The ripple effect caused by the ongoing Russia-Ukraine conflict has exposed vulnerabilities across the entire industrial gas supply chain, from natural gas and LNG to rare gases used in microchips such as neon.
With natural gas the main input (70%) for urea production – a key fertiliser – India’s heavy reliance on imported LNG could see the Indian government set to increase its budgeted US$14bn fertiliser subsidy.
Massive trade sanctions imposed on Russia could also impact India’s supply of fertiliser, leading to ‘soaring’ prices globally, revealed report author Purva Jain, Analyst and guest contributor, IEEFA.
Urea continued to be supplied to the agriculture sector at a uniform statutory notified price, despite a 200% increase in gas prices from US$8.21/MMBtu (metric million British thermal unit) in January 2021 to US$24.71/MMBtu.
This led to an increased subsidy, which is set to increase further, according to Jain.
“The budget allocation for the fertiliser subsidy is about US$14bn – or Rs1 trillion – making it the third year in a row that the fertiliser subsidy has topped Rs1 trillion.”
“With the already high global gas prices exacerbated by the Russian invasion of Ukraine, the government will likely have to revise the fertiliser subsidy much higher as the year progresses, as it did in FY2021/22.”
Recent price hikes have highlighted the importance of shifting away from expensive LNG imports and using domestic supplies instead.
Russia’s status as a major producer and exporter of fertiliser, including phosphatic and potassic fertilisers such as NPK and MoP, have further compounded the global increase in fertiliser prices.
According to Fertiliser Week’s Jennifer Willis-Jones, who spoke with gasworld at the Europe CO2 Summit 2022, ammonia – the raw material of the fertiliser industry – trade flows have been ‘crippled’ because of the war in Ukraine, restricting an already tight market compounded by a loss of capacity from Trinidad since February.
She also revealed that the halt applied to the Nord Stream 2 pipeline will further limit and potential for gas prices to fall and easing of pressure on the fertilisers sector.
“Ammonia prices are set to skyrocket further. There’s a lot of upwards pressure on ammonia prices at the moment,” she said.
“Limited relief could be available as Saudi Arabian mining giant Ma’aden launches the third Ras Al-Khair ammonia plant.”
Diversification and relief
The report suggested that an interim measure could involve limited domestic gas supplies being allocated to fertiliser manufacturing instead of to the city gas distribution (CGD) network, allowing the government to meet the target of 60MT (million tonnes) of urea from indigenous sources.
Longer term solutions involve the scaling up of green hydrogen development, which uses renewable energy to make green ammonia to produce urea and other fertilisers.
Speaking during the Summit, Alex Derricott, Fertiliser Week, emphasised the importance of green ammonia projects, saying, “It uses renewable electricity to generate hydrogen which is fed into the Haber-Bosch process.”
The Haber-Bosch process
Considered one of the most important industrial chemical reactions, this process takes nitrogen from the air and combines it with hydrogen to create synthetic ammonia.
“This process removes hydrocarbons as a raw material, significantly reducing emissions associated with ammonia production.”
Although not currently cost-competitive compared to ‘grey’ ammonia due to high power and capital cost, green ammonia could help reduce the global reliance on volatile overseas supply chains, in addition to reducing carbon dioxide (CO2) emissions.
Considered by Jain as being critical for decarbonising farming and insulating India from expensive LNG imports, he called it an opportunity to enable cleaner non-fossil fuel alternatives.
“The savings in subsidies as a result of reducing the use of imported LNG could be directed towards the development of green ammonia,” he said.
The full report from the IEEFA can be read here.