Yara second-quarter gas consumption jumps on year

Fertilizer producer Yara's European gas consumption jumped by more than 40pc on the year in the second quarter and was also higher than in the previous three months.

Yara's gas consumption in Europe totalled 34 trillion Btu, drastically up from 24 trillion Btu in the second quarter of 2023 and 29.2 trillion Btu in January-March. Yara did not report its European ammonia production for the second quarter, but its global output totalled 1.78mn t, well up from 1.42mn t a year earlier.

Much lower prices encouraged Yara to lift its European production. Yara's European gas costs averaged $9.70/mn Btu in April-June, down from $14.30/mn Btu in the same period of 2023 and the lowest for any quarter since Yara started reporting these numbers in the third quarter of 2021.

The firm's European gas costs have fallen sharply since peaking at $34.50/mn Btu in the third quarter of 2022, when European wholesale prices hit all-time highs (see price graph). Yara's quarterly spending on European gas of $330mn in April-June was the lowest since at least summer 2021, and less than a third of the $1.08bn peak in April-June 2022.

Argus assessed European ammonia production prices based on the TTF front-month price at roughly a $90/t discount to northwest European import prices in its last weekly assessment on 18 July, suggesting a significant financial incentive to produce ammonia domestically.

Higher ammonia production in Europe helped spur a 7pc rise in deliveries of finished products to the region, which Yara attributed to a belated spring season and the launch of its new season price.

Despite Yara's European gas costs being lower than at any other point since summer 2021, it announced a cost and capital expenditure (capex) reduction plan that could see the company focus on using imported low-carbon ammonia in its European fertilizer production, with a potential closure of European assets not ruled out. The company aims to reduce both its costs and capex by $150mn compared with the past 12 months by the end of 2025.

Yara emphasised that its ammonia system is the largest and most flexible in the world, and highly scalable. "We can increase the volumes we import and export significantly at a low investment level," it said. Yara already reduced the valuation and expected lifecycle of its Tertre plant in Belgium, one of the company's few European plants that cannot be supplied with imported ammonia.

Global production

Yara consumed 56.4 trillion Btu of gas globally in April-June, up on the quarter but still below a multi-year high of 61.9 trillion Btu in October-December (see consumption graph).

Europe accounted for roughly 60pc of Yara's global gas consumption in the second quarter, up from 54pc in January-March and 51pc in the same period last year.

Yara's global average gas cost was $7.90/mn Btu last quarter, 19pc below its reported European cost. That discount has been a significant driver for Yara and others to increase production abroad rather than in Europe over the past two years.

Yara forecasts its European gas costs at $10.90/mn Btu and $11/mn Btu in the third and fourth quarters of this year, respectively, well above its global average gas costs of $8.80/mn Btu and $8.90/mn Btu during those same periods.

By Brendan A'Hearn

Yara European vs global gas consumption million MMBtu

Yara European vs global gas costs $/MMBtu