VOLUME XXI
ISSUE 1
April, 2005

Raymond C. Ward, Ph.D.
President

Jolene F. Ward, B.S.
Corporate Secretary

 

The above chemical equation is not designed to "take you back" to the classroom for another chemistry lesson.  Instead, it is designed to be a visual reminder that anhydrous ammonia fertilizer is made from natural gas and all other nitrogen fertilizer is made from anhydrous ammonia.  So, it seems normal that any new information about natural gas would be of great interest to agricultural producers as well.

Recently, there had been a great deal of discussion about the price of natural gas and its production capacity in the United States.  High natural gas costs coupled with fewer and fewer anhydrous production plants are opening up huge markets in the United States for nitrogen fertilizer produced on foreign soil. 

In fact, according to a recent article in Dealer and Applicator magazine, US imports from foreign producers of nitrogen have nearly doubled from 6.11 million tons to 10.36 million tons between 1998 and 2004.  It is no surprise that production of US ammonia decreased by 35% or 6.15 million tons during the same period. 

Part of the production problem is the cost of natural gas for United States manufacturers.  In short, US natural gas costs are at least three times higher than they are in the Middle East and FSU.  According to recent prices quoted on the NYMEX and Henry Hub, natural gas sold for $7.00 per million cubic feet btu (mmbtu) with spot prices as high as $9.00.  Conversely, equivalent natural gas costs in foreign markets were $2.15-$2.50 mmbtu.  That difference in cost is reflected in the price farm customers pay for anhydrous making foreign produced nitrogen fertilizer products more economical for farmers looking to reduce their production costs.

The problem is compounded by the fact that since 1998 there are 20 fewer nitrogen fertilizer production facilities in the United States.  Fifteen of those facilities have closed permanently creating a 20% decrease in anhydrous production in just six short years.  The other five facilities remain idle today. 

Many US agribusinesses have grave concerns about both the price and availability of nitrogen fertilizer products in the coming months.  To that end, the Agricultural Retailers Association (ARA) and the Fertilizer Institute (TFI) recently testified before the US House of Representatives regarding the impact of high natural gas prices on fertilizer suppliers and their farm customers. 

The fertilizer industry recommended some additions to federal energy legislation including 1) opening additional federal lands and off shore lands to oil and gas exploration and production 2) assuring that those areas have the necessary pipeline infrastructure to bring the supplies to market efficiently and 3) making it easier to construct new liquefied natural gas terminals.

It is doubtful that any of these recommendations can be implemented quickly, meaning foreign nitrogen fertilizer will continue to make its way into fields across America.