Truth about Trade and Technology, IA
03-06-07
Will Nitrogen Supplies Meet Spring Demand?
The next time you fire up the grill for an all-American cookout, take a minute to
consider Trinidad and Tobago as you gnaw on your hamburger or corn on the
cob.
The tiny, natural gas-rich Caribbean islands lie just off Venezuela. Over the past
decade they have become the source for more than a third of the nitrogen
fertilizer desperately needed by U.S. growers to produce corn for use in foods,
cattle feed and, increasingly, ethanol production.
The newly global industry is scrambling to find ways to produce the fertilizer
needed at viable prices, and to transport it quickly from ports around the world to
U.S. growers.
As farmers mobilize to produce more corn, nitrogen supply has become a more
pressing issue.
“There are questions about what availability is going to look like,” said John
Sawyer, a soil fertility extension specialist with Iowa State University. “If
spring breaks and farmers are asking for fertilizers on a rapid basis, there might
be some supply issues.”
In Trinidad and Tobago, Potash Corp. of Saskatchewan POT is the leading
producer of nitrogen for U.S. markets.
The privately held Yara International and Kansas-based Koch Industries also
have plants there. Germany chemical maker Helm is building a nitrogen
production facility.
Each facility is 50% owned by the islands’ government.
In the U.S., the ongoing fertilizer industry’s shift to foreign supplies stems from
the loss of 25 domestic nitrogen production plants because of run-ups in natural
gas prices starting in 2000.
Gas prices drove many smaller and midsize producers out of business, wiping
out an estimated 42% of U.S. nitrogen fertilizer production capacity.
Fertilizer prices have climbed in step, hitting their highest levels on record in
January 2006.
A year later, they had fallen along with natural gas prices — but still stood 73%
above price levels during the early 1990s.
Farm fuels increased 118% over the same period.
U.S. dependence on more distant suppliers has created new problems.
Production of potash, the basis for potassium fertilizer, is tied to mined mineral
veins.
In North America, potash supplies come primarily from Canada and New Mexico.
But production of anhydrous ammonia — the basis for nitrogen fertilizer — is
increasingly linked to areas where natural gas is cheap: Russia, the Middle East
and Trinidad and Tobago.
The islands’ primary advantage is location — they’re a short, 5-day freighter hop
to the U.S. Fertilizer produced in Russia’s Black Sea region, by contrast, must
spend up to 17 days en route.
But with 110 fertilizer-hungry ethanol plants ramping up production and an
additional 50 under construction in the U.S. alone, supply lines are being
stretched.
That strain is amplified by local authorities’ resistance to locating storage tanks
for noxious, potentially explosive nitrogen gases and products within their
jurisdiction. Railroads are equally wary.
“The railroads don’t want to handle ammonium nitrate or anhydrous ammonia
anymore,” said David Centko, senior analyst with industry consultant Blue,
Johnson & Associates. “They feel there is a lawyer behind every tree and under
every bridge.”
In the meantime, prices for nitrogen fertilizers keep climbing.
Urea, a leading nitrogen-based fertilizer, averaged $362 a ton in 2006. That is
10% above the 2005 price and 81% above the price paid by farmers in 2000.
Prices look to remain high for the foreseeable future.
New nitrogen production plants cost more than $1.5 billion. Given those capital
costs and the volatility of natural gas prices, industry watchers say U.S. nitrogen
production capacity could shrink further.
China, India, Russia and the Middle East are expanding nitrogen production, but
the change will take time.
“There is always a lag in nitrogen markets,” said Oliver Hatfield, director of
Integer Research in London. “We are now feeling the impact of that lag. Demand
has caught up and exceeded supply.”