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Soaring gas prices ripple through heavy industry, supply chains By Reuters


© Reuters. FILE PHOTO. A worker strolls past the Yara ammonia facility in Porsgrunn (Norway), August 9, 2017. REUTERS/Lefteris Karagiannopoulos


By Bozorgmehr Sharafedin, Susanna Twidale and Roslan Khasawneh

LONDON (Reuters) – Global record high prices are pushing some energy-intensive companies to curtail production in a trend that is adding to disruptions to global supply chains in some sectors such as food and could result in higher costs being passed on to their customers.

Due to rising energy prices, some companies including steel makers and fertiliser producers have had their production cut or suspended in Europe and Asia. That includes two of the world’s largest fertiliser makers, which said they would cut production in Europe. To prevent a supply crisis, the UK said Tuesday that it will provide assistance to one of these companies in order to resume production.

The prices of natural gas have been rising rapidly around the world in recent months. It is due to many factors including increasing demand, especially from Asia after the pandemic; low gas inventories and tighter-than usual Russian gas supplies.

The European gas prices have increased more than 250% in the past year. Asia, however, has experienced a 175% rise since January. Prices in the United States have risen to new multi-year records and are now about twice the level they were at the beginning of this year. Gas-fired power plants have seen their electricity prices rise sharply.

Industrial Energy Consumers of America is a trade association representing chemicals, food, and material manufacturers. They have asked the U.S. Department of Energy not to allow the nation’s liquefied gas producers to export gas in order to keep energy costs low for the industry.

The pressure could be eased by more gas. Norway allowed higher gas exports. More supply could flow from Russia by the end of the year with the country’s new Nord Stream 2 pipeline awaiting approval from Germany’s energy regulator. The pipeline project has drawn criticism from the United States, which says it will increase Europe’s reliance on Russian energy supplies.


The pressures so far have been particularly acute in Europe, where gas stocks are much lower than usual heading into winter. Norway’s Yara International (OTC:) ASA, one of the world’s largest fertiliser makers, on Friday said it would cut about 40% of its European ammonia production due to high gas prices. This was after CF Industries Holdings Inc, a U.S.-based company (NYSE:), said that high gas prices had forced it to stop operations at two British plants. For nitrogen-based chemical and fertilizers, natural gas is the main cost input.

Yara’s chief executive, Svein Tore Holsether, told Reuters in an interview Monday that the company was bringing ammonia to Europe from production facilities elsewhere, including the United States and Australia. “Instead of using European gas, we are essentially using gas from other parts of the world to make that product and bring it into Europe,” he said.CF Industries didn’t respond to requests for comment.

Some sectors are asking governments for help. This is despite the fact that some countries are taking steps to help consumers avoid rising energy costs, like Spain last week, who approved price caps and a series of other measures.

The food industry is one of those who are asking for assistance after a lack of carbon dioxide (CO2) due to the suspension of some fertiliser plant production. To extend shelf life and stun animals, CO2 is used to vacuum pack food products.

UK meat processors were warned by CO2 experts that their supply of the gas would be depleted in five days. They had to stop producing. For carbonated drinks manufacturers such as soft drink, they rely heavily on this gas.

British officials announced on Tuesday that they had made a deal of three weeks with CF Industries in order for the American firm to resume UK production. Britain’s environment minister, who said the state support could run into tens of millions of pounds, also warned the food industry that carbon dioxide prices would rise sharply.

CF Industries stated in a statement that it will immediately resume ammonia production at the Billingham facility following the agreement.


Other energy-intensive sectors such as steel and cement are also feeling the pinch.

The recent rise in gas prices has forced some steelmakers to cease operations when it is expensive, according to Gareth Stace of UK Steel. He refused to name the names.

British Steel, the country’s second-largest steel producer, said it was maintaining normal levels of production but that the “colossal” energy-price increases made “it impossible to profitably make steel at certain times of the day.”

Some manufacturers say they are able to cope, so far.

Germany’s Thyssenkrupp AG (DE:), Europe’s second-largest steelmaker, said hedging mechanisms it had in place against energy price increases, especially gas, meant it was not curbing production. However, it claimed it was being indirectly affected due to the electricity price linked to industrial gases that it uses.

HeidelbergCement (DE:) AG of Germany, the world’s second-largest cement maker, said higher energy prices were driving up production costs but that operations had not been halted as a result.

Li Ruipeng of Hebei, China’s local supplier of LNG, said that several China-based steel, ceramic and glasses producers had reduced their production in order to reduce losses. And, China’s southwestern province of Yunnan this month imposed limits on production of some heavy industries, including producers of fertilisers, cement, chemicals, and aluminium smelters due to energy shortages, a move that analysts said could reduce exports.

Some energy-intensive businesses and utilities in Asia and Middle East, as well as utility companies, have switched temporarily from using gas to gasoline, oil, crude, naphtha, or coal to survive the storm. According to the International Energy Agency (a Paris-based energy watchdog), this trend will continue into next year.

Europe’s demand for coke as an alternate power source has also increased significantly. There are few options to switch to other sources of energy in this region, largely because of government policies that encourage the use of natural gas instead of more polluting fuels like coal.

Paul Pearcy (federation coordinator, British Glass), a UK trade organization, said that although the glass industry used to be run on oil in the past, almost all UK sites have switched to natural gas. He said that only a handful of sites are equipped with fuel oil tanks, which allow them to change energy sources if they experience high prices.