Less ammonia - less fertiliser - less food: BASF considers production cuts

Germany’s BASF, the world’s largest chemical company, is considering further cuts to ammonia production due to soaring natural gas prices, two sources familiar with the matter said, with potential ramifications from farming to fizzy drinks, Reuters reported.

Germany’s biggest ammonia maker SKW Piesteritz and their competitor Ineos also said they could not rule out production cuts as the country grapples with disruption to Russian gas supplies.

Unlike many European countries, Germany has no liquefied natural gas (LNG) port terminals to replace Russian pipeline gas. That means companies are under political and commercial pressure to reduce gas-intensive activities if gas deliveries are cut further.

Under normal circumstances, ammonia production accounts for about 4.5 percent of the natural gas used by German industries.

Germany's BASF, the world's largest chemical company, is considering further cuts to ammonia production due to soaring natural gas prices, two sources familiar with the matter said, with potential ramifications from farming to fizzy drinks https://t.co/jOKvQI245O pic.twitter.com/oKn9FfFAbX

— Reuters (@Reuters) July 27, 2022

Ammonia cuts

BASF already cut ammonia output at its headquarters in Ludwigshafen and at its large chemical complex in Antwerp, Belgium, in September. However, the company said that it would continue to fulfil its internal ammonia needs and external customer demand.

Other ammonia producers, like the Norwegian fertiliser giant Yara International, also had to cut their production output across Europe due to the surge in gas prices.

According to Arne Rautenberg, a fund manager at Union Investment, ammonia production would be a prime candidate for cuts to cushion any gas supply squeeze over the next few months.

Germany might accept compensation payments under a potential gas rationing programme to encourage manufacturers to quickly scale back production to balance out supply cuts.

Most gas-intensive product

Ammonia plays a key role in the manufacturing of fertiliser, engineering plastics and diesel exhaust fluid. Its production also yields high-purity carbon dioxide (CO2) as a byproduct, which is needed by the meat and fizzy drinks industries.

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

Most ammonia goes into nitrogen fertilisers but other uses include diesel exhaust fluid AdBlue and engineering plastics.

Unreliable Russian gas

Russia resumed pumping gas via its biggest pipeline to Europe, Nord Stream 1, on July 21 after a 10-day maintenance outage, however, on Monday, Gazprom said that supplies to Germany would drop to just 20 percent of capacity.

With Nord Stream 1 flowing at just 20% of capacity from July 27, Germany will NOT have enough natural gas to make it throughout the whole winter **unless big demand reductions are implemented**. Berlin will need to activate stage 3 of its gas emergency program #ONGT #EnergyCrisis

— Javier Blas (@JavierBlas) July 25, 2022

“Russia is blackmailing us. Russia is using energy as a weapon,” EU Commission President Ursula von der Leyen said, describing a full cut-off of Russian gas flows as “a likely scenario” for which “Europe needs to be ready”.

For years Poland has been speaking up on reducing Europe’s dependency on Russian gas.