Fertilizer Production in Europe Suffers Severe Cutbacks Due to Energy Prices
The rotating Czech presidency of the EU has called for an emergency meeting on energy on Sept. 9. At the same time, EU Commission President Ursula von der Leyen has finally discovered financial speculation on energy and called, on Aug. 29, for a reform of the energy market in Europe. One is tempted to say they are closing the stable door, once the horse has bolted.
In fact, unpayable gas and electricity prices have hit both businesses and households throughout Europe with a sledgehammer, with many producers and commercial business receiving bills up to ten times higher than last year. Those who are unable to pay, will cease their activities in the short term.
Any urgently needed reform of the EU energy market would require months to be drafted and implemented. As of now, two proposals are on the table: one from Italy on a price-cap and the other, suggested by von der Leyen, on decoupling electricity prices from gas prices. While the former sounds like “teaching good manners to a tiger”, as former Italian Finance Minister Giulio Tremonti ironized, the latter would only partially solve the problem.
Meanwhile, astronomical gas prices also spell a serious food crisis next year due to a lack of fertilizers. A large majority of fertilizers are nitrogen-based and produced from ammonia, which is in turn produced from natural gas. The spike in prices has thus led a wave of shutdowns in European nitrogen fertilizer production, some expected to be temporary, others permanent.
“Over 70% of the European production capacity has been reduced. If the situation continues, we fear that the rest of producers can be hit as well”, said Jacob Hansen, director general of Fertilizers Europe, the association of European fertilizers industry.
Yara, the world’s largest chemical fertilizer producer, announced Aug. 25 a cut in nitrogen fertilizer output in Europe by 50% and has already shut down plants at several locations. The major producer in Great Britain, CF Fertilizers (a subsidiary of U.S.-based CF Holdings) plans to temporarily halt nitrogen fertilizer output at its Billingham plant. In July, it shut down its plant in Cheshire, at Ince, which had already stopped production temporarily in Autumn 2021 (that is, before the 2022 Russian operation in Ukraine).
In Poland, Azoty Grupa SA, the second largest European producer of nitrogen and compound fertilizers, has closed its nitrogen fertilizer, caprolactam and polyamide 6 (nylon 6) production facilities. In turn, the group’s Pulawy plants had reduced ammonia production to around 10% of capacity and halted some production in the plastics and agro segments. The largest Baltic fertilizer producer, Achema, located in central Lithuania, will close its nitrogen operations on Sept. 1.
Top Agrar Online reports that production at SKW Stickstoffwerke in Wittenberg-Piesteritz, Germany, is at a standstill — for technical reasons. However, the gas levy announced by the German government and the difficult market environment could keep the plants idle for longer. Germany’s BASF, the world’s largest chemical company, is also considering further cuts to ammonia production.
A collapse of use of fertilizers would have a devastating impact on agricultural production. To avoid a catastrophe, the TTF gas market in Amsterdam should be shut down, as we have often called for in this newsletter. But don’t expect the EU to do it. The aim of Brussels’ “Farm to Fork” policy is to reduce production.