Europe's largest fertiliser producer Yara operated its European ammonia plants at nearly a fifth below their capacity last year, despite its weighted-average gas costs more than halving compared with 2022.
Yara curtailed 19pc — or 890,000t — of its ammonia production capacity last year, while it curbed its finished fertiliser production capacity by 15pc, it said in its annual report released last week. This was distinctly below ammonia curtailments of 35pc in 2022, when the firm insisted it "will not produce or sell at negative margins".
Yara's European plants have an average efficiency rate of roughly 36mn Btu per tonne of ammonia produced, according to ArgusConsulting estimates, which implies that 890,000t of lost ammonia production is equivalent to about 786mn m³ of gas demand. That said, the firm prioritised production at its most efficient plants such as Sluiskil in the Netherlands and Brunsbuttel in Germany, from which it exported to its less efficient sites where production ran at lower rates.
Yara curtailed nearly a fifth of its ammonia capacity, despite its European weighted-average gas cost more than halving to $14.90/mn Btu from $31.80/mn Btu in 2022. Prices were still much higher than in previous years — they were lowest at just $3.60/mn Btu in 2020 (see prices graph).
Yara's global ammonia production edged down to 6.39mn t in 2023, from 6.51mn t in 2022. And it stayed well below a 2019 peak of 8.48mn t in 2019, suggesting the firm has moved more towards imports to bolster its own production, rather than prioritising strong run rates at its facilities.
Yara operates in a "world of volatility" because of military conflicts in Ukraine and the Middle East, which affect global supply chains, the firm said. "Strengthened operational flexibility" remains a priority in this context, it said.
The firm has warned repeatedly of geopolitical risks associated with an influx of Russian fertiliser output fed by gas that is much cheaper than in Europe. "Vladimir Putin is using fertilisers as a weapon of war," Yara said. "We're sleepwalking into repeating the same mistake with fertilisers as we did with Russian energy imports," Yara's chief executive Svein Tore Holsether told Argus in February.
But Yara expects higher European production in 2024, as gas prices have continued to come down while fertilisers prices have held firm. Assuming stable gas purchases, gas costs in the first and second quarters could be $320mn and $100mn lower, respectively, than in the same period last year, Yara said in February. The firm suggested its European ammonia assets could run at or above 90pc of capacity.
In regions with "efficient gas markets", Yara seeks exposure to spot market prices "unless exceptional market circumstances clearly give reason for deviation", it said. But in regions without such "efficient" gas markets, the firm prefers entering longer-term contracts "if favourable gas prices are obtainable". Yara has a "high" risk appetite for exposure to gas prices because securing access to, and stable supply of, favourably-priced gas is "imperative to our operations and competitiveness", the firm said. "All of our European gas contracts are hub-based, and we are well positioned to cover the risk of spot exposure," Yara said. At the same time, up to 70pc of its European plants can operate on imported ammonia.
Yara's largest gas suppliers are Engie, Shell, Equinor, India's Gail, and Trinidad and Tobago's national gas company, it said. The firm consumed just under 6bn m³ globally in 2023, down from a peak of 6.87bn m³ in 2019 (see gas consumption graph).
