US demand for ethanol seen raising gas use in fertilizer industry
Knoxville, Tennessee (Platts)--1Dec2006 platts.com
Even with natural gas prices expected to remain high, the US ammonia fertilizer industry is likely to increase its demand for the feedstock by 100,000 to 200,000 Mcf/d in 2007, an analyst said.
Fertilizer production has been historically variable with the cost of gas, since the feedstock makes up some 70-90% of the total cost of manufacturing anhydrous ammonia. Several plants in North America have been idled either seasonally or permanently as a result of rising gas prices since the early 2000s.
The Fertilizer Institute has said 17 US ammonia plants have shut down since 1999 because of high gas prices.
What is different now is that demand for corn-based ethanol has risen dramatically, notes Bank of America analyst Robert Morris.
"In fact, we expect ammonia demand to increase 5-10% next year due to increased fertilizer usage resulting from higher demand for corn as a result of increased ethanol demand as a blending component in gasoline replacing MTBE," Morris said in a report Thursday. Corn is the key ingredient in ethanol production, and is also one of the most fertilizer-intensive crops in the country, he added.
Also spurring US fertilizer production is the trend of decreased imports of ammonia, Morris said. Although imports of the product rose about 65% between 1999 and 2004, imports next year are expected to be flat, he said.
US fertilizer plants will likely continue to run even though ammonia product prices are currently flat while gas prices are high, a situation that has created a negative margin, Morris said. He said, however, that he expects ammonia prices to rise in the first quarter as plants ramp up production in anticipation of the spring planting season.
Acreage dedicated to corn is expected to increase roughly 6% to 84 million acres in 2007 versus a 3% decrease this year. As a result, Morris said he expects North American ammonia capacity utilization to increase to 90% next year from an estimated 85% this year, resulting in increased natural gas demand. When operating at full capacity, he estimates that the ammonia industry would represent about 2.5% of annual domestic gas consumption.
--Stephanie Seay, stephanie_seay@platts.com |