Fear Premium Holds Ammonia Hostage

January 18, 2013 03:17 AM

Islamic extremists have assumed control of an Algerian natural gas facility in response to French military actions in Mali. This action punctuates the value of domestic fertilizer independence.

Growers have noticed the high price of Anhydrous despite robust natural gas in domestic storage. With a tightening stocks-to-use ratio worldwide for nitrogen fertilizers, a new-found hope for U.S. energy independence shifts to domestic nutrient independence for the American grower.

As an example, Vietnam -- 2011's #2 rice exporter globally -- has posted dramatic declines in fertilizer imports over the past few years and is reporting a bold projection for another 50% decline in fertilizer imports for 2013. Estimates have the nation importing just 2.4 million tons of NPK in the coming year and fertilizer independence has made that possible. Nutrient production has steadily been on the rise in Vietnam and the result is increased rice exports on the back of decreasing domestic fertilizer prices, and robust agricultural activity.

Part of the reason Anhydrous refuses to fall is the high price of ammonia. Incidents like the Algerian gas complex takeover are reminiscent of the fear premium imposed by unrest in Middle Eastern crude producing nations on oil prices.

In 2005 the price of a barrel of oil reached $140 -- here in 2013, with unrest still in the news, a run-up to 96.00 per barrel is labeled a spike.

If extremist groups continue to target natural gas facilities in North Africa and the Middle East, the United States must respond by increasing ammonia production and encouraging continued trade of the substance with friendly nations like Trinidad-Tobago -- which has historically provided the U.S. with 55-60% of the ammonia imported annually.

Increased domestic production would help insulate the nitrogen market from these external stresses and moderate U.S. pricing of Anhydrous, DAP/MAP, Urea and UAN. Of the roughly 100 million tons of ammonia produced in the world each year, the U.S. currently produces about 8%. A number of nitrogen and ammonia production projects are underway in the United States and set to come online sometime in 2015. Until then, nitrogen demand will continue to tighten stocks-to-use in the global market and prevent ammonia prices from falling.


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Spell Check

2/4/2013 11:15 AM

  this article is so bogus it isn't even funny. I live in Northern Montana and have many natural gas wells on the place. My family gets virtually no royalties because gas prices are so low.The U.S. could produce all of the nitrogen they need low cost. Our best bet is to let the fertilizer companies choke on their supply, rather than be held hostage to unjustified exorbitant prices by monopolistic companies.​


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