Soaring gas prices spread through heavy industry and supply chains


London — World record high natural gas prices could help some energy-intensive companies disrupt global supply chains in some sectors, such as food, and cost more to pass on to customers Trends are encouraging production cuts.

Some companies, including steel, fertilizer and glass makers, had to stop or cut production in Europe and Asia as a result of soaring energy prices. This includes two of the world’s largest fertilizer manufacturers, who said they would cut production in Europe. The UK said on Tuesday that it had agreed to provide state support to one of the companies to resume production of carbon dioxide, a by-product used in food production, to avoid supply shortages.

Natural gas prices have skyrocketed around the world in recent months. This is due to a combination of the following factors: Includes increased demand, especially from Asia, due to post-pandemic recovery. Low gas inventories; tighter than usual gas supply from Russia.

Gasoline prices in Europe have risen more than 250% this year, but in Asia they have risen about 175% since late January. In the United States, prices have soared to their highest levels in years, almost doubling at the beginning of the year. Since many power plants are gas-fired, electricity prices are rising sharply.

The Industrial Energy Consumers of America, a trading group representing chemical, food and material manufacturers, recently urged the U.S. Department of Energy to stop exports of gas by its liquefied natural gas producers to curb industrial energy costs. I’m looking for.

An additional supply of gas may reduce pressure. Norway allows for increased gas exports. The country’s new Nord Stream 2 pipeline, awaiting approval from Germany’s energy regulators, could bring more supply from Russia by the end of the year. The pipeline project has received criticism from the United States, saying it will increase Europe’s reliance on Russia’s energy supply.

Gas pipeline
The Nord Stream 2 Gas Pipeline Project logo can be found on the pipes of the Chelyabinsk Pipe Rolling Plant in Chelyabinsk, Russia on February 26, 2020. (MaximShemetov / Reuters)

Production turmoil

Pressure to date has been particularly severe in Europe, where gas inventories are much lower than normal and winter is heading. Norway’s Yara International ASA, one of the world’s largest fertilizer makers, announced on Friday that high gas prices would cut about 40% of Europe’s ammonia production. This was after US-based CF Industries Holdings Inc. stated that gas prices were urging two UK plants to shut down. Natural gas is the most important cost input for nitrogen-based fertilizers.

Yarra CEO Svain Torre Holcezer told Reuters in an interview Monday that the company is bringing ammonia to Europe from other production facilities, including the United States and Australia. “Instead of using European gas, we basically use gas from other parts of the world to manufacture its products and bring them to Europe,” he said. CF Industries did not respond to requests for comment.

Some industries are calling for intervention on behalf of the government. These petitions come as some countries, such as Spain, which approved a series of measures including price caps last week, have acted to protect consumers from soaring energy bills.

The food industry is seeking help following a carbon dioxide (CO2) shortage due to production outages at some fertilizer plants. CO2 is used in vacuum packaging of foods to extend shelf life, stun animals before slaughter, and put fizz in soft drinks and beer.

In the UK, meat processors have warned that they will run out of CO2 within five days, forcing them to stop production. Soft drink makers, who rely on gas to produce carbonated drinks, said they were in short supply.

On Tuesday, the British government said a US company had signed a three-week contract with CF Industries to resume production of carbon dioxide in the UK. The UK’s environment minister warned the food industry that carbon dioxide prices would rise sharply, saying state support could reach tens of millions of pounds.

CF Industries said in a statement that it would immediately resume ammonia production at the Billingham plant after the agreement.

Weathering of the storm

Other energy-intensive sectors such as steel and cement are also in a pinch.

Soaring gas prices have forced some steelmakers to shut down in the last two weeks, day or night, when energy rockets are costly, “said the director of the UK Steel Industry Group. Gareth Stace said. He refused to identify which company.

British Steel, the country’s second-largest steel producer, maintains normal production levels, but with rising “huge” energy prices, “steel profits at certain times of the day. It has become impossible to manufacture. “

So far, some manufacturers say they can.

Germany’s ThyssenKrupp AG is Europe’s second-largest steelmaker, saying rising energy prices, especially the hedging mechanism for gas, mean that production is not curtailed. However, because the industrial gas used is related to electricity prices, it was indirectly affected.

Germany’s Heidelberg Cement AG, the world’s second-largest cement maker, said rising energy prices are pushing up production costs, but as a result, operations have not been shut down.

In China, several steel, ceramic and glass manufacturers are reducing production to avoid losses, according to Li Ruipeng, a local supplier of liquefied natural gas in northern Hebei. Yunnan Province in southwestern China also imposed restrictions on the production of several heavy industries this month due to lack of energy, including producers of fertilizers, cement, chemicals and aluminum smelters, analysts said. ..

To survive the storm, some energy-intensive industries and utilities in Asia and the Middle East have temporarily switched from gas to fuel oil, crude oil, naphtha and coal, according to analysts and traders. This trend is expected to continue from the rest of the year to the beginning of next year, according to the International Energy Agency, a Paris-based energy monitoring agency.

In Europe, the demand for coal as an alternative power source is also increasing significantly. However, options for switching to alternative energy sources are limited in the region, primarily due to government policies aimed at encouraging the use of gas over more polluted fuels such as coal.

According to Paul Pearcy, federation coordinator of British Glass, the UK’s trade association, the glass industry has historically been fueled, but now almost every site in the UK is moving to natural gas. He added that very few sites have fuel oil tanks that can switch energy sources if prices soar.

By Bozorgmehr Sharafedin, Susanna Twidale, Rossan Khasawneh