The tenfold increase in natural gas and energy costs-as was foreseeable and predicted, including on this site, as early as the beginning of the dastardly Ukrainian conflict (1,2)-is causing the closure of industries producing nitrogen fertilizer and urea in Europe.
Gas skyrockets, industry to the brink
The price of gas on the European reference market (TTF, Amsterdam) increased by 1000% in one year (3.4). This explains the extra profits of energy giants who – in continuing their purchases of methane at historical costs, thanks to long-term supply agreements – charge their customers spot sales prices. Which are doped by the reduced supply of the environmentally friendly and cheap Russian gas.
European and Italian industry for half a century prospered and exported their goods precisely because of the Soviet Union’s generous supply of methane. Whom sacrificed 10 million lives, today more than ever it is worth remembering, to save Europe from Nazism. But the jumble of sanctions applied to Russia by the EU political leadership has soured the historic alliance.
The ongoing industrial and economic crisis on the Old Continent is the logical consequence of the above, and the scenario projected by analysts is as black as the Azov battalion, with inflation at 10 percent and the presidents of France and Belgium heralding a decade of tears. The ammonia industry is among the first victims, as energy expresses 90 percent of its variable production costs.
Nitrogen fertilizers and urea. European blackout
‘The European fertilizer industry is in the midst of a crisis because the European gas market is in crisis. Record natural gas prices, which represent of the industry, make it impossible for European producers to compete. As a result, more than 70 percent of European production capacity has been reduced. If the situation persists, we fear that other producers may also be affected (…)
Abandoning dependence on Russian energy supplies and raw materials cannot be achieved by closing plants and moving jobs out of Europe. An urgent correction of current gas policies is needed to address this very serious crisis.
Europe needs a strong domestic fertilizer industry to continue producing food and, in the long term, to develop Europe’s hydrogen economy using green ammonia supplied by the fertilizer industry’ (Jacob Hansen, Fertilizers Europe, director general). (5)
TINA(There Is No Alternative)
‘Ammonia prices., although volatile, were up 15 percent in the third quarter and could rise further as record gas prices in Europe reduce production and push ammonia producers to turn to the global market in search of replacement supplies to run modernization plants, with winter still around the corner‘ (Alexis Maxwell, Green Market, Bloomberg Intelligence). (6)
Fertilizer and urea producers also face U.S. and European Union sanctions on potassium chloride sales from Belarus. Russian commodity trade has suffered from the self-sanctioning of many shippers, banks and insurance companies, as well as difficulties in handling exports from Russia, a major supplier of all major types of crop nutrients.
Plant shutdown and unemployment
Nitrogen fertilizer and urea industries thus begin to close down, or cut production. Achema plant in Lithuania closes on 1.9.22, 1200 employees. Same fate for the nitrogen fertilizer industry in Anwil, Poland, a subsidiary of the state oil and gas company in Orlen.
The largest fertilizer industry on the planet, Yara International ASA in Norway, has in turn announced a 50 percent cut in urea and nitrogen fertilizer production. So too CF Industries, also in Norway, and several plants of the Borealis AG group. ‘For economic reasons,’ unemployment.
Fertilizers and urea, global scenario
‘We are extremely concerned that as prices of natural gas keep increasing, more plants in Europe will be forced to close.
‘This will switch the EU from being a key exporter to an importer, putting more pressure on fertilizer prices and consequently affecting the next planting season‘ (Maximo Torero, chief economist, FAO). (6)
Europe is sinking alone in this suicidal proxy war, with natural gas costs 8-10 times higher than in the United States and even more than in other fertilizer industry hubs. The stock prices of U.S. giants Mosaic and CF Industries meanwhile register record-breaking rises, respectively +16% and +15% over the previous week in the S&P 500 Index as of 8/26/22.
Impact on agribusiness supply chain in EU
Fertilizers Europe warns that the energy crisis is affecting many sectors and could have a serious impact on the entire agrifood supply chain in the EU. Agrifood systems will certainly benefit from an ecological transition that can reduce dependence on synthetic fertilizers and pesticides, as indeed suggested on 18.3.22 by the 408 scientists who issued an appeal to EU institutions, under the auspices of the Potsdam Institute for Climate Impact Research. (7)
However, the transition to agroecology cannot happen overnight, as it will require adaptation to individual supply chains and farming and livestock conditions. Co-funded research should proceed at a rapid pace to increase the use of fertilizers derived from organic nutrient sources (e.g., sewage sludge and processed manure, charcoal biochar, frass, biostimulants, mycorrhizae). But it is already late to run for cover.
Interim conclusions
In 2011, Jim O’Neill, then chairman of Goldman Sachs asset management and the originator of the BRICs acronym, announced the emergence of the Next Eleven alongside them as the key players in economic growth from there to 2030. (8) ‘For the debt-burdened states of the West‘-so concluded Jim O’Neill in the prophetic book ‘The Growth Map‘ (9)-‘exporting goods to growing markets is the future.’
Too bad that the governments of the ‘competent’ (quoted by Giuseppe Masala), in the EU and its member states – instead of seizing the opportunities of multilateralism, in a perspective of peace and collaboration for the development of global economy and society – have decided to privilege the interests of defense and armament industries. And the trade balances of the Old Continent fall to the floor, hand in hand with their diplomacies.
Dario Dongo
Notes
(1) Dario Dongo. Gas and electricity, a crisis foretold. GIFT (Great Italian Food Trade). 20.3.22
(2) Marta Strinati. Rising prices and food crisis in wartime. Background in iPES FOOD report. GIFT (Great Italian Food Trade), 10.5.22
(3) Vincenzo Genovese, Jorge Liboleiro. How the TTF, the Amsterdam gas market, works. Euronews. 31.8.22
(4) Dutch TTF Gas Futures. ICE Endex
(5) Europe’s fertilizer industry victim of EU’s energy chaos. Fertilizers Europe. 26.8.22
(6) Samuel Gebre, Elizabeth Elkin. Europe’s Deepening Fertilizer Crunch Threatens Food Crisis. Yahoo Australia. 26.8.22
(7) Dario Dongo. From Farm to Fork to Farm to War, science’s call for a resilient food strategy. GIFT (Great Italian Food Trade). 22.3.22
(8) BRICs (Brazil, Russia, India, China, South Africa) and N 11 (Bangladesh, South Korea, Egypt, Philippines, Indonesia, Iran, Mexico, Nigeria, Pakistan, Turkey, Vietnam)
(9) Dario Dongo. The book The Growth Map. GIFT (Great Italian Food Trade). 24.9.14
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.