Pakistan Plans to Cut Natgas to Fertilizer Manufacturers

September 19, 2013 08:24 AM

Fertilizer production in Pakistan is set to take a hit as the Pakistani government curtails natural gas use in anticipation of shortfalls during the upcoming winter. According to a report from Platts, the Pakistani government foresees a natgas shortfall of up to 1.8 billion cubic feet (bcf) per day during the period December-February, which is the peak of the winter heating season. In an effort to build supplies, Pakistan's petroleum ministry intends to suspend natural gas supplies to fertilizer companies, private power plants -- as used in heavy industry -- and CNG stations for three months starting December 2013.

The diverted natgas will help heat homes affordably during the bitter winter there, but may wind up costing in domestic fertilizer supplies, most notably, urea and DAP. Production had been brisk for the first four months of 2013 with urea production up 1.04% over the previous year and DAP production up a whopping 46% for the same period. The production upticks led to an an 81% decrease in fertilizer imports into Pakistan in April '13.

Decreased fertilizer imports were an effort on the part of the Pakistani government to encourage domestic urea and DAP production, and manufacturers responded with sizable increases. However, the runup in natgas use has left Pakistan to take dramatic steps to taper natgas consumption.

There are rumors of neighboring nations offering assistance including a deal from Vladimir Putin for Russian electricity. This sort of assistance would help the situation, but as winter plods across Pakistan, demand for natural gas for home heat will increase. If power generation derived from natural gas can be partially offset by electricity imports, the national gas supply can build.

Pakistani fertilizer production is mostly for domestic use and this year's production increases may fill the bill even as natgas is denied to fertilizer manufacturers. Once winter passes, and less natgas is needed to heat homes, spring fertilizer demand could excite local pricing in Pakistan on a supply shortfall. In that event, look for producers to resume production at the high levels recorded from earlier this year.

No matter what the outcome, continued oversupply of Chinese urea and healthy U.S. phosphate production should insulate North American growers from any impact the manufacturing disruption might cause.

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