A week can be a long time in the CO2 business, and yet it feels as though the ups and downs of the last seven days have flown by.
It was on Thursday 16th September that gasworld first reported the possibility of a new UK and potentially Europe-wide CO2 supply crisis.
The backdrop to those concerns were soaring natural gas prices, a fertiliser industry under strain as a result, and the imminent closures of two key fertiliser plants in the UK, in Cheshire and Teesside.
Once CF Industries confirmed those closures in Ince and Billingham, it seemed as though a domino effect rippled out across Europe as fellow fertiliser producers conceded to the same dynamics of high feedstock (natural gas) prices and soft ammonia margins.
Yara confirmed it would be curtailing as much as 40% of its own production across Europe, while many other fertiliser plant closures were confirmed in the days thereafter, not least in Spain and Ukraine.
Read more: Fresh CO2 supply shortages anticipated
It became a whirlwind few days for the industry and, by extension, the CO2 business in the region. CO2 is itself a by-product of ammonia production. In fact, ammonia remains the largest feedstock for food-grade CO2 production in the UK and a significant sourcing route in wider Europe – a supply chain that came under such intense scrutiny and media attention in the summer of 2018, when significant CO2 shortages were endured across Europe and sent shockwaves through the food and beverage and hospitality sectors.
Those same sectors – though notably led by the poultry and meat processing sector – were even quicker to respond this time around, concerned by reported CO2 inventory levels that might barely last a fortnight.
By Tuesday 21st September, the news broke that the UK Government would support CF Industries through the reopening of its major Billingham plant, a significant source of CO2 supply in the UK. The announcement was widely welcomed, promising to bring huge relief – if not an early end – to arguably one of the shortest of short-lived CO2 supply crises.
It’s now Friday 24th September as I write this, and the story of CO2 shortages has all but blown over, it would appear. The emphasis has shifted (in the UK at least) to sustained high gas prices, the collapse of various smaller energy firms, and the inevitable impact on the consumer’s back pocket. But is this really over? As I understand it, we’re far from out of the woods on this one.
What will be interesting to see now, is how fast the next few weeks pass by. It’s a case of crisis averted in the UK, but for how long?
More questions than answers
It feels like we have a crunch 2-3 weeks ahead. In this economic chess game of aggressive pricing manoeuvres, fallen feedstock pawns and industrial check-mates, the next moves could be game-changing.
At the heart of it all are those sky-high natural gas prices, still very much the great unknown at the time of writing. It’s telling that our economic tree is so deeply rooted in fossil fuels, that almost every branch of life and industry can be affected by these gas prices on some level. Questions have naturally been raised about national supply chain security strategies and the roadmaps ahead.
But there are also many other unanswered questions at this hour too, all of which look likely to keep this story in the headlines for a little while yet.
How long will natural gas prices remain so high?
The great unknown. At the time of writing, there are still warnings from various analysts and commentators that such elevated prices could remain in play for some time to come.
Europe is in the midst of an extreme squeeze on energy supplies, as a combination of depleted (natural) gas reserves and even low levels of wind – and a lower contribution of renewable wind power as a result – place pressure on the grid.
The race is on to restore gas reserves ahead of the colder, harsher winter months, and there have even been reports of a clamour for LNG shipments globally as the Asia region experienced some unseasonably colder periods. Against this backdrop, gas and power prices have been soaring on a daily basis and making for major headlines on the business news wires. Some estimate suggest prices had risen as much as 250% since January, and 70% in the month of August alone.
Clearly, it will be some time before those levels begin to scale back down.
Are more fertiliser plants likely to close?
Without further information in the public domain or announced subsidies, it looks to be a tough environment for fertiliser plants to continue to operate in.
Jennifer Willis‑Jones, Senior Markets Editor for Nitrogen and Fertilisers at CRU Group, affirmed, “…looking at current gas prices and futures gas prices, nitrogen fertiliser plants in Western and Eastern Europe, as well as Ukraine, are currently in negative margins producing ammonia. As such, further plants closures are expected in these regions.”
Of the plant closures to date, we know that:
- Lithuania’s Achema last month (August) cancelled plans to restart its ammonia facility at the end of August
- High production costs led to a partial closure of ammonia production at OCI’s Geleen plant in the Netherlands
- CF Industries had closed its two plants in the UK in Ince and Billingham (with the latter set to resume operations soon)
- Yara International announced that it was curtailing around 40% of its European ammonia production capacity
- Fertiberia management reportedly decided to stop production at its Palos de la Frontera site (Spain) from 1st October. Its Puertollano factory remains in a scheduled shutdown for ongoing investments
- Production curtailments were expected to be announced in Ukraine; at least one plant closure in Ukraine was subsequently confirmed, with OPZ taking the decision on 18th September to shut one ammonia line and two urea lines.
- European fertiliser producer Borealis AG announced in the last 48 hours that it too is now reducing its output and will continue to analyse the situation across its sites.
In almost all of these instances, either an end-of-year timeline or no estimate at all has been given for the resumption of these plants.
So dire is the situation for those producers, that gasworld understands OPZ had previously agreed with gas tolling partner AGT to operate throughout October, but its hand was forced on its Odessa plant by the unprecedented gas prices.
gasworld understands as much as half of Europe’s ammonia production capacity is either down or at some stage of curtailment, with further plant closures expected if the current dynamics continue.
Attempting to look even further ahead, Willis-Jones noted the strong demand expected ahead for ammonia, urea and nitrates through to Q1 2022. “This piles more pressure on the nitrogen fertiliser industry, with demand expected to be relatively strong in Europe for ammonia, urea and nitrates over Q4 2021 and Q1 2022.”
“This will have to be served by imports, but this will not help CO2 buyers in Europe.”
How long can the UK Government subsidise Billingham?
One plant that we know is being subsidised – temporarily – of course, is the Billingham plant on Teesside, UK, owned and run by CF Industries.
It was confirmed on 21st September that the UK Government would support CF Industries with the operation of the plant on Teesside – reportedly at a cost of tens of millions of pounds. Reports suggested the company will be helped with the full operating costs of running the plant for an immediate three-week period. That would see the production of ammonia – and therefore carbon dioxide – resume at this key plant in the UK.
Initial reports had suggested the plant could be back online within just a few days, but gasworld understands this may have been an optimistic timeframe, given the known age of plant and the equipment it comprises, all of which need to be carefully and safely brought back up to speed. gasworld has reached out to CF Industries for clarification.
Perhaps a bigger question concerns the terms agreed between the UK Government and the company itself – and how far the former is prepared to go to keep the plant in operation.
The situation will almost inevitably become political: how long can any government reasonably expect to support or subsidise the operation of fertiliser plants in such a context; further still, how long can a British government be seen to support a US-owned and run fertiliser plant?
Can we expect to see other countries subsidise fertiliser plants?
Another great unknown. It is surely a statement of both the seriousness of the situation with natural gas prices and the knock-on effects, but also the sheer importance of both fertiliser product and CO2 to the food supply chain, that a government has announced financial support for a production plant.
Yet it remains to be seen how far governments across Europe are prepared to go to keep the production flowing, against the aforementioned backdrop of a natural gas demand and pricing situation that shows no sign of abating. gasworld is not currently aware of any other subsidy/support packages across the continent.
What impact on the CO2 supply chain?
gasworld understands from various sources that the CO2 industry is working hard to minimise the impact of these supply chain challenges on its customers.
Ultimately, the companies within the industry are as much in the dark as anyone else, given that CO2 is a by-product of other processes – in this instance largely ammonia production – and invariably at the mercy of those feedstocks.
In terms of the market make-up, gasworld Business Intelligence affirms that Ammonia plants represent quite a significant share among CO2 sources. In Europe, this share reaches 40-43% while in UK it’s even higher – 46% of the merchant carbon dioxide is produced from the raw material of the fertiliser industry.
The food and beverages sector is the largest consumer of CO2 in multiple applications, from agriculture (animal stunning) to food freezing, chilling and packaging, and from drinks carbonation to barrelling. This sector represents over 60% of the total UK demand for carbon dioxide.
Another sector, collectively including firefighting, horticulture, and dry ice production, accounts for around 25%. The rest of the market demand (circa 10-15%) is for end uses in welding/cutting applications, refining and energy, chemicals and healthcare).
Are we facing bigger questions here about the CO2 supply chain?
Any supply crisis inevitably raises questions about the supply chain, particularly when it comes to a commodity so invaluable as carbon dioxide – something that the world has grown its understanding of during the last few years.
In the short-term, security of supply and concerns over significantly rising CO2 prices are big questions for many. In the longer-term, this latest drama undoubtedly revives all of those question of just three years ago: how secure is the CO2 supply chain, is diversification required, and where is it heading?
Public confusion also still lingers around the apparently conflicting messages concerning the huge levels of CO2 reported to be in the atmosphere, and the lack of CO2 in the supply chain to fulfil its end-user requirements. Evidently a perception challenge still exists.
The British meat industry was quick to pose its own questions of the CO2 supply chain, earlier this week suggesting that measures will have to be taken to ensure the future stability of UK CO2 supply and pricing.
With the gas used across the entire meat supply chain from slaughter to packaging, transport and delivery, the industry, along with the UK Government, will have to engage in ‘complex discussions’ on how to re-negotiate and restructure CO2 supply and pricing in the UK, according to the British Meat Processors Association (BMPA). The organisation stated that a market-based solution will ‘likely’ involve longer-term higher prices for CO2, which it realises will be sustainable for some but not for others.
The BMPA said it aims to look at a ‘re-shaping’ of the market, which will include identifying and fixing weaknesses within the supply chain.
Undoubtedly, there is still much debate around the future stability of the supply chain. Against the backdrop of Green Deals, the decade of clean fuels, carbon capture and the race to Net Zero, for example, how can the carbon dioxide business position itself as fit for the 2030s? That will be the subject of gasworld’s CO2 Summit 2022, already confirmed to be held in Austria in March, when the industry and end-users will gather to discuss how we can ensure we have a supply chain diverse and resilient enough to cope with the demands of today, whilst maximising the opportunities of a global environmental agenda of tomorrow.
The last week has demonstrated the urgent need for just such a discussion.
If we take the UK as an example, however, it has long been known that the region’s CO2 business can be vulnerable, if not volatile. Indeed, Christopher Carson – Founder and Principal Director at Carbonic Solutions – previously told gasworld that that the UK remains a volatile (CO2) market with an equally volatile supply and demand balance.
This would appear to have been confirmed in the last seven days and, whilst we’ve seen a crisis potentially averted, for the time being at least, I understand that concerns exist surrounding the quality and traceability of CO2 that could currently be entering the country from various impromptu sources.
What role for biogenic CO2?
It’s worth pointing out that while a significant percentage of CO2 production is sourced from ammonia, particularly in the UK, it is not the only feedstock in Europe.
Nevertheless, as long as this notable feedstock remains and circumstances such as this unprecedented natural gas pricing arise, the integral between the two sectors is a cause for concern. It’s one thing to say a by-product is at the mercy of its feedstock, it’s another when that literally is the case.
Sources I’ve spoken to tell me the gas pricing issues is indeed a longer-term problem. Some even question if it can be traced back to the European Union’s apparent ‘rejection’ of the new Nordstream 2 gas pipeline from Russia. Others are just concerned about the vulnerability to wider pricing issues, as demonstrated this month.
One of the big and ongoing areas of discussion in diversifying the supply chain involves biogenic sources – that being CO2 derived from renewable energy process, such as biogas/biomethane. It’s possible that weaknesses could be addressed, at least partially, through the use of biogenic CO2 and Carson explained in a gasworld webinar in August that CO2 streams produced from sectors such as manure management processes, landfills, and feedstock manufacture could play an important role in the future.
“Biogas is produced from anaerobic digestion processes where you ingest biomass and it produces biogas, a very, very similar process to what goes on in the bio ethanol industry,” he said, likening this fermentation process to that which occurs in alcohol distillation, saying it’s similar to how we would produce whisky and vodka.
Feedstocks for biogas can include anything from energy crops all the way down to animal manure, chicken litter, pig slurry to more variable waste, food waste, and other biomass waste streams, he added.
As the infrastructure around CO2 sources from biogas increases, Carson believes that the market will become more accepting, providing the right testing is undertaken and the right quality systems are put in place within the plants. “There’s no reason why biogenic biogas sources can’t play a really important role in the future and increasing our CO2 production capacity all the way across the globe.”
However, the contribution of biogenic CO2 to the overall supply chain has typically been marginal or incremental, in the UK for example, and gasworld understands that’s not likely to change in the near-term. That’s partly because it doesn’t appear feasible to scale anaerobic digestion (AD) biomethane projects in the current economic climate, even in the face of rumoured more generous grants or tax breaks from government.
And as Carson himself acknowledged, purity considerations will need to be addressed with any new biogenic sources. He explained that one vital gas source is not the same as the other and there is a high degree of variability with regards to CO2 obtained from different biogas sources. Giving an example, Carson stated that there is a fear of variable feedstocks, as there might be contaminants that aren’t necessarily being tested for that manage to get into the CO2.
With quality issues then being the concern, the industry needs to recognise that not all biogas sources are the same and as more fit-for-purpose plants are built and scaled up, the industry will become more comfortable using alternative sources of biogenic CO2.