BASF readies more ammonia production cuts in gas supply crunch

BASF readies more ammonia production cuts in gas supply crunch

A general view of the German chemical company BASF Schwarzheide GmbH in Schwarzheide, Germany, December 10, 2019. REUTERS/Annegret Hilse

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  • BASF reduced ammonia production in September and is now reducing it further
  • Yara’s ammonia production across Europe is 27% below capacity
  • SKW and Ineos say they are monitoring the situation closely

FRANKFURT, July 27 (Reuters) – Germany’s BASF (BASFn.DE), the world’s largest chemical company, is further cutting ammonia production due to rising natural gas prices, it said on Wednesday, with potential ramifications. from agriculture to soft drinks.

Germany’s biggest ammonia producer SKW Piesteritz and number four Ineos also said they could not rule out production cuts as the country grapples with the disruption of Russian gas supplies.

Ammonia plays a key role in the manufacture of fertilizers, engineering plastics, and diesel exhaust fluid. Its production also produces high-purity carbon dioxide (CO2) as a by-product, which is necessary for the meat and soft drink industries.

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“We are reducing production at facilities that require large volumes of natural gas, such as ammonia plants,” BASF’s chief executive said at a press conference after the release of quarterly results, confirming an earlier report from Reuters.

He added that BASF would buy some ammonia from outside suppliers to fill in the gaps, but warned that farmers would face skyrocketing fertilizer costs next year.

Production lines for feedstock synthesis gas, a mixture of carbon monoxide and hydrogen, and basic petrochemical acetylene were also candidates for cuts to save gas, the chief executive said.

Unlike many European countries, Germany does not have liquefied natural gas (LNG) port terminals to replace Russian pipeline gas. That means companies are under political and commercial pressure to scale back gas-intensive activities if gas deliveries are cut further.

BASF cut ammonia production at its headquarters in Ludwigshafen and at its large chemical complex in Antwerp, Belgium, in September.

Fertilizer giant Yara (YAR.OL), which runs Germany’s third-largest ammonia production plant in the northern city of Brunsbuettel, said its output in Europe was currently 27% below capacity due to the rising gas prices.

He would not specify Brunsbuettel’s rate, but added that the site does not emit high-purity CO2.

SKW said it was in the process of resuming full production after a scheduled maintenance shutdown, but the future rate of capacity utilization was extremely difficult to predict.

Chemical companies are the largest industrial users of natural gas in Germany and ammonia is the single most gas-intensive product within that industry.

Companies that cut ammonia production may lose market share to imports from foreign suppliers with access to cheap gas, or in Germany may accept compensation payments under a possible gas rationing program to encourage manufacturers to quickly cut back. production to balance supply cuts. read more

FIRST CANDIDATE

Most of the ammonia goes into nitrogenous fertilizers, but other uses include AdBlue diesel exhaust fluid and engineering plastics.

Ammonia production would be a prime candidate for cuts to cushion any gas supply restrictions in coming months, said Arne Rautenberg, fund manager at Union Investment.

“In the northern hemisphere, nitrogen fertilizer is applied mainly during the spring. It can also be produced in the United States and shipped to Europe,” he said, while adding CO2 supply for the food industry could prove to be a thorny issue.

BASF’s production network, in particular, does not rely as much on ammonia as it does on other base chemicals for further use in more specialized downstream chemicals, Rautenberg said.

Russia resumed pumping gas through its largest pipeline to Europe, Nord Stream 1, on July 21 after a 10-day maintenance outage, but Gazprom (GAZP.MM) said on Monday supplies to Germany would fall to only 20% of its capacity. read more

Even before the war in Ukraine, reduced ammonia production due to soaring natural gas prices in Britain last year led to CO2 shortages in the meat and beverage industries.

That forced the UK government in September to provide financial support to ammonia maker CF Industries (CF.N) to restart production. read more

During normal times, ammonia production accounts for about 4.5% of the natural gas used by German industry.

Both SKW and BASF reduced ammonia production in September 2021 due to an increase in gas prices.

SKW, which at the time reduced production by 20%, resumed normal production when customers accepted price increases.

SKW can cut production at each of its two ammonia and urea production lines by no more than 20% or it would have to halt production entirely in an expensive phase-out, a spokesman said.

Britain’s Ineos said it was watching energy costs very closely and would “adjust production to make the best use of low-peak energy and raw material purchases.”

Ammonia production has already fallen sharply in Germany due to high gas prices, chemical industry lobby group VCI said.

SKW said it was supplying CO2 to the food industry, with Air Liquide (AIRP.PA) acting as an intermediary. BASF also said it was providing CO2 through industrial gases companies.

Industry-wide, cash costs of ammonia production in Europe during the first quarter were five times the average level in 2019 and well above other regions of the world, according to data compiled by the Boston Consulting group.

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Information from Ludwig Burger Editing by Matt Scuffham and Mark Potter

Our standards: the Thomson Reuters Trust Principles.

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