Natural gas prices impact nitrogen fertilizer costs

Only 2 years ago nitrogen (N) fertilizer supply and price were impacted by a sharp rise in natural gas prices (winter 2000-2001). Another dramatic increase occurred within the past month. Natural gas prices have fluctuated more in recent years because of increased demand for generating electricity and slowed development of new gas supplies. This time, late-winter cold temperatures, high demand for home heating, and world unrest brought depleted supplies and uncertainties in production and pricing. Thus, a high price spike resulted. If natural gas demand remains strong, and supply tight, then natural gas prices may remain relatively high for some time. There has been a recent decline in natural gas prices, but the spot price remains well above the near-term average.

Why the impact on nitrogen fertilizers?

The majority of N fertilizer sold in Iowa is either anhydrous ammonia, or products made from anhydrous ammonia (urea, ammonium nitrate, and urea-ammonium nitrate solutions) (Table 1). Ammonia is also a manufacturing component of other N-containing fertilizers such as ammonium sulfate, diammonium phosphate (DAP), and monammonium phosphate (MAP). Natural gas is a major feedstock in ammonia production for both energy and supply of hydrogen (H) in ammonia (NH3). The average natural gas consumption for anhydrous ammonia production is approximately 33.5 MMBtu (million metric British thermal units) per ton. Therefore, the ammonia production cost is closely tied to the price of natural gas.

The average natural gas price for the past 15-20 years has been about $2.20 per MMBtu (divide the cost per MMBtu by 10 to get the cost per therm of natural gas). The price steadily increased to above $5.00 this past fall and winter and then spiked at a spot price of approximately $19.00 per MMBtu in early March. It has since declined to about $5.00 per MMBtu. At a price of $2.19 per MMBtu, the cost of producing ammonia is about $100 per ton. At $19.00 per MMBtu, ammonia production cost would be about $650 per ton. At $5.00 per MMBtu, the production cost is about $200 per ton. At that cost, natural gas accounts for more than 85 percent of the total ammonia production cost. Any ammonia produced in the near term at this natural gas price will be expensive. Additional energy also is needed for manufacturing, storage, and transportation, which increases cost further and adds to the retail price.

Along with the price concern is the potential for shortage of N fertilizers this spring. Because of the recent high natural gas price, ammonia production was slowed or idled at some plants. With the onset of spring fieldwork approaching, this might translate into some spot product shortages. Shortages are expected to be temporary and perhaps related to specific products. However, N prices will be high. Unlike 2001, there does not seem to be increased availability of imported N fertilizers (usually urea) that could help offset lower domestic production (see increased urea consumption and lower overall N consumption in 2001, Table 1).

With the current cost-supply scenario, it will be important for growers to work closely with dealers and have N use plans (and contingency plans) in place. It also will be important for growers and dealers to be flexible and work together to get all the various N fertilizer products applied, and applied in the best manner.

Appreciation is extended to The Fertilizer Institute for information on natural gas pricing and ammonia production cost figures.

Table 1. Fertilizer distribution in Iowa, 1996-2001.

Consumption of Nitrogen Fertilizer Materials in Iowa
1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002
Product Tons of Nitrogen
Anhydrous ammonia 510,812 498,067 563,613 528,399 397,676 509,132
Ammonium nitrate 8,453 6,824 6,973 6,996 8,050 6,488
Ammonium sulfate 2,978 3,134 2,676 2,443 2,738 2,185
Ammonium thiosulfate 765 618 925 1,210 918 1,094
Urea 78,204 86,681 79,532 87,007 124,112 91,783
28% Solution 159,706 171,633 143,394 152,581 126,642 122,926
32% Solution 105,371 100,789 94,985 117,751 114,241 122,709
8-24-0 Liquid 802 839 665 620 1,280 700
10-30-0 Liquid 941 1,061 684 782 469 319
10-34-0 Liquid 4,536 5,569 5,010 4,850 4,379 4,010
11-52-0 16,649 16,698 14,615 16,500 18,408 21,050
18-46-0 70,198 76,141 60,647 67,066 64,207 71,114
Total 959,415 968,055 973,719 986,205 863,119 953,510

Source: Iowa Department of Agriculture and Land Stewardship.

This article originally appeared on pages 32-33 of the IC-490 (4) -- April 14, 2003 issue.

Updated 04/13/2003 - 1:00pm