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|
|Product||Tons of Nitrogen|
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.