U.S. ammonia producers see windfall from reduced production elsewhere

U.S. ammonia producers that supply farmers and industry, and that enjoyed strong pricing after the start in early 2022 of The Russia-Ukraine war that sent prices for natural gas, the key feedstock, skyrocketing, forcing cutbacks in areas like Europe, continued to see benefits in 2023 from reduced ammonia output in other regions, like Trinidad and Tobago, that may extend a windfall.

CF Industries plant in Billingham, Britain REUTERS/photographer

Fertilizer prices increased in Sept. 2023 from Aug. 2023, according to a graph from Fred Economic Data, published by the St. Louis Federal Reserve, showing the producer price index for fertilizers, including ammonia. Indices in Aug. and Sept. 2023 were higher than anytime since 2017. The Sept. 2023 uptick interrupted a steady decline since Nov. 2022.

Separately, another graph from the Energy Information Administration on values for natural gas at Henry Hub (a gas pipeline in Louisiana that serves as delivery location for gas contracts) showed historical prices for natural gas, and its strong correlation with ammonia prices in the past two years.

“What I see is lower input costs for ammonia production,” said Connor Hyde, fertilizer analyst with Gro Intelligence, in a mid-October telephone interview.

“When fertilizer prices peaked last year there was still quite a bit of uncertainty about what the future held in terms of world supplies as the war in Ukraine was evolving,” Hyde said. This led to a historic high in May 2022.

“What the market has done, it has adjusted, has found alternative sources, has found supplies or has relied on other origins for their fertilizer, and Russian fertilizer is still being exported although at a reduced rate, compared to pre-war levels,” he added.

Natural gas combined with widely available atmospheric nitrogen produces ammonia that is a fertilizer itself that can be applied directly but is also an intermediate for urea and Urea Ammonium Nitrate (UAN).

Mid-2023 tightness in part related to Trinidad

As for the September from August uptick, “I think the main reason why prices are higher is a little bit of a supply tightness, and a lot of that has to do with the gas curtailments going out of Trinidad,” the market source said

“Trinidad is a major exporting hub for anhydrous ammonia for agriculture and industrial use,” Hyde said.

Trinidad & Tobago’s eleven ammonia production plants have a total capacity of 5.2 million tonnes per year, according to the website of the Ammonia Energy Association, an industry organization. However, problems with gas production have kept those plants below capacity.

Trinidad-based newspaper Sunday Express reported in April 2023 that several petrochemical plants, and also an LPG cooking-gas plant, had shut down due to natural gas curtailments.

NGC (National Gas Company of Trinidad and Tobago) told the Sunday Express at the time that all of the gas suppliers were providing as much volume as they could to NGC “however two of our major gas suppliers are undertaking critical maintenance activities which has resulted in insufficient gas.”

Former Trinidad and Tobago Energy Minister Kevin Ramnarine told the Sunday Express he expected the country to continue to have natural gas challenges for the next four years.

“Natural gas supply will struggle for the next four years until the Manatee project delivers first gas in 2027,” he said.

Impact of hurricanes

Hurricane Ida hit on Aug. 2021 the Mississippi River mouth and waterways key for fertilizers distribution. This contributed to the 2022 fertilizer price peaks. But there hasn´t been any similar weather event.

“There was a hurricane that hit in Florida earlier this season that had some impact to phosphate production but that has since rebounded,” Hyde said. Hurricane Idalia hit Northerwest Florida on Aug. 30, 2023.

“An overwhelming majority of the U.S. phosphate fertilizer production is centered in Central Florida (…) The phosphate produced in Central Florida is a synthetic fertilizer, and ammonia is feedstock to produce di-ammonium phosphate and mono-ammonium phosphate,” Hyde said.

Cash windfall for U.S. producers

In the U.S. “some of the larger plants are very efficient with their gas-to-ammonia consumption and so the U.S. didn’t really experience the same significant price increases that Europe experienced last year,” he added. The U.S. is a leading global crude oil and natural gas producer thanks to shale deposit developments in the past decade.

CF Industries, the biggest ammonia production company in the U.S. and one of several ammonia producers, has enjoyed a windfall.

“Our trailing 12-month net cash from operations was $3.2 billion and free cash flow was $2.1 billion. These results reflect outstanding execution by the CF Industries team against the backdrop of robust demand,” said in Aug. 2023 Tony Will, CEO of CF Industries.

“We sold more product than we produced and ended the first half with low inventories (…) We believe we are really well positioned for the remainder of 2023 and into 2024,” he added

CF Industries Holdings announced in March a purchase agreement for $1.675 billion with Incitec Pivot Ltd. for an 880,000-tons-per-year ammonia plant in Louisiana.

“The second half typically starts with lower production due to maintenance activity as well as seasonally low prices that should rise as we move towards spring,” said Chris Bohn, CF Industries CFO.

Bert Frost, senior vice president for sales and marketing, said demand for ammonia will remain strong.

“And that's also predicated on the lack of supply (…) with lack of gas in Nigeria and Egypt, and as well as Trinidad, Europe, the European Union gas prices, Pakistan, Brazil, many places that have produced tons in the past are not producing today,” he said.

According to the U.S. Geological Survey, U.S. ammonia production has been increasing since 2015, rising 46% to 17 million tonnes per year in 2020 from 11.6 million tonnes per year five years earlier, according to the Energy Information Administration.

The U.S. estimated 17 million tonnes output in 2021 compared with 47 million tonnes ammonia production in China and 19 million tonnes in Russia, it added.

Fertilizer prices are not seen as likely to reach in the near term the 2022 peaks unless there is an unforeseen event.

By Renzo Pipoli