Cur­tis Williams

Lead Ed­i­tor Busi­ness

cur­tis.williams@guardian.co.tt

Ex­pect con­tin­ued high prices for am­mo­nia over the next five years pre­dicts Ken Seitz, the in­ter­im Pres­i­dent and Chief Ex­ec­u­tive Of­fi­cer of Nu­trien.

Nu­trien is T&T’s largest am­mo­nia pro­duc­er.

Speak­ing re­cent­ly at the com­pa­ny’s vir­tu­al in­vestor up­date, Seitz joined the Nu­trien’s Chief Econ­o­mist Ja­son New­ton and its Vice Pres­i­dent and CEO of Ni­tro­gen and Phos­phate, Raef Sul­ly, who all paint­ed a pic­ture of el­e­vat­ed am­mo­nia prices, but warned it will al­so mean high­er costs for grain and seeds glob­al­ly.

Sul­ly ex­plained, “We are ex­pect­ing the am­mo­nia pro­duc­tion deficit in the con­ven­tion­al mer­chant mar­ket to per­sist through to 2027, even with­out the war in Ukraine… The glob­al am­mo­nia mar­ket is ap­prox­i­mate­ly 170 mil­lion tonnes per year, and grow­ing at a rate of two and a half to three mil­lion tonnes per year, how­ev­er over the next five years there is like­ly to be a deficit in the con­ven­tion­al mar­ket of 8 mil­lion tonnes and that is be­fore the im­pact of the cur­rent con­flict in the East­ern Eu­rope, and new po­ten­tial us­es of am­mo­nia are added in.”

He con­tin­ued, “Nu­trien is well po­si­tioned to be first in adding in­cre­men­tal ca­pac­i­ty to meet de­mand in both the con­ven­tion­al mar­ket and the new and emerg­ing mar­kets. We have the abil­i­ty to pro­vide clean am­mo­nia at com­pet­i­tive costs and as we look at the po­ten­tial de­vel­op­ment of these new mar­kets we see three ar­eas of sig­nif­i­cant op­por­tu­ni­ty.”

Those Sul­ly said in­clude pow­er gen­er­a­tion and trans­porta­tion.

But why would prices re­main so high for so long? Why is the tra­di­tion­al abil­i­ty to bring on ad­di­tion­al sup­plies not tak­ing place? Well ac­cord­ing to the Nu­trien ex­ec­u­tives it is be­cause of con­cern about the car­bon foot­print and the fo­cus on re­duc­ing it be pro­duc­ing green am­mo­nia.

Seitz said, “We ex­pect sup­ply chal­lenges across en­er­gy, agri­cul­ture and fer­tilis­er mar­kets to per­sist well be­yond 2022. We ex­pect high­er nat­ur­al gas prices in Eu­rope will set the floor for ni­tro­gen prod­ucts and will sup­port the need for greater ca­pac­i­ty in low­er costs re­gions such as the USA. We ex­pect new ni­tro­gen sup­plies to come from pro­duc­ers that have the abil­i­ty to re­duce the car­bon in­ten­si­ty of the prod­uct and an­tic­i­pate new de­mand sources will emerge for low-car­bon am­mo­nia across a broad cross sec­tion of sec­tors. We be­lieve the cur­rent tight­ness be­tween glob­al crop sup­ply and de­mand bal­ances are un­like­ly to be re­solved in one or two grow­ing sea­sons, pro­vid­ing for a pro­longed pe­ri­od of sup­port­ive crop prices and mar­gins for the grow­er.”

Sul­ly ex­plained that to meet the need for am­mo­nia with a re­duced car­bon foot­print Nu­trien is look­ing at a num­ber of things in­clud­ing co-gen­er­a­tion and re­new­ables at the dif­fer­ent sites where it cur­rent­ly op­er­ates.

It is al­so con­sid­er­ing the pro­duc­tion of elec­tric­i­ty through steam gen­er­a­tion, wind and so­lar pow­er.

Nu­trien’s chief econ­o­mist said on a short-term ba­sis the fun­da­men­tals for en­er­gy crop and fer­tilis­er mar­kets are sup­port­ed by tight sup­ply/de­mand bal­ances and the im­pact of the con­flict in Ukraine. Longer-term there are sev­er­al struc­tur­al sup­ply and de­mand fac­tors that Nu­trien be­lieves will con­tin­ue to pro­vide sup­port to crop en­er­gy fun­da­men­tals.

He point­ed out that the in­ven­to­ries of ma­jor grains have been drawn down over the last cou­ple of years, dri­ven by sup­ply chal­lenges in ma­jor glob­al pro­duc­ing re­gions and the in­crease in de­mand.

Some of the de­mand New­ton ex­plained has been dri­ven by the emer­gence post lock­down but al­so Chi­nese de­mand post con­trol of the swine flu, in ad­di­tion to the in­creased de­mand for bio fu­el.

He pro­ject­ed that high­er glob­al en­er­gy prices, re­flect­ing what he thinks will be a step change in the prices, to re­flect the in­creas­ing iso­la­tion of Rus­sia and will be ac­com­pa­nied by de­clin­ing fer­til­iz­er pro­duc­tion out of Rus­sia in the short-term with re­duced ac­cess to the Black Sea lead­ing to sig­nif­i­cant de­cline in Russ­ian ex­ports of fer­til­iz­ers.

“Giv­en the sup­ply con­straints for Eu­rope and Rus­sia we ex­pect a tight sup­ply de­mand bal­ance con­straints past 2023....There is a need to add more ni­tro­gen and potash pro­duc­tion and we are there­fore pre­dict­ing the ten-year mid-cy­cle av­er­age price plus $50 pro­jec­tion for potash and ni­tro­gen prices.” New­ton ex­plained.

While the high­er am­mo­nia prices will lead to more rev­enue for the gov­ern­ment and the coun­try, as T&T is one of the world’s largest ex­porter of am­mo­nia, it will mean pro­longed, if not per­ma­nent high­er prices for wheat and oth­er grains.

New­ton not­ed that this year grain prices are run­ning high­er than the 10 year av­er­age and it is the sec­ond con­sec­u­tive year this has oc­curred. He said the oth­er two times this has hap­pened in the last 50 years were in the 1970s and the 2006/2008 pe­ri­ods. Both times the high­er prices be­came struc­tur­al.

He said the low­er­ing of ni­tro­gen prices re­cent­ly in the USA is not a re­flec­tion of the mar­ket fun­da­men­tals but rather the poor start to the plant­i­ng sea­son in North Amer­i­ca and the good sup­ply chains.

“We ex­pect high­er than nor­mal price volatil­i­ty to con­tin­ue and as the im­pact of the con­straints in east­ern Eu­rope are felt, high­er pricers will re­turn in the sec­ond half of 2022.” New­ton added.

New­ton point­ed out that with the world mov­ing to re­duce its car­bon foot­print there is like­ly to be con­tin­ued de­mand for crops to be used as bio­fu­el. This could keep both crop and in­puts like am­mo­nia prices high over the long term.