The world’s largest chemical company, Germany’s BASF, is set to further cut production of ammonia, a key ingredient in fertilizers, amid soaring gas prices.
“We are reducing production at facilities that require large volumes of natural gas, such as ammonia plants,” BASF Chief Executive Martin Brudermueller said on a July 27 media call after the release of the company results for the second quarter of 2022.
In September 2021, BASF reduced ammonia production at its headquarters in Ludwigshafen, as well as at its large chemical complex in Antwerp, Belgium.
To fill gaps in supply, BASF would buy ammonia from outside suppliers, Brudermueller said.
Ammonia is a key ingredient in the production of fertilizers. It also plays a key role in the manufacture of engineering plastics and diesel exhaust fluid. Its production also produces high-purity carbon dioxide as a by-product, needed by the meat and soft drink industries.
Chemical companies are the largest industrial users of natural gas in Germany and ammonia is the most gas-intensive product in this industry. Ammonia production generally accounts for around 4.5% of the natural gas used by German industries.
Germany’s biggest ammonia maker, SKW Piesteritz, and number four Ineos said separately they could not rule out production cuts amid Russian gas supply disruption.
Unlike many European countries, Germany does not have liquefied natural gas port terminals to replace the Russian gas pipeline. This means that companies are under pressure to reduce gas-intensive activities if gas deliveries are further reduced.
Russian gas producer Gazprom began on July 27 to cut its gas supply to Europe via the Nord Stream 1 pipeline, the main route for transporting Russian gas to Europe. Supplies have been reduced to just one-fifth, or 20%, of the total pipeline capacity. The drop comes after the pipeline restarted on July 21, following a scheduled 10-day maintenance outage.
In order to strengthen the region’s energy security, the European Union announced on July 26 a “voluntary reduction” in the demand for natural gas by 15% for the winter.
Brudermueller said in 2023, farmers will see high fertilizer costs and fertilizer availability could be worse.
“The main application of ammonia is for fertilizers and that’s for food production. For this year it will not be a problem because all the farmers have already bought their fertilizer and have already used it on their field. The harvest is already underway,” he said. “The next availability will be worse because the capacity won’t be there and the next is the price. Fertilizer prices are skyrocketing.
“And then the farmers will be forced to save money and only use the minimum amount of fertilizer on their field. It could also mean that the harvest will be minor. If there are weather problems, [it would result in] a shortage situation for important crops,” he added, noting that poorer countries at the end of the food supply chain would face significant challenges.
Reuters contributed to this report.