gasworld has learned that the ongoing challenges facing the European carbon dioxide (CO2) business are beginning to deepen, with the tight supply chain coming to a head for many end-users and suppliers.

While the industry in Europe has largely sidestepped talk of full-blown shortages for fear of creating further panic and unrest, arguably the first signs of such unrest are now being seen across the region’s beverages business.

Historic Belgian brewer Brewery Huyghe, located in the village of Melle, has this week been embroiled in a legal rift with Nippon Gases Europe over force majeure conditions invoked by the latter.

As reported by Bloomberg1, the brewery considered shutting production because of what it described as a 13-fold surge in the price of liquid CO2 from Nippon Gases. The company is cited as having raised prices to €3,350 ($3,398) per tonne for CO2, from a previous price of €250 per tonne, though gasworld understands Nippon Gases was transparent in offering its entire customer base the freedom to accept or reject what it considered the pass-through of temporary surcharges, or alternatively be supplied by another supplier.

Brewery Huyghe had claimed its CO2 inventories could run out this week and force a stoppage for the first time since 1906; and a court ruled in its favour yesterday (Wednesday 14th), issuing an interim order against the force majeure conditions in the short summary proceedings, hereby stating Nippon Gases cannot stop the supply of CO2 towards the brewery.

Now that proceedings have reached a temporary resolution, gasworld has been provided with a statement from Nippon Gases Europe expressing its disappointment and regret at the proceedings and the subsequent court ruling, but making clear the acute supply situation it is in the midst of and how the geopolitical context in 2022 and a European energy crisis has only exacerbated an already tight supply chain.

Furthermore, the company has informed gasworld of its intent to appeal the ruling.

It said in a statement, “Out of a sense of social responsibility, and a drive to minimise the impact to its customers during a period of force majeure, Nippon Gases has been able to work out an exceptional arrangement with its raw-gas CO2 supplier whereby ammonia production and associated deliveries of raw-gas CO2 would nevertheless be restarted. This is possible, however, by passing through the additional costs associated with ammonia production.”

“Nippon Gases believes that the court erred in failing to sufficiently take into account the fact that Nippon Gases did everything possible to work out a solution in within this force majeure situation, allowing us to restart production of liquid CO2 to at least be able to offer our customers as much as possible their volume demand if and when interested.”

“Moreover, Nippon Gases has also given its entire customer base the freedom to accept, reject or be supplied by another supplier.”

”Out of a sense of social responsibility, and a drive to minimise the impact to its customers during a period of force majeure, Nippon Gases has been able to work out an exceptional arrangement with its raw-gas CO2 supplier whereby ammonia production and associated deliveries of raw-gas CO2 would nevertheless be restarted. This is possible, however, by passing through the additional costs associated with ammonia production”

Nippon Gases statement, 15th September (2022)

 

It continued, “As a company, we still believe that we made the right choices from a legal, commercial and, above all, societal point of view to safeguard the supply of liquid CO2 and dry ice to our customers in a force majeure situation to the fullest extent possible, and therefore look forward with confidence to the future appeal ruling.”

“It goes without saying that neither our supplier, nor our customers, nor Nippon Gases are at the root of these problems, and we as an individual company have no control over the factors behind them. They are the result of extremely high natural gas prices that have a significant domino effect on many companies and products further down the value chain.”

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Source: Nippon Gases Europe

‘Perfect storm’

This domino effect across industrial sectors has been in play across the European CO2 business for well in excess of 12 months.

CO2 is 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.

gasworld reported on 16th September 2021 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.

Read more: CO2: Crisis averted…for now?

Once CF Industries confirmed those closures in Ince and Billingham, it seemed as though a knock-on effect rippled out across Europe as fellow fertiliser producers conceded to the same dynamics of high feedstock (natural gas) prices and soft ammonia margins.

Whilst that sense of crisis was temporarily averted in the UK and wider Europe, gasworld understands the market has not had a sustained opportunity to rebuild depleted storage levels of CO2. With the onset of Russia’s invasion of Ukraine in February and record-breaking natural gas prices ever since, combined with both expected and unforeseen ammonia plant maintenance shutdowns at key locations around the world, the market for CO2 has remain crunched and continues to tighten.

There had been widespread warnings of CO2 prices that were set to ‘skyrocket’ as far back as early March (2022).

Read more: Ammonia – Major events tighten market, prices to ‘skyrocket’ further

In more recent weeks, the situation in the UK market alone was understood to have worsened, with a ‘deep’ crisis considered imminent. gasworld exclusively broke the news during its latest live webinar on 26th August that the ongoing ‘perfect storm’ of market conditions was set to significantly impact the amount of CO2 that’s recovered and lead to fresh and deeper shortages in the UK.

Read more: UK CO2 shortage: A ‘perfect storm’ as outlook set to worsen

CO2 shortages: A perfect storm coming into view

Analysis by Rob Cockerill, Global Managing Editor

This is surely (and sadly) the latest air of frustration to emerge from a pent-up CO2 business at the mercy of its feedstocks in Europe.

Shortages have been coming for some time, and various warnings of prices increases have been more-than-hinted-at for several months now.

As we understand it, the CO2 business both in Europe and across the Atlantic in North America has not been on an even keel for more than 12 months. As a result, depleted stock or storage levels have not been adequate to sustain any further market squeezes.

Continue reading here.

 

Nippon Gases statement in full, 15th September 2022

Nippon Gases deeply regrets lawsuit but continues efforts to maintain crucial supply of liquid CO2 and dry ice to its customers

Nippon Gases has taken note of the interim order in the short summary proceedings regarding the case with one of its customers. We regret this interim order and believe that the court did not adequately consider the exceptional and unforeseeable circumstances due to increased natural gas and electricity prices that had ended the availability and production of raw and purified CO2. Partly for this reason, we have instructed our counsel to appeal against this interim order.

In the meantime, in particularly difficult circumstances, Nippon Gases continues to make every effort to find solutions for its customers within the exceptional and unforeseeable circumstances in order to continue supplying liquid CO2 and dry ice -crucial raw materials for many sectors.

Recently, several energy-intensive companies decided to scale back or temporarily suspend production as a result. Including producers of ammonia, of which raw-gas CO2 is an important residual product, and resulting in significant shortages of this raw material for the production of liquid CO2 and dry ice.

Our largest and most important supplier also recently decided to completely stop its ammonia production in the Netherlands with immediate effect due to high energy prices. Nippon Gases decided to immediately inform all its liquid CO2 and dry ice customers in Belgium, the Netherlands and France that, as a result, the security of supply of these gases was threatened.

To this day, this uncertainty still exists.

Out of a sense of social responsibility, and a drive to minimize the impact to its customers during a period of force majeure, Nippon Gases has been able to work out an exceptional arrangement with its raw-gas CO2 supplier whereby ammonia production and associated deliveries of raw-gas CO2 would nevertheless be restarted. This is possible, however, by passing through the additional costs associated with ammonia production.

Nippon Gases believes that the court erred in failing to sufficiently take into account the fact that Nippon Gases did everything possible to work out a solution in within this force majeure situation, allowing us to restart production of liquid CO2 to at least be able to offer our customers as much as possible their volume demand if and when interested.

Moreover, Nippon Gases has also given its entire customer base the freedom to accept, reject or be supplied by another supplier.

As a company, we still believe that we made the right choices from a legal, commercial and, above all, societal point of view to safeguard the supply of liquid CO2 and dry ice to our customers in a force majeure situation to the fullest extent possible, and therefore look forward with confidence to the future appeal ruling.

It goes without saying that neither our supplier, nor our customers, nor Nippon Gases are at the root of these problems, and we as an individual company have no control over the factors behind them. They are the result of extremely high natural gas prices that have a significant domino effect on many companies and products further down the value chain.

We also hope, of course, together with our customers, that prices on the energy markets will soon return to a level that would permit normal market operation, eliminate the surcharge and no longer jeopardize the security of supply of products such as liquid CO2 and dry ice. Meanwhile, we will continue to do our utmost to supply our customers including the pharmaceutical industry, slaughterhouses, chemical industry and of course the food and beverage industry to the best of our abilities.