Friday, 17 July 2009

Lowest ammonia prices

The production of ammonia (NH3) is an energy intensive process. The Haber-Bosch process uses natural gas and air to create ammonia. It takes about 750 kg of natural gas and 30,000 MJ of energy to produce 1 tonne of ammonia. Hydrocarbon gas (CH4) is now used to create ammonia because hydrocarbon gas is cheap. A byproduct of this Haber-Bosch process is carbon dioxide, but other methods of ammonia production have been used in the past that don’t use hydrocarbons and don’t create carbon dioxide.

Currently, the Nymex (New York Mercantile Exchange) price of natural gas is near the 52-week low of $3.50 per million BTU.

Average ammonia prices today are less than half of those a year ago, and profits of ammonia producers are more than 50% down, due to the decrease in international ammonia prices. For example, Saudi Fertilizers Company reported last week that net profits of $128M for the 3 months to June were 60% down on a year ago.

The price of Gulf of Mexico anhydrous ammonia was $800 per ton in September 2008 but, by January 2009, the price had fallen to below $200 per ton. Anhydrous ammonia is now trading at around $160.00 per ton from the Gulf of Mexico and the Black Sea. The current price of ammonia is within the price range experienced during the 10-year period from 1998 to 2007 of $140 to $170 per short US ton.

The high proportion of natural gas used in ammonia manufacture means that, under most market conditions, a strong correlation exists between the price of natural gas and the price of ammonia. Historically, natural gas accounts for 70% to 90% of the cost of ammonia production. Additionally, the current low price is due to the global financial crisis, large remaining distribution stocks, and a late North American harvest season.

The non-functioning of credit markets constrained ammonia consumers in advance purchases, reducing demand. Ammonia suppliers overproduced, in anticipation of a high demand due to high commodity prices. Consequently, the current supply of ammonia greatly exceeds the demand and ammonia producers are curtailing production.

Ammonia supply is a complex issue and involves; ammonia prices, natural gas contract prices, opportunity costs of using natural gas to produce ammonia, ammonia production and inventory, production technology and capacity, and global competition with ammonia imports and exports.

Annual US production of ammonia has steadily declined over the last decade, whilst imports have more than doubled to satisfy the increasing demand and North America is the world’s largest ammonia importer. North America accounts for more than one-third of world ammonia trade and much of the US imported ammonia is from Trinidad. China consumes one-third of the world’s ammonia production but doesn’t have much impact on trading because it consumes almost all of the ammonia that it produces.

Production of ammonia in Western Europe had substantially decreased within the last decade, with the exception of Belgium and Germany, whilst Russian ammonia production has increased, due to the availability of cheap natural gas, the major ingredient of ammonia using the Haber-Bosch process.

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