Imports will likely become essential, a challenge further exacerbated if this becomes a Europe-wide crisis.
It’s a headline that’s all too reminiscent of those major crises in summer 2018, when pubs couldn’t pull pints and consumers were left clinging to the crumb trails of their hearty crumpets.
We’re still a long way from any shortages of those proportions, it must be said, yet the question remains – how did it come to this, three years on and with the peak ‘fizz’ of the seasonal summer months behind us?
The answer to that question lies in the wider challenges facing the energy sector.
Europe is in the midst of an ‘extreme squeeze’ on energy supplies, as a combination of depleted (natural) gas reserves and even low levels of wind – and a lower contribution of renewable wind power as a result – place pressure on the grid.
The race is on to restore gas reserves ahead of the colder, harsher winter months, and there have even been reports of a clamour for LNG shipments globally. Against this backdrop, gas and power prices have been soaring on a daily basis and making for major headlines on the business news wires.
It’s a crisis in energy that could understandably unfold into economic turmoil. Meanwhile, there were already faint suggestions of possible power blackouts in some parts, before the news earlier this week of a fire at the ‘interconnector’ power facility in Kent that links the power grids of Britain and France.
What does it mean for CO2 markets?
Soaring natural gas prices are putting pressure on ammonia markets and fertiliser production. Coupled with relatively soft ammonia pricing, it’s a challenging if not uncompetitive landscape in the fertiliser sector.
That clearly reached its crescendo in the last 48hrs, with the news that US fertiliser giant CF Industries was closing its two UK production sites in Ince, Cheshire and Billingham, Stockton-on-Tees. No estimated time was given for their resumption of activities.
When considering the company had already been forced to say on 3rd September that it couldn’t fulfil orders from its nitrogen complex in Donaldsonville, Louisiana, due to the impact of Hurricane Ida, the pressures on CF Industries alone are a strong indicator of the strain on the fertilisers business at present.
Ammonia production is a key sourcing route for CO2 production.
In fact, ammonia plants have traditionally been one of the largest sources of food-grade CO2 in Europe and while in the past decade other sources of CO2 have been invested in, including those raw gas streams from chemical operations and bio-ethanol plants, ammonia remains one of the largest sources – especially in Western Europe.
Any shutdown in ammonia/fertiliser plants for an extended period naturally has an impact on the CO2 supply chain at some stage, as we have seen many times; CO2 shortages are almost an annual occurrence, as anyone in the industry knows.
Having said that, the current situation arguably couldn’t come at a worse time for the business, in the UK at least. Not only is the UK just coming off the back of a tightening in supply during the summer months, as a result of unexpectedly extensive maintenance downtime at the Billingham CO2 facility and depleted storage levels, these are also peak months for ammonia production.
Ammonia is a seasonal feedstock, with the peak production output for fertilisers generally from August to March, or during the winter months; hence why fertiliser companies often plan maintenance or shutdowns from April through to July.
The 2018 CO2 Crisis – Explained
What happens now?
The first point to make here is that we are not in the midst of shortages yet.
This is not summer 2018; we are not in the midst of a sweltering summer season where we’re all heading for the carbonated drinks. Two fertiliser plants in the UK are known to have gone off-stream, but little confirmation of others. Likewise, there has been no news of plants associated with bio-ethanol or other chemicals production going down, as we saw three years ago too. The fundamental dynamics are not the same.
We do know that the ammonia pricing dynamics are unattractive right now, due to the high and escalating costs of natural gas, and this is a raw material that has a huge bearing on ammonia output. It’s notable that CF Industries has not given any estimated timeline for the resumption of operations at its Ince and Billingham sites. At the time of writing, we’ve also just heard that fellow fertilisers giant Yara International is to curb its European ammonia production capacity from next week, as it too feels the heat of rising gas prices and seeks to shield its business margins.
What comes next is less clear. The perfect storm in natural gas markets appears to have taken everyone aback, with gas and power prices breaking records on a daily basis. For UK CO2 markets, there could also be uncertainty surrounding the probably import of product, should shortages take hold as anticipated, given that this is occurring during a pandemic – or rather a ‘pingdemic’ that affects the transit of all manner of commodities.
Lessons were learned three years ago, however, and the CO2 sector is increasingly adept at navigating such potential crises. Investments have been made in the diversification and fortification of the supply chain since then, not least completion of the £9.5m ($12.1m) CO2 import and distribution terminal at Warrenpoint Port, Northern Ireland by Nippon Gases Europe, and the addition of incremental supply of biogenic CO2 in the market that can help to plug smaller gaps in end-user demand.