Ammonia : Price Analysis
in this article, Ammonia price is analyzed in reference to production expenses, upstream and downstream linkages, and opportunities upon the european energy crisis.
According to Chemiprobe database, ammonia production capacity in the middle east is estimated at about 13.4 million metric tonne per year, the equivalent of 9.3 % of the global production capacity of 144 million metric tonne. Currently, Egypt is the regional leading producer, with approximately 5.8 million metric tonne, followed by Saudi Arabia with 3.2 million metric tonne, Qatar with 2.7 million metric tonne, and UAE with 1.2 million metric tonne.
Production : Technical Aspect
Ammonia is typically produced using hydrogen obtained by steam reforming of natural gas -sometimes called grey hydrogen- or equivalent refinery fractions, thus ammonia price is based mainly on the upstream linkage : natural gas and its market trends.
Here you will find industrial synthetic routes and simplified flow diagrams to further illustrate the production process for ammonia, and downstream commodities such as urea, melamine, and fertilizers.
European Energy Crisis
Usually, european natural gas price increases in fourth quarter annually regarding cold winter. However, price started increasing rapidly regarding the limited european natural gas capacity due to environmental policies, and the limited natural gas imports due to post-pandemic supply chain bottlenecks worldwide, plus the restricted output through nordstream pipeline as russia is pressuring the european union to approve nordstream pipeline expansion project thus causing “the earopean energy crisis”. Consequently, european ammonia plants were being shut down and ammonia prices surged immediately affecting downstream linkages.
Chemiprobe started “probing” for market insights since october, and continuously networking with professionals in the ammonia trade. Therefore, ammonia business in the middle east focuses on long-term contractual customers in asia, that explains the “copy-cat” response to asian market trend and the “undisturbed” trade activity -during the european energy crisis- which is clearly observed in price range above (min-max) and the average price plot below.
In the middle east, market players are looking for arbitrage to take advantage of the soaring ammonia prices in the northwest earopean market. For this reason , producers are operating ammonia plants at full capacity to provide an excess that will be offered with high spot prices exploiting the advatageous low production costs for ammonia in the middle east. As well as distributors, who are keeping contractual regional depository at minimum.
However, the shipping bottlenecks are the primary challenge. With the winter season arriving in Europe, and the increasing natural gas prices, the ammonia prices might remain at high levels until February next year and affecting downstream linkages including fertilizers.
Production Expenses : Analysis
According to research paper titled “production costs of the chemical industry in the european union and other countries” by Aikaterini Boulamanti : Exceptionally, ammonia production expenses in europe -Germany- are higher than the middle east -Saudi Arabia- despite the similar process technology. It should be mentioned that this analysis did not include transportation expenses and was focused on the production expenses. In conslusion, european ammonia plants will shut down if ammonia price exceeds the breakeven point. nevertheless, middle eastern producers pull through in case of regional fuel price surge.
Opportunity : Green Hydrogen
Consequently, the european energy crisis is giving the rise to green hydrogen producers, which is clearly observed in price range (min-max). Thus, exerting influence for further process development to enhance electrolysis performance, not to mention the slight increase in potassium hydroxide price.
Production Expenses Terms
raw materials : fuel transformed into ammonia [natural gas >> hydrogen >> ammonia]
catalysts-additives : catalysts and chemical additives used in process together with the water consumed, either for cooling or in the reforming process
electricity-thermal : operational electricity expenses and fuel used for heating purpose
labour : salaries, both direct and indirect overheads, property taxes and insurances, as well as maintenance
Brown Hydrogen : produced via coal gasification in China and India
Grey Hydrogen : produced via steam methane-reforming (natural gas) or steam-naphtha reforming (petroleum)
Blue Hydrogen : produced via steam reforming of natural gas or petroleum.However,
carbon dioxide byproduct is captured and stored due to environmental policies
Green Hydrogen : produced via electrolysis of aqueous alkaline hydroxides, in which renewable sources are utilized for electrolyzer cell opeartion
Free On Board (FOB) : the buyer pays the freight
Cost and Freight (CFR) : the seller pays the freight
Cost, Insurance, and Freight (CFR) : the seller pays insurance and freight