, the bulk of it consumed domestically for downstream fertilizer production, which dropped to 17.0 million t/a in 2022. Exports fell from 4.4 million t/a in 2021 to 1.7 million t/a in 2022 due to the closure of the pipeline across Ukraine. Morocco and Turkey were the main recipients in 2022, but a substantial amount also reached Europe.

Russian urea production was 9.8 million t/a in 2021, and exports were exports in 2021 were 7.0 million t/a. This made it the world’s single largest urea exporter, with around 18% of the global market. Urea production actually increased in 2022 to 10.4 million t/a, and exports to 8.3 million t/a, with Brazil and India the main recipients, but again substantial volumes travelling to Europe.

Russia also exported around 2.2 million t/a of urea ammonium nitrate (UAN) in 2021. This became a bone of contention that year when CF Industries brought a case before the US International Trade Commission alleging that UAN solutions from both Russia and Trinidad had been illegally “dumped” (i.e. sold at below the notional cost of production and export) on the US market. However, no countervailing duties were imposed, and UAN exports were still 2.0 million t/a in 2022.

Thanks to its abundant natural gas reserves, in recent years Russia had been engaged in a number of expansion projects. New urea production began at Metafrax’s AUM plant at Gubakha in 2023, with 300,000 t/a of ammonia and 500,000 t/a of urea capacity, as well as 40,000 t/a of melamine production. In Novgorod, Acron commissioned a new 700,000 t/a urea line in 2023, taking the company’s total urea capacity to 2.4 million t/a. KuibishevAzot completed work on a new nitric acid and 760,000 t/a ammonium nitrate plant last year.

There was also a new ammonia-urea production line under construction at Kingisepp in the Baltic for Swiss-based EuroChem. The 1.4 million t/a plant was being built by Tecnimont using KBR and Stamicarbon technology, and due for completion in 2024, but Tecnimont ceased work on the plants in 2022 and the matter is now embroiled in a legal dispute between Tecnimont and EuroChem.

Though not quite in Russia, Grodno Azot in Belarus has been debottlenecking its number 3 and 4 ammonia plants at Grodno. The company says that the upgrades will increase ammonia production to 2,100 t/a, with an additional 310,000 t/a of capacity, most of which will be used to expand downstream production of urea and UAN.

New production

In spite of sanctions, there are also still ongoing plans for new production. In the Far East of Russia, a new fertilizer plant is under development at the port of Nakhodka, near Vladivostok, at a cost of $6.3 billion. The complex includes both methanol and nitrogen fertiliser production, including 1.8 million t/a of methanol in phase 1 and 3 million t/a of urea in Phase 2. The company says that its cash production costs per tonne will be among the lowest in the world. The project is supported by Russian state-owned banks, local authorities and the federal government. Phase 1 (methanol) is scheduled for completion in 2025, with urea production to follow later.

Further down the line, Ammoni has plans to develop new capacity at its existing site at Mendeleevsk in Tatarstan, including a new ammonia and urea train using a lower energy process. Production capacity will be 1.2 million t/a of ammonia and 1.75 million t/a of urea. The new train is planned to be commissioned in 2027-8.

KAO Azot also has plans for large scale ammonia and urea production; 1.2 million t/a of ammonia and 1.4 million t/a of granular urea. Also planned at the site is production of 50,000 t/a of liquid carbon dioxide and 250,000 t/a of granulated ammonium sulphate (250,000 tonnes per annum).

Russia also has plans to develop green hydrogen production for export, primarily aimed at Europe as the continent attempts to decarbonise, with up to 2 million t/a of hydrogen generated via nuclear power or renewable energy to be exported by 2035. There are also plans for blue hydrogen production using carbon capture and storage. Russia is targeting Europe and Asia as key export markets. It plans to create at least three hydrogen clusters – in the northwest for European exports, the east for Asian supplies, and the Arctic for domestic consumption and potential exports.

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