Europe's nitrogen dilemma

Editorial from the March/April issue of Nitrogen+Syngas magazine

It has been a tough few years for the European nitrogen industry, and between Covid, gas price spikes and Russian sanctions, not all companies have weathered the storm.

Now that the initial shock of the sky-high ammonia prices that the closure of the Black Sea and the cutting off of almost 40% of Europe’s gas supplies has passed, and the world gas and ammonia markets have largely adjusted to the new reality, prices are coming back down.

But it seems that in its wake it may leave quite a different European nitrogen industry from the one that existed in 2019.

On the gas side, Europe has managed a remarkable transformation in the way that it receives and uses natural gas. The share of Russia’s pipeline gas in EU imports dropped from over 40% in 2021 to about 8% in 2023. For pipeline gas and LNG combined, Russia accounted for less than 15% of total EU gas imports. Instead Europe has switched wholesale to LNG imports, mainly from the US, which accounted for 50% of EU LNG imports in 2023. Even the remaining Russian gas imports are mainly LNG. This has inevitably pushed up the base cost of gas. LNG requires expensive liquefaction and regasification facilities and specialised refrigerated tankers as compared to the pipeline imports from Russia. It has also impacted upon demand, with EU gas demand falling 13% in 2023 compared to 2021. Much of this demand reduction has come from the power sector, but industrial uses have also declined, of which ammonia production has been one of the most gas intensive. European TTF gas prices have come down from their record levels of over $200/MMBtu in 2022 but are still comfortably higher than the rest of the world, and were still at $9-10/MMBtu at time of writing.

As a consequence European ammonia production dropped by 70% between February and September 2022. While much of this had recovered by September 2023, with only 19% inoperative, by January 2024 that was back up to 39% due to winter price pressures.

Margins for nitrogen production in Europe are just barely positive at the moment, but they are much better and more stable for ammonium nitrate and its derivatives than for ammonia and urea. Many plants are running nitrate capacity using imported ammonia.

There was a theory that falling costs of renewable electricity production might make green EU ammonia production viable, once the new Carbon Border Adjustment Mechanism (CBAM) was taken into account, at least at times of higher ammonia prices. However, it is beginning to look as though low carbon blue ammonia produced using natural gas in the US Gulf Coast and exported to Europe may still end up being cheaper. It is possible for Europe’s nitrogen industry to continue producing using imported ammonia – India’s DAP industry has done so for many years – but it makes it much more vulnerable to supply side shocks. There have been a number of permanent closures in the past few years, and it is possible that there may be more to come.

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