This action might not be possible to undo. Are you sure you want to continue?
A PRIMER ON AMMONIA, NITROGEN FERTILIZERS, AND NATURAL GAS MARKETS
Aleksander Abram and D. Lynn Forster* Department of AED Economics The Ohio State University
Abstract: We describe the U.S. and international supply and demand situation for ammonia, its pricing characteristics, and more importantly its fundamental dependence on natural gas. We also explore linkages between alternative nitrogen fertilizers (e.g., urea, ammonium nitrate, and ammonium sulfate) and ammonia. Finally, we review longterm projections for natural gas production and pricing.
September 30, 2005
Respectively, graduate research associate and professor, the Department of Agricultural, Environmental, and Development Economics, The Ohio State University. Contact author: D.L. Forster, 2120 Fyffe Rd., Columbus, Ohio 43210; E-Mail: Forster.firstname.lastname@example.org; Phone: 614-292-6340; Fax:614-292-0078.
OSU AED Economics (AEDE-RP-0053-05)
TABLE OF CONTENTS
………………………………………………………………3 ………………………………………………………………4 ………………………...…………………………….6
AMMONIA IN THE UNITED STATES …………………………………………..…..25 AMMONIA PRICING
NATURAL GAS PRODUCTION AND USE
MORE ABOUT NATURAL GAS
OSU AED Economics (AEDE-RP-0053-05)
Nitrogen (N), being a part of all animal and plant proteins, is simply an essential element of life. As a component of the DNA and RNA molecules, it is an indispensable constituent of each individual’s genetic blueprint. As an element in the chlorophyll molecule, nitrogen is vital to a plant’s ability to engage in photosynthesis – the infamous process that “keeps the life on Earth going.”1 Some crop plants, such as alfalfa, peas, peanuts, and soybeans can convert atmospheric2 nitrogen into a usable form by a process referred to as “fixation.”3 However, most of the nitrogen that is available for crop production comes from decomposing animal and plant waste or from commercially produced fertilizers, which are based on nothing else but ammonia and some nitrite deposits. Anhydrous ammonia is commercially produced by reacting under certain conditions4 nitrogen (N), which is taken from the air, with hydrogen (H), which is derived from a variety of raw materials, but most importantly from natural gas feedstock.5 Anhydrous ammonia is a manufactured nitrogen fertilizer, as are such products as urea, ammonium nitrate, urea-ammonium nitrate solutions, ammonium sulfate, and other more complex compounds like diammonium phosphate (DAP) and monammonium phosphate (MAP). Recently, soaring natural gas prices have once again become a cause of concern for nitrogen fertilizer users.
Arizona State University: “http://photoscience.la.asu.edu/photosyn/Default.html” Air consists of 80% of nitrogen. 3 Deborah Kramer: “Mineral Commodity Profiles – Nitrogen.” Open-File Report 2004-1290, U.S. Department of the Interior, U.S. Geological Survey, August 5, 2004. “http://pubs.usgs.gov/of/1290/2004/” 4 High temperature and pressure. 5 Deborah Kramer: “Mineral Commodity Profiles – Nitrogen”
OSU AED Economics (AEDE-RP-0053-05)
Our objectives are to describe the U.S. and international supply and demand situation for ammonia, its pricing characteristics, and more importantly its fundamental dependence on natural gas. We also explore linkages between alternative nitrogen
fertilizers (e.g., urea, ammonium nitrate, and ammonium sulfate) and ammonia. Finally, we review long-term projections for natural gas production and pricing. Much of the information used in our discussion comes from array of major government agencies such as: USGS6, USDA (FAS, NASS & ERS)7, Census Bureau, DOE (EIA)8, USITC9, EPA10, FERC11 and non-profit business associations or societies with the most important being: TFI12, IFA13, IFDC14, NGSA15, NPC16, INGAA17, and AGA18. When specialized information could not be located, advice from industry and government agency professionals was sought. USGS, EIA, Simplot and PotashCorp employees helped extensively.
BACKGROUND Neither ammonia production, nor its application constitutes a new concept. Salts of ammonia have been known from very early times – the term “Hammoniacus Sal”
United States Geological Survey ( US Dept. of Interior): “http://www.usgs.gov” US Dept. of Agriculture: “www.usda.gov” (Foreign Ag. Service, National Ag. Statistics Service, Econ. Research Service) 8 Dept. of Energy: “www.energy.gov” (Energy Information Administration : http://www.eia.doe.gov) 9 U.S. International Trade Commission: “http://www.usitc.gov” 10 Environmental Protection Agency: “http://www.epa.gov” 11 Federal Regulation and Oversight of Energy: “http://www.ferc.gov” 12 The Fertilizer Institute: “http://www.tfi.org” 13 International Fertilizer Industry Association: “http://www.fertilizer.org/ifa” 14 International Fertilizer Development Center: “http://www.ifdc.org” 15 Natural Gas Supply Association: “http://www.ngsa.org” 16 National Petroleum Council: “http://www.npc.org” 17 Interstate Natural Gas Association of America: “http://www.ingaa.org” 18 American Gas Association: “http://www.aga.org”
OSU AED Economics (AEDE-RP-0053-05) appears in the writings of Pliny.19 In 1777, Karl Wilhelm Scheele showed that it
contained nitrogen, and Claude Louis Berthollet, in about 1785, ascertained its composition.20 A century later, in late 19th and the beginning of the 20th century, ammonia research emerged again when the world was looking for a substitute for the Chilean saltpeter (NaNO3) - the only discovered and usable nitrogen source of substantial quantity that time. From the 1920s until 1944, ammonium sulfate – a by-product from coke-oven gases - became the most important nitrogen fertilizer, but it began to yield market share to ammonium nitrate as the Second World War was coming to its end.21 Finally, with the commercialization of the Haber-Bosch process for producing ammonia in the 1950s, ammonia became more plentiful and thus came to be the principal source of nitrogen in fertilizers in the United States.22 Ammonia (NH3) contains 82.2 percent of nitrogen23 and 17.8 percent hydrogen. At standard temperature and pressure (STP),24 ammonia is a colorless gas with a pungent, readily identifiable odor, when it is present in concentrations of greater than 50 parts per million (ppm). Its boiling point is –33.35º C, and its melting point is –77.7º C.25 Ammonia can be very harmful when in contact with human skin or if digested.
Gaius Plinius Secundus, known as Pliny the Elder, was an ancient author and scientist who wrote Naturalis Historia. 20 Wikipedia: “http://en.wikipedia.org” 21 Ammonia production was not fully commercialized thus more costly. Therefore, it was not applied directly in farming but through compounds with lower nitrogen content. 22 Deborah Kramer: “Mineral Commodity Profiles – Nitrogen” 23 Deborah Kramer: “Mineral Commodity Profiles – Nitrogen”& Wikipedia: “http://en.wikipedia.org” 24 In chemistry STP denotes an exact reference temperature of 0°C (273.15 K) and pressure of 1 atm (defined as 101.325 kPa). 25 Wikipedia: “http://en.wikipedia.org”
4) CO2 removal & synthesis gas purification. and it is utilized by about 75 to 80 percent of ammonia plants worldwide. It is called a STEAM REFORMING PROCESS. CO2. and carbon monoxide (CO). 4) The CO2 removal operation also is done in two steps: A) a bulk CO2 removal in which the CO2 concentration is reduced to a few parts per million. The gas mixture then is fed to a lowtemperature shift converter that operates at temperatures that range from 200º to 250º C. the CO and CO2 must be removed from the gas mixture. These steps are designed to break down CH4 (methane) in the natural gas into H2. This is accomplished in a two-step shift conversion. The most common bulk CO2 removal operation is performed by scrubbing the gas with a methyldiethanolamine or monoethanolamine solution. 3) shift conversion.26 The process is illustrated by the figure on the next page. most of the remaining CO is converted to CO2. Here. natural gas and water. 2) Two reforming steps follow.OSU AED Economics (AEDE-RP-0053-05) AMMONIA PRODUCTION Ammonia is primarily produced using air.27 It consists of the following five steps: 1) desulfurization. followed by a CO2 removal step. which converts the CO to CO2. Water vapor in the gas mixture often reacts with some of the CO to produce more H2 and CO2. The 26 27 3CH4 + 6H2O +4N2 8NH3 + 3CO2 Deborah Kramer: “Mineral Commodity Profiles – Nitrogen” 6 . sulfur compounds in the natural gas are removed to avoid a potential threat to catalysts that are used in the remaining part of the process. and 5) ammonia synthesis and recovery. and B) a final purification step. 3) Before ammonia is produced. 1) In the first step. 2) primary and secondary reforming.
In cryogenic purification. the gas is dried to a very low dew point. The vapor from the partially liquefied stream is scrubbed in a rectifying column to remove almost all the CH4 and about one-half of any unreacted CO2. Natural gas Desulfurization Primary reforming Steam Secondary reforming Air Shift conversion Carbon dioxide removal Carbon dioxide Methanation Methane Source: USGS: Mineral Commodity Profiles – “Nitrogen” Synthesis gas compressor Synthesis gas converter Separator Ammonia Ammonia storage Nitrogen and hydrogen gases 7 . Cryogenic purification is used to remove the methane from the gas stream.OSU AED Economics (AEDE-RP-0053-05) remaining CO2 and CO is removed from the gas stream by converting the CO2 and CO back to CH4 by introducing H2 gas with a nickel catalyst. and then cooled and expanded in a turbine to liquefy a portion of the stream.
ammonium nitrate (34 – 0 – 0). The ammonia then is chilled to liquefy it and stored in tanks at atmospheric pressure. Aqua ammonia has advantages over anhydrous ammonia: placement need not be as deep. Anhydrous ammonia is generally the cheapest source of N.000 PSI29) and then passed over an iron catalyst where the nitrogen and hydrogen react to form ammonia. DAP36 (18 – 46 – 0). all capable of providing essential nitrogen. It is defined as the pressure under 760 mm of mercury. 32 Aqua ammonia (21% N) is a liquid under low pressure and must be incorporated into the soil to prevent the loss of free ammonia to the atmosphere. the method of application is less convenient and requires more power to apply than most other liquid or dry materials.OSU AED Economics (AEDE-RP-0053-05) 5) At this point the gas is compressed to between 136 and 340 ATM28 (2. and thermal requirements for process operation. and high-pressure applicators are not required 33 N – P – K = nitrogen.M. Depending on the particular crop being grown. Technologies: “http://www. an atmosphere or standard atmosphere is a unit of pressure roughly equal to the average atmospheric pressure at sea level on the earth. Urea (46 – 0 – 0)33. not all the nitrogen and hydrogen are converted to ammonia. It is possible to lose all of the free ammonia if it is not incorporated. phosphorus and potassium 34 Urea Ammonium Nitrate 28 8 . AMMONIA USES30 AGRICULTURAL INDUSTRIES are the major users of ammonia. When expressed as a measurement. 29 Pounds-force per square inch (lbf/in²) 30 R. which is held on clay and organic matter. UAN34 (32/28 – 0 – 0).0 – 0 – 24S35).com” 31 Anhydrous ammonia (82%N) is a liquid under high pressure and must be injected at least six inches deep into a moist soil because it becomes a gas once it is released from the tank. however. Ammonia may be directly applied to the field (anhydrous31 or aqua32 ammonia). or it could be further used in processes that result in alternative nitrogen-based fertilizers. capacity of the plant. During the ammonia synthesis.000 and 5. up to 200 pounds of ammonia per acre may be applied for each growing season. In soil.ammoniapro. ammonium sulfate (21. The design of the ammonia synthesis section varies from plant to plant and is dependent upon such factors as pressure chosen for synthesis. ammonia reacts with water to form the ammonium (NH4+) ion. accounting for over 85% of all ammonia produced in the United States. Unreacted gases are separated from the ammonia and recycled to the compressor.
canr. GENERAL NITROGEN-FERTILIZER CONVERSION ROUTES Natural gas Water Air Ammonia plant Ammonia Carbon dioxide Urea plant Water Air Nitric acid plant Nitric acid Ammonium nitrate plant Ammonium nitrate Calcium nitrate plant Phosphate rock Nitrophosphate plant Potash Phosphate rock Phosphoric acid plant Sulfuric acid NPK fertilizer plant Ammonium phosphate plant Sulfur Sulfuric acid plant Source: USGS: Mineral Commodity Profiles – “Nitrogen” 35 36 Sulfur Diammonium phosphate 37 For more information please visit: “http://www.edu/vanburen/e-896.msu.htm” 38 Starting with ammonia 9 .0) would constitute good examples.37 The following diagrams illustrate nitrogen-fertilizer38 conversion routes and the the worldwide ammonia use distribution. There are many more.OSU AED Economics (AEDE-RP-0053-05) and calcium nitrate (15.5 – 0 .
synthetic textile such as nylon. PHARMACEUTICALS FIBERS NITRIC ACID. Ammonia can also be used as a preharvest cotton DEFOLIANT. Source: PotashCorp: “Fertilizer Market Outlook 2004” Ammonia and urea are used as a source of protein in LIVESTOCK FEEDS for ruminating animals such as cattle. vitamins and cosmetics. rayon and acrylics. certain ALKALIES such as such as sulfa drugs. Worldwide use is depicted in the graph to the left. 16% in non- fertilizer uses.OSU AED Economics (AEDE-RP-0053-05) “Fertilizer Market Outlook” by PotashCorp confirms a high degree of utilization of ammonia production by the fertilizer industry. Ammonium Nitrate besides its fertilizer usage is widely employed in the production of EXPLOSIVES. which shows about 81% of ammonia used in the production of upgraded fertilizers. an ANTI-FUNGAL AGENT on certain fruits and as PRESERVATIVE for the storage of high-moisture corn. Ammonia is used in the manufacture of soda ash. and for the manufacture of certain PLASTICS such as phenolics and polyurethanes. and 3% applied directly as a fertilizer. sheep and goats. DYES. 10 .
Ammonia is used as the developing agent in PHOTOCHEMICAL PROCESSES such as white printing. petro-chemical and cold storage industries. blue printing and in the diazo duplication process. in conjunction with chlorine to produce potable water and as an oxygen scavenger in boiler water treatment. such as pH control. beverage. furnace brazing. nickel and molybdenum from their ores. The PETROLEUM INDUSTRY utilizes ammonia in neutralizing the acid constituents of crude oil and for protection of equipment from corrosion. Ammonia is used in the mining industry for extraction of metals such as copper. Ammonia is a widely used refrigerant in INDUSTRIAL REFRIGERATION SYSTEMS found in the food. carbonitriding. as a method of NOx control in both catalytic and non-catalytic applications and to enhance the efficiency of electrostatic precipitators for particulate control. 11 . sodium hydride descaling.OSU AED Economics (AEDE-RP-0053-05) Ammonia is used in such METAL TREATING operations as nitriding. Ammonia is used in the RUBBER INDUSTRY for the stabilization of natural and synthetic latex to prevent premature coagulation. The PULP AND PAPER INDUSTRY uses ammonia for pulping wood and as a casein dispersant in the coating of paper. atomic hydrogen welding and other applications where protective atmospheres are required. sintering. Ammonia is used in several areas of WATER and WASTEWATER TREATMENT. in solution form to regenerate weak anion exchange resins. Ammonia is used in STACK EMISSION CONTROL SYSTEMS to neutralize sulfur oxides from combustion of sulfur-containing fuels. bright annealing.
as a slime and mold preventative in tanning liquors and as a protective agent for leathers and furs in storage. fibers. Ammonia [NH3] Ammonium phosphates Fertilizer Ammonium nitrate [NH3NO3] Explosives Adipic acid Nitric acid [HNO3] Toluenediisocyanate Methylene diphenyl diisocyanate Acrylonitrile Plastics. Weak ammonia solutions are also widely used as CLEANERS AND DETERGENTS. and resins Melamine Urea [NH2CONH2] Hydrogen cyanide [HCN] Animal feed Caprolactam Ammonium sulfate [(NH4)2SO4] Source: USGS: “Mineral Commodity Profiles – Nitrogen” 12 .OSU AED Economics (AEDE-RP-0053-05) The FOOD AND BEVERAGE INDUSTRY uses ammonia as a source of nitrogen needed for yeast and microorganisms. The decomposition of ammonia serves as a source of hydrogen for some CELLS. FUEL Ammonia is used by the LEATHER INDUSTRY as a curing agent. COMMERCIAL AND HOUSEHOLD The following USGS & PotashCorp-based visualizations show principal downstream products of ammonia and their uses.
India. and the United States with production40 in short tons/capacity utilization rates41 as follows: 39 40 Deborah Kramer: “Mineral Commodity Profiles – Nitrogen” 2003 the most recent data 41 2002 the most recent data 13 .OSU AED Economics (AEDE-RP-0053-05) Source: PotashCorp: “Fertilizer Market Outlook 2004” Note: All tons equivalent to 2. The largest producers of ammonia in descending order are: China.39 Total production worldwide nearly doubled in the last 25 years. Russia. a little over 146 million short tons of ammonia were produced in 75 countries. representing all continents but Antarctica. Global capacity utilization rate of production facilities hovers around 82%. In 2003.000 LB (Short Ton) AMMONIA WOLDWIDE Nitrogen is used in virtually every country in the world and as a result many countries have the facilities for producing ammonia.
000 2% 60. 13. Deborah Kramer: “Mineral Commodity Profiles – Nitrogen” 44 PotashCorp: “Fertilizer Market Outlook 2004” 14 .000 80. and 55 percent of the actual production. Asia is the largest producer of nitrogen. 42 43 100% simply means that all known capacity is utilized. and 11. 12. capacity is lower due to high energy costs and inefficient plants. In North America. followed by North America and Europe.000 140.200/79%.44 World Amonia Production 160.000 40.000 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 0% -2% -4% -6% World Ammonia Production Annual Growth 12% 10% 8% Annual Growth in % 6% 4% Production: Short Tons (' 000) Source: Data outsourced from USGS.487/100%42. these countries account for about 50 percent of the total world ammonia production capacity.000 100.757/74%. approximately one-quarter of capacity remained idle due to soaring natural gas prices.000 120.015/85%. respectively. In Central Europe.43 Individual capacity utilization varies considerably across countries.OSU AED Economics (AEDE-RP-0053-05) 40. Continent-wise. Together.000 20.
2. 245 3.328 . 177 .000 million British thermal units 15 .528 .S.S. 447 . 46 Deborah Kramer: “Mineral Commodity Profiles – Nitrogen” 47 10.R. The map to the left shows the price of natural gas in 2003 in US Dollars per MMBtu47. 448 . It is easy to see that Source: PotashCorp: “Fertilizer Market Outlook 2004” it does vary internationally.8% Central & South America.40 in North Africa or reach $5.OSU AED Economics (AEDE-RP-0053-05) USGS ammonia production data provides an interesting picture of what has happened to the ammonia industry worldwide in the last 25 years.? Natural gas is in many Africa.39. Natural Gas Reserves Western Europe. which is a very large difference that undeniably should have an effect on distribution of ammonia plants around the world. or the effectiveness of distribution networks. 265 . which make up around 90 percent46 of the total ammonia production cost.4% Asia and Oceania.7% Middle East. Source: EIA (Trillion Cubic Feet) 45 Ammonia production is governed by nothing else by the capitalistic desire to make profit. 2.S.2.8% North America. market power..7% inexpensive countries simply because Eastern Europe & Former U.3% Why is the natural gas so cheap in some places compared to the U.50 in Northern America.g.. Profitability45 of ammonia production is governed primarily by natural gas prices. and secondarily by other factors such as industrial efficiency.36% it is very plentiful (e. In that sense it is no different from any other industry. It may be as low as $0.
China.2.9 million short tons. Pakistan. 3.2.8 million in the 90s to only 0.OSU AED Economics (AEDE-RP-0053-05) Middle East. Often these countries convert natural gas into other products such as LNG or LPG (Liquefied Natural/Petroleum Gas) or fertilizer manufacturing (NH3 – Ammonia production) for export.S. Kazakhstan. Production and prices are usually controlled by governments and seen as a way to bring much needed cash into their countries.8 million short tons and 9% annual growth in both the 5-year and the 10-year time periods emerges as the biggest success story. Countries such as Uzbekistan. 5. In North and South America. Former U. The United States is the fourth largest producer of ammonia in the world. but production has been decreasing at a rate of 9% annually since 1998 when its peak production was 18. production is shifting. India. and 1.6. and thus needs to feed. Not all countries though produce a lot of NH3.R) and/or there is a small industrial base or infrastructure to consume it. Many countries just flare the gas (burn it as it escapes from oil wells). 13.5. respectively in 2003. One of the reasons behind Asia being the largest manufacturer of ammonia is the size of the world population that continent hosts. Indonesia. Thailand and Vietnam do not participate at all. Bangladesh and Malaysia produced: 40.S. South Korea and Japan decreased their production. Trinidad & Tobago with its 4. which constitute 45 percent of the world production. Turkmenistan and Azerbaijan.5 million short tons. Their production has increased steadily since 1980s. Asia is the largest producer. Again. are expected to strengthen the supply of ammonia in the near future due to their large natural reserves and their economic and political transformations. Philippines.44 million in 2003. Mexico has also been drastically reducing its production of ammonia from an average of 1. Argentina follows with nearly 1 million short tons 16 . 1.
again due to low natural gas prices in that country.5 million short tons of ammonia annually.OSU AED Economics (AEDE-RP-0053-05) and over 53% growth on annual basis in last 5 years. Czech Republic. Romania or Bulgaria have cut down their production by at least 50 percent since the mid-80s due to uncompetitive status of their chemical industries after the downfall of communism. produced more due to successful restructuring of the chemical industry leading to efficiency improvements. Although the price of natural gas in Africa turns out to be the lowest compared to any other parts of the world.1 million short tons annually. Italy and the U. Canada and Brazil. Africa. is an enigma. Europe’s southern neighbor. particularly in 2003. Countries such as Hungary. states such as Lithuania. including Former Soviet Republics. Finally. has been also one of the biggest producers of ammonia. and their failure to make the transition. Germany and the Benelux countries have around 42% of the natural gas reserves of the Western Europe 17 . Its strength comes from its cheap natural gas. and Ireland have kept steady low production. ammonia production is relatively small. Poland. show rather mixed results. Egypt produces the largest quantity of ammonia 48 49 Particularly in France. and could easily be increased if the plants were upgraded in terms of machinery and/or general capacity. Western European48 production of ammonia decreased tremendously in the last 10-15 years with the exception of Belgium and Germany.K. but also because of some recent industrial upgrades. Its production increased 40 percent from the low in 1998. Russia. potentially due to their closeness to the oil & gas deposits. Ukraine since its independence in 1991 has been producing around 4.49 and efficient plants with strong distribution networks. have kept their production on a rather stable level for the last several years. with 6. Ukrainian neighbor. Central and Eastern Europe.
and Africa has no international pipelines that would transport the cheap gas to the south. respectively. produces little ammonia. 52 Some of the ratios pass the 100% mark which naturally does not make sense as one cannot employ nonexistent capacity.50 Nigeria. and its industry has experienced the highest growth in the last 10 years both in terms of volume and percentage-wise.4 million short tons (less than 4% of the world market) with 43%.51 Also. the continent’s most industrialized country. three annual growth figures and 2002 capacity utilization ratio52 are showed below. Astonishing low levels of ammonia production are caused mainly by lack of infrastructure.the Middle East . undeniably. Kuwait and Syria have been accelerating in recent time but their volume is still quite low. and Qatar produce the most ammonia with their production equal to 5. which much understate its potential. Tables with individual countries.4 million short tons in 2003). Bahrain produces a steady amount of 420. know-how and political instability. and Iraq’s production was halted by the war. 53 Israel 50 51 Algeria has 37 percent of natural gas reserves in Africa: around 165 trillion cubit feet Gas is very cheap because the countries do not have the capabilities to deal with it. 7% and 4%. South Africa. 1990 and 2003. Libya and Algeria follow with total production reaching not even 800. Iran. The energy Mecca of our times . their production statistics from 1976.000 short tons.OSU AED Economics (AEDE-RP-0053-05) in Africa (2. Saudi Arabia. produces no ammonia. 30% and 27% production split.000 short tons each in 2003. produces no ammonia. 1980. a major oil producer with approximated natural gas reserves equal to 35% of the continent’s reserves. and annual growth in the last 10-year period: 5%. the cost of natural gas in South Africa is high because it has no natural gas reserves. United Arab Emirates. This error comes from the incompleteness of the worldwide data set illustrating ammonia 18 .where natural gas is priced very low. has also been cutting down its production.
53 Data from USGS 19 .12% 2.40% 1.810 615 4.542 1.12% 2.07% -0.01% 4.04% 4.45% 0.77% 5.13% -2.31% -4.400 7.33% 10.413 1.32% 564 NA NA 1.698 11.85% 3.757 -1.09% 1.093 NA NA NA 1. We did include the original calculations but for the purpose of this exercise please cut of all ratios at 100%.873 NA 287 657 2.756 436 500 NA 265 NA 594 NA 139 188 94 NA production.29% -2.791 11.41% 4.634 NA 566 611 960 1.89% 315 NA NA NA 311 -3.63% 3.314 280 2.95% 1.84% 6.33% 1.53% 5.609 NA 391 550 2.400 2.998 1.555 0.654 137 198 122 2.91% -1.089 2.55% 168 NA NA NA Capacity Utilization 2002 100% 85% 79% 74% 90% 90% 79% 101% 92% 86% 57% 96% 95% 96% 83% 131% 34% 71% 96% 74% 74% 82% 81% 100% 46% 80% 103% 63% 91% 69% 98% 112% 78% 126% 68% 116% 24% 84% 134% 84% 34% 116% 53% 64% 81% 72% 73% 106% 56% 71% 102% 27% Country China India Russia US Indonesia Ukraine Canada Trinidad Germany Pakistan Poland Egypt Netherlands Saudi Arabia Bangladesh Qatar Romania France Iran Japan United Kingdom Brazil Malaysia Belgium Uzbekistan Australia Belarus Venezuela Argentina Algeria Libya South Africa Italy Lithuania Kuwait Austria Mexico Spain United Arab Emirates Norway Bulgaria Bahrain Turkey Croatia Portugal Czech Republic Hungary Slovakia Syria Cuba New Zealand Georgia 1976 5.69% -3.21% 1.29% 590 -1.03% 1.77% 4.28% -2.109 0 247 NA 268 NA 1.22% -0.263 940 783 2.055 3.17% 3.44% 3.051 1.Growth 19902004 2005 2003 40.74% 2.72% -5.20% 6.65% -1.235 0 122 NA 213 NA 942 NA 31 98 0 NA 1980 13.259 6.87% 2.862 8.224 2.17% 387 4.22% 775 12.512 224 188 560 3.44% -1.52% 13.17% 637 -3.57% 13.97% 6.258 307 367 NA 516 NA 747 94 386 268 611 1.21% -2.066 NA 52 182 0 NA 1990 23.65% -2.707 1.495 5.82% 430 -3.409 0 635 1.18% 3.896 625 395 578 1.79% 618 NA NA NA 595 0.602 9.89% 1.95% 774 NA 5.22% -0.546 -1.37% 12.34% 1.277 1.92% 1.026 3.40% 3.628 985 4.11% -6.075 995 0 690 1.93% 3.038 3.84% 181 2.388 308 2.Growth 1980.03% -0.54% 1.69% 418 NA NA -0.200 NA NA NA 11.78% 2.49% 475 -1.02% 1.79% 5.15% 172 NA NA 2.66% 308 NA NA NA 216 7.346 -0.132 563 2.09% 1.582 -1.04% -1.13% -1.978 NA 19.758 -0.561 NA 16.72% 1.325 576 1.66% 8.981 536 2.15% -2.892 248 NA 1.60% 1.35% 1.687 219 3.228 NA NA NA 4.015 5.40% -3.85% -0.026 NA NA NA 981 3.622 2.90% -1.41% 579 -3.85% -1.45% 0.35% 2.14% 971 11.82% 2.393 2.57% 10.50% 1.41% 3.80% 7.06% 354 NA NA NA 328 1.72% 2.258 NA 2.806 193 58 723 NA 413 NA 341 50 28 0 630 1.33% 661 0.63% 4.795 292 2.55% -0.OSU AED Economics (AEDE-RP-0053-05) % Annual % Annual % Annual 2003 (Sorted By) Growth 1976.00% 1.51% -0.85% 0.75% 4.337 10.27% 2.00% 1.21% 10.87% -5.487 7.606 1.189 472 55 727 NA 473 NA 483 87 40 201 736 1.740 NA 4.00% -2.58% 0.220 11.88% -5.31% 7.44% -0.98% 6.172 1.56% 0.829 2.398 NA 17.47% 3.17% 0.76% 590 -0.160 7.23% -0.996 438 2.30% 13.03% 2.472 2.67% 10.33% 0.461 9.54% -2.888 3.400 -0.13% -0.93% 4.014 2.47% 2.
00% -100.00% 0 -100.00% -100.00% -100.137 94 603 NA NA NA 94 60 NA 83 9 670 341 72 NA 0 556 1990 345 551 121 670 NA NA 48 31 43 NA 121 11 322 530 56 NA 543 290 Source: Data from USGS. Significant contributors to the increase were India and Indonesia.71% 1. the percentage of total world capacity has increased to 19 from 15 during the same period.07% -6.00% 0 NA NA 0 -100. Eastern Europe.00% -100.64% 4.Growth 1980. the general trend seems to be the relocation of production towards countries where the price of natural gas is lower such as Asia.94% 0. China is separated because of its importance in the world nitrogen industry.41% 27 NA NA NA 7 -9. Significant declines 54 Some of this increase. North Turkmenistan Estonia Vietnam Finland Switzerland Tajikistan Peru Iceland Iraq Ireland Israel Kazakhstan Nigeria Taiwan 1976 319 807 122 365 NA NA 0 227 60 NA 101 11 182 46 86 NA 0 428 1980 303 1.Growth 19902003 2004 2005 165 -2.49% 114 NA NA NA 109 NA NA NA 107 NA NA 3.00% -100. may not actually be an increase.00% 0 -100. Europe’s55 ammonia production capacity dropped during this period to 14 percent from 19 percent of the world total. and Latin America.22% -9. it may have resulted from additional knowledge gained during this time period about the number and size of the ammonia plants in China. Middle East.50% -3.56% -1.00% -100. From a historical perspective.00% -100. 55 Western and Central Europe 20 .63% -0.51% -6.63% -7. however. Republic of Colombia Korea. This transfer comes at the expense of Northern America and Western Europe.88% 134 -3.81% -0.38% 80 -3.OSU AED Economics (AEDE-RP-0053-05) % Annual % Annual % Annual 2003 (Sorted By) Growth 1976.03% 160 149 0.86% -5.00% Capacity Utilization 2002 25% 23% 102% 12% 23% 24% 73% NA 80% 15% 11% NA 25% 98% NA 0% 0% NA Country Greece Korea.33% -2.00% -100.96% -11. China increased its share of the world total to 23 percent from 17 percent.02% -5.08% 39 -1.00% -100.54 In the rest of Asia.00% 0 -100.00% -100. The table accompanied by a pie-chart on the next page shows the percentage of ammonia production capacity by world region for 1999 and 2002 and a forecast for 2008. and it has seen the greatest changes. The most significant gains in production capacity during the 10-year period (1992-2002) were in Asia.35% 0 -100.00% 0 NA NA NA -100.
Africa Oceania 1992 17% 15% 19% 21% 3% 11% 3% 8% 3% 0% 2002 23% 19% 16% 15% 5% 8% 5% 6% 3% 0% 2008 22% 18% 14% 14% 9% 7% 6% 5% 3% 2% 2008 China 22% Oceania 2% Africa 3% North America 14% Central America and South America 6% Western Europe 7% Central Europe 5% Asia (excluding China) 18% Middle East 9% Former U. Production capacity in Western Europe declined as well—to 8 percent from 11 percent of the world total. Central Eu.700 short tons in 1970. 21 . China Asia North Am.R. Latin Am. 14% Source: Data from USGS.S.OSU AED Economics (AEDE-RP-0053-05) occurred in Eastern Europe after the dissolution of the Soviet Union. although it fluctuated quite a bit during this time. and some plants did not have enough financial support to operate.S. Some of the least efficient plants were closed.400 short tons in 2002 from 16. FSU Middle East Western Eu. Ammonia production capacity in the United States has increased to 18.
surprisingly.9 million tones over the next seven years. operating rates are expected to rise as the new capacity is absorbed by increases in demand. Oceania supported by cheap natural gas in the area will assume 2 percent of the world capacity. lost capacity in FSU indicates reform failure. And. Asian countries are to continue their dominance. Western and Central/Eastern Europe will to lose some capacity.58 In 2008. operating rates57 are expected to remain stable until 2008 as the market absorbs new capacity from China and the Middle East. FSU. It requires about three years to start up a new plant. After 2008. according to USGS.56 Source: PotashCorp: “Fertilizer Market Outlook 2004” Furthermore. Latin America will build new plants. likely 2006-2008 will experience a period of slight imbalance as China and the Middle East increase their capacity. an average rate of over 2.OSU AED Economics (AEDE-RP-0053-05) PotashCorp predicts that while over the long run demand growth is expected to outstrip new capacity. 57 56 22 . Deborah Kramer: “Mineral Commodity Profiles – Nitrogen” Capacity utilization rates 58 Demand is expected to rise by approximately 22.59 Middle East.5% per year 59 Former Soviet Union Republics very often are included in this-type analysis.
Middle Eastern. the China-India region. We can easily pinpoint big producers: North America. Former Soviet Union. essentially being selfsufficient. using more than it produced and relying on imports. Northern South America. 23 . International ammonia trade concentrates around FSU republics.OSU AED Economics (AEDE-RP-0053-05) In 2003. The distribution of natural gas supply and the challenges of shipping make ammonia still a largely domestic or regional product. South American and Indo-Chinese hub. Source: PotashCorp: “Fertilizer Market Outlook 2004” The map on the next page constitutes another way to show ammonia production network worldwide. with only 13% traded of world among production countries. North America was the second largest consumer. Asia was the largest consumer of ammonia. and the Middle East.
OSU AED Economics (AEDE-RP-0053-05) 24 .
5% IA.681 . 1.OSU AED Economics (AEDE-RP-0053-05) AMMONIA IN THE UNITED STATES In 2004. 758 . 31% Source: Fertilizer Institute and Source: EIA The two tables below list companies that currently operate ammonia producing plants. 5.61 60 61 Source: IFDC (2004) and EIA (2003) Source: IFDC 25 . 5% AK. All numbers represent capacity in ‘000 short tons. 4% KS.098 . 786 .60 U.903 . Natural Gas Production in 2004 US Ammonia Capacity in 2004 Other. 584 . nearly 12 million short tons of ammonia were produced by 16 companies at 31 plants in 17 States in the United States. 9% OK. Oklahoma. 4% OH. 17% LA. 4% GA. 5% TX.416 . 2. 4% MS. the dominant domestic feedstock. 695 . 12% VA.S. and Texas because of their large reserves of natural gas. Fifty-seven percent of total U. The graphs below show the distribution of capacity (2004) and natural gas production (2003). 589 .S. 598 . 1. ammonia production capacity was centered in Louisiana. 832 .
956.703.757.484 1. urea.964.799.P.867. Cheyenne WY St.568. Beaumont TX Donaldsonville II LA (Ampro) Port Neal IA Verdigris OK Yazoo City MS Woodward OK Triad Nitrogen L.978 Source: Census Bureau “Fertilizer Materials and Related Products” 26 .187 1.377 802.L.551 775.511 4.086 2nd 2. Yazoo City III MS Yazoo City IV MS The Mosaic Company Faustina LA Nitromite Fertilizer Dumas TX PCS Nitrogen Fertilizer L.864 1.841 1.050 1.C.520 4th 2.639. Ammonia Ammonium Nitrate Ammonium Sulfate Nitrogen Solutions Nitric Acid Urea Superphosphate Monoammonium Diammonium Phosphates 1st 2.538.834.955 3rd 2.921.870 738.417 2004 10.025 386 292 1.914. Augusta GA Geismar LA Lima OH Memphis TN Royster-Clark Inc.533 1.646.475 6.997. ammonium sulfate. Borger TX Kenai AK CF Industries Inc.599.456.179 1.057 1. Beulah ND Dyno Nobel Inc.955 791.488 1.725.543.741 5.735 1.965.756.577.747 1.383. and other nitrogen compounds.L.702.653 2.157.167 255 489 267 Source: Fertilizer Institute Fertilizer use includes anhydrous ammonia for direct application.328 694.S.022 751. Donaldsonville II LA (Ampro) 540 1.082 4.250 2. Helens OR El Dorado Chemical Company Cherokee AL Green Valley Chemical Corporation Creston IA Honeywell Nylon Inc. East Dubuque IL Terra Industries Inc.OSU AED Economics (AEDE-RP-0053-05) Agrium U. Hopewell VA Koch Nitrogen Company Dodge City KS Enid OK Fort Dodge IA Homestead (Beatrice) NE Sterlington LA MissChem Nitrogen L.877.387.672.C. Donaldsonville LA (4-Plants) Coffeyville Resources LLC Coffeyville KS Dakota Gasification Co.906.737 2.709.584 4.077 2. ammonium phosphates.253 1.358.843.391 1. Inc.416 2.273. ammonium nitrates.980 4.599.531 3.222 254 80 560 140 758 532 598 409 306 106 267 411 1.249 1.343.222 6.414 2.665 706.575. The table below shows actual production in the United States in 2004 with quarterly distribution.770 7.073 1.250 386 400 192 111 193 35 584 309 1.157 18.467.559.177 812.077 1.717 10.
854 11. which means that all quantities of ammonia and all its end-use products are quoted in short tons of nitrogen. import and export levels for the year of 2004 approximating the consumption of anhydrous ammonia to be around 19 million short tons in 2004.157 10.874. Fertilizer use is easier to identify as Census Bureau publishes on a quarterly basis a Manufacturing Report64 focusing on the following nitrogen-based fertilizers and fertilizer materials: Ammonium Nitrate.531 3. IFDC and Census Many of their reports use it 64 Census: “http://www.gov/Data/FertilizerUse“ 27 .984 33. Nitrogen Solutions.374 2.163.62 2004 Quantity Produced 11. Ammonium Sulfate. This standard has been long used by USGS.837 36.414 2.216.037 5.190 790.409 245.305.386 153.65 62 63 Source: USGS.291 117. Monoammonium Phosphates.770 6.63 Ammonia has fertilizer and non-fertilizer uses.gov/cir/www/325/mq325b.274 5. and Diammonium Phosphates.185 130.834.census.262 96.921. Nitric Acid.117.887 95.615 Imports 7.725 121.OSU AED Economics (AEDE-RP-0053-05) The Census Bureau provides more specific data such as stock.866. Consumption of ammonia as anhydrous and aqua directly applied to the fields is available from USDA.038 Apparent Consumption 19.067 1.157.043 2.978 Fertilizer Ammonia: anhydrous.662 776. which leads to adoption of a nitrogen equivalent metric.019.343.805 6.usda.958 5.353.741 Ending Stock 366.914. The first step is to standardize ammonia in the supply chain.516. synthetic Ammonium Nitrate Ammonium Sulfate Nitrogen Solutions Urea Diammonium Phosphates Beginning Stock 221.700 5.667 359.html” 65 USDA: “http://www.982 Exports 510.997.ers. Urea.848 153.437.918 133.555.394 Source: Census Bureau “Fertilizer Materials and Related Products” It is quite difficult to trace total consumption of ammonia in the United States.950 80.698 7. Superphosphate.129 413.
and the fertilizer compound information from Census Bureau has been treated as if it represented only the fertilizer use.852 1.189 1.127.678 612. Our estimate of the sources and uses of ammonia in the United States is shown in the following table.OSU AED Economics (AEDE-RP-0053-05) The table below shows total apparent66 ammonia (nitrogen) consumption in the Nitrogen Total Ammonia Consumption Ammonia Ammonium Nitrate Ammonium Sulfate Urea Nitric Acid Superphosphate Monoammonium Diammonium Total 2004 15. consumption of ammonia: anhydrous and aqua by direct application to soil. The table accounts for 90 percent of total apparent ammonia consumption in the US.727.052 2.292 1.221 1. titled “2004 Ammonia Grid.893 653. Various non-fertilizer uses of ammonia have not been estimated.225.” All numbers represent nitrogen equivalent in ‘000 short tons.904. particularly with respect to production processes of certain compounds and their further uses. stocks 28 .747 3.386. We consider 90% a good result considering the lack of availability of special technical information.625.917.019 25% 7% 4% 19% 10% 9% 4% 13% 90% United States. and production of individual fertilizer compounds as derived from Census Bureau data. 66 Consumption = beginning stocks + production + imports – exports – ending.842 14. It has been done for purpose of simplification and thus potentially overstates fertilizer use.997.
SUPPLY 16.904 – 25% Ammonium Nitrate 955 – 7% Ammonium Sulfate 612 – 4% Urea 2.7 Mexico 15 Canada 9 Plastics & Synthetics 2004 AMMONIA GRID 29 Explosives Other .626 – 10% Other Fertilizer Materials Other 2.755 Fertilizers 9.511 U.014 Industry stocks. 12/31/2004 301 Imports 6.161 Lithuania 21 Russia 783 Industry Stocks 1/1/2004 181 Turkey 16 Ukraine 475 Spain 13 Venezuela 293 Exports 419 Ammonia Dir.S.518 Mexico 22 Canada 1.6 Chile 13 Singapore 1 Taiwan 9 South Korea 348 Diammonium 1.998 – 13% Indonesia 61 Philippines 21 Nitric Acid 1. Application 3.387 – 9% Monoammonium 653 – 4% OSU AED Economics (AEDE-RP-0053-05) Hungary 9 Brazil 67 China 1.727 Colombia 25 Trinidad and Tobago 3.447 Apparent Consumption 15.918 – 19% Superphosphate 1.Non-fertilizer 741 Source: Census Bureau and USDA Latvia 26 United States 9.
67 68 Fertilizer and non-fertilizer USDA: “http://www. and our estimates may not fully capture these uses. Second. Nitrogen solutions are the most popular material.ers. We approximate the non-fertilizer use in 2004 of nitric acid to be 20% of nitric acid reported by the Census Bureau. First. there is the potential of double counting because some nitrogen fertilizers are combined to form another material.usda. Total67 apparent consumption of ammonium nitrate in 2003 in the United States was equivalent to 2.6 million short tons. ammonium nitrate and urea are frequently combined with water to make nitrogen solutions. there are two principal difficulties that the Bureau of Census data poses. constituting nearly 40% of all commercial nitrogen fertilizers.OSU AED Economics (AEDE-RP-0053-05) In tracing uses of ammonia. We are satisfied that our ammonia grid consumption estimates are reasonably close to USDA fertilizer consumption data. The graphs below illustrate the following points regarding nitrogen fertilizer consumption. For example ammonium nitrate. Consumption of nitrogen solutions more than doubled since 1975. For example. anhydrous ammonia has 17% market share. nitric acid.S. USDA’s estimate of fertilizer use categorizes nitrogen fertilizers by fertilizer material applied and by crop to which material is applied. and its consumption changed little since 1975 when it had the same market as nitrogen solutions. there is the concern that several compounds might include some non-fertilizer uses. and urea have non-fertilizer uses. only around 30% of total ammonium nitrate consumption is used for fertilizer production in the U. and its use has increased steadily.gov/Data/FertilizerUse“ 30 .68 Nitric acid has a similar story. Urea is the second leading commercial nitrogen material with 22% market share. which are discussed next. On the other hand. According to statistics published by USDA in 2003.
S.000 6.000.000 4.000 12. its market share was about the same as that of anhydrous ammonia and urea. Only 10% is synthetically created as a primary product.000. In the early 1970s.000 2. U. its consumption is concentrated in the Corn Belt or Midwestern region of the country. Consumption of Nitrogen-Based Fertilizers 14.000 Anhydrous Ammonia Aqua Ammonia 10.OSU AED Economics (AEDE-RP-0053-05) Ammonium nitrate consumption declined dramatically in the past three decades. which makes up 43% of consumption.000.000. The largest user of commercial nitrogen fertilizer is corn.000 0 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 Source: USDA 2003 31 .000.000.000. 90% of ammonium sulfate production is a by-product of another production process. Ammonium sulfate is a niche/special product constituting about 5% of the total nitrogen market. but now its market share is only 6%.000 Short-tons (2000 LB) Ammonium Nitrate Ammonium Sulfate Nitrogen solutions Urea Other 8. Thus.
Consumption of Nitrogen Fertilizers in Ammonium Ammonium 2003 Nitrate 6% Sulfate 5% Aqua 2% Anhydrous Ammonia 16% Nitrogen solutions 40% Other 9% Urea 22% Source: USDA Nitrogen Fertilizer Crop Use 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Corn Cotton Soybeans Wheat Other 4% 1% 15% 43% 37% Source: USDA 32 .OSU AED Economics (AEDE-RP-0053-05) U.S.
thus the prices should be closer. the higher the correlation should be. which shows correlation coefficients between ammonia (X) and each of the other compounds (Y).69 which turns out to be the case with urea (46%).S. Fertilizer Nitrogen Consumption (By State. ammonium nitrate (33%) and nitrogen solutions (28-31%) having the largest correlation coefficient. 33 .2% nitrogen (almost all of ammonia is nitrogen).OSU AED Economics (AEDE-RP-0053-05) U. therefore the higher the percentage of N in another compound. the more similar the consistency is. All compounds follow relatively the same price change route – a result of close correlation. and ammonium sulfate (21%) and 69 Ammonia consists of 82. This relationship is illustrated by the table below. The higher the nitrogen content in a fertilizer. Crop Year 2001-02) Source: USGS Source: USDA (outsourced from USGS) AMMONIA PRICING Prices of ammonia and other nitrogen-based fertilizers have been steadily climbing.
5% 72.2% 85.8% 94. 34 . Each price in the graph above has been converted to dollars per actual pound of nitrogen.9% Source: USDA and Fertilizer Institute Fertilizer prices among farmers are often quoted in dollars per pound of “actural nitrogen. Individual composition also matters.OSU AED Economics (AEDE-RP-0053-05) DAP (18%) the smallest. R^2 92. because pricing may involve several components other than nitrogen such as sulfur in ammonium sulfate or phosphate in DAP. Nitrogen Fertilizer Prices 450 400 350 Dollars per Short Ton 300 250 200 150 100 50 0 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Ammonia Nitrogen Solution Ammonium Nitrate Urea Ammonium Sulfate DAP Source: USDA and Fertilizer Institute Ammonia Urea Ammonium Sulfate Ammonium Nitrate Nitrogen Solutions DAP $ $ $ $ $ $ 2003 373 261 195 243 161 250 $ $ $ $ $ $ 2004 379 276 244 263 178 276 2005 $ 416 $ 332 $ 244 $ 292 $ 215 $ 303 Ammonia Urea Ammonium Sulfate Ammonium Nitrate Nitrogen Solutions DAP R^2 92.” The table below shows prices per actual pound of nitrogen for six fertilizers during 1967-2005.3% 71. Changes in these values may skew the price of the fertilizer away from ammonia’s value.0% 85.70 70 Price per pound of actual nitrogen = Price per ton of fertilizer / (2000 X % nitrogen in fertilizer).3% 91.4% 91.4% 94.6% Adj.
12 0.25 0.22 0.23 0.23 0.12 0.16 0.21 0.19 0.37 0.09 0.76 0.35 0.18 0.31 0.25 Urea 0.21 0.13 0.31 0.20 0.30 0.30 0.06 0.14 0.79 0.25 0.09 0.09 0.27 0.27 0.11 0.31 0.23 0.65 0.39 0.30 0.47 0.09 0.21 0.13 0.22 0.44 0.22 0.19 0.37 0.24 0. Northwest and Southwest exhibit the highest prices while South Central and Northern Plains the 35 .21 0.31 0.18 0.75 0.18 0.73 0.15 0.12 0.42 0.11 0.42 0.23 0.16 0.26 0.11 0.71 0.73 0.67 0.37 0.15 0.83 0.24 0.25 0.13 0.23 0.30 0.17 0.22 0.22 0.25 0.49 0.36 Ammonium Ammonium Nitrogen Sulfate Nitrate Solutions 0.44 0.23 0.22 0.46 0.12 0.13 0.52 0.10 0.58 0.08 0.23 0.34 Source: USDA DAP 0.46 0.82 0.29 0.62 0.23 0.73 0.31 0.20 0.41 0.36 0.73 0.28 0.28 0.17 0.19 0.09 0.73 0.30 0.11 0.10 0.30 0.10 0.45 0.69 0.37 0.13 0.63 0.32 0.67 0.23 0.20 0.11 0.29 0.10 0.28 0.22 0.62 0.13 0.31 0.26 0.35 0.OSU AED Economics (AEDE-RP-0053-05) Ammonia 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 0.19 0.10 0.26 0.26 0.20 0.23 0.18 0.27 0.20 0.55 0.13 0.27 0.30 0.53 0.21 0.18 0.36 0.24 0.12 0.24 0.35 0.70 0.68 0.14 0.19 0.10 0.15 0.10 0.61 0.10 0.43 0.27 0.09 0.50 0.15 0.30 0.40 0.08 0.36 0.14 0.22 0.20 0.22 0.18 0.38 0.58 0.21 0.17 0.05 0.32 0.28 0.21 0.34 0.09 0.23 0.29 0.36 0.05 0.14 0.13 0.26 0.37 0.05 0.15 0.62 0.27 0.22 0.17 0.11 0.12 0.36 0.10 0.40 0.33 0.69 0.13 0.26 0.19 0.33 0.45 0.20 0.27 0.25 0.12 0.14 0.18 0.22 0.28 0.28 0.84 The graph below illustrates that ammonia prices do vary by region.22 0.07 0.05 0.29 0.61 0.30 0.21 0.30 0.05 0.30 0.77 0.51 0.39 0.
. A change in the price of natural gas of $1 per million BTU results in about a $33 per ton change in ammonia production cost. and due to large economies of scale and lower transportation costs prices are lower than in the Northwest or Southwest Ammonia Prices: U. Price differences are a result of supply-and-demand characteristics. Regions 550 500 450 Dollars per short ton 400 350 300 SOUTH CENTRAL 250 SOUTHWEST 200 150 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 SOUTHEAST EAST SOUTH CENTRAL MOUNTAIN NORTH CENTRAL NORTHERN PLAINS NORTHWEST Source: USDA and Fertilizer Institute The graph below shows how dependent the cost of ammonia is on natural gas.71 Others position themselves somewhere in between. in instance of high natural gas prices. and transportation costs.OSU AED Economics (AEDE-RP-0053-05) lowest. while nearly 90 percent or more. Conversion cost does stay constant according to USGS. 71 USDA 36 . of ammonia production cost constitute the cost of the fossil fuel.S. natural gas prices in the producing regions. South Central for instance has access to the cheapest source of natural gas. North Central and Northern Plains use large amounts of ammonia or ammonia-based products in the U.S.
total supply has been generated by summing U. forestry. vehicle fuel. Note: Cost = production cost rather than consumer prices. goes towards: 1) Lease and Plant Fuel. industrial. commercial. U. All numbers are in billion cubic feet.S.S. similar to the one illustrating the flow of ammonia. those engaged in mining or other mineral extractions. Actual consumption number provided by Department of Energy (EIA) and our own calculation (apparent consumption) come relatively close. Apparent consumption has been calculated by subtracting ending stocks and exports from total U. imports and beginning stock. Industrial consumption represents natural gas used for heat. supply. Conversion cost NATURAL GAS PRODUCTION AND USE We constructed a Natural Gas Grid.S. and consumers in agriculture. fisheries and construction. and it is shown below. Therefore. and electric power use. the industrial sector includes the chemical 37 . and 3) Volume Delivered to Consumers. Consumers include residential.S. Total consumption in the U. 2) Pipeline and Distribution. power (FUEL) or chemical feedstock (NONFUEL) by manufacturing establishments. production.OSU AED Economics (AEDE-RP-0053-05) Ammonia Production Cost Natural gas cost 400 Production Cost per Short Ton 350 300 250 200 150 100 50 $2 $3 $4 $5 $6 $7 $8 $9 $10 Natural Gas Price per million British Thermal Units Source: USGS: Mineral Commodity Profiles – “Nitrogen”.
EIA provides conversion tables75 thus we know that 1. and about 1.S.500 million BTUs must have been used.eia.5 million BTUs (MMBtu).3% of total industrial use.S.doe.OSU AED Economics (AEDE-RP-0053-05) industry – the manufacturer of ammonia.S.792.031 BTUs constitute one cubic foot.html“ Previous Grid 74 Deborah Kramer: “Mineral Commodity Profiles – Nitrogen” 75 EIA: „http://www. we see that 9.gov/emeu/mecs/contents.5% of total annual consumption of natural gas.76 4. ammonia production.html“ 38 . 317 billion of cubic feet were consumed in the production of ammonia. 317 billion cubic feet used to manufacture ammonia has been calculated on the basis of U.htm“ 76 Mainly feedstock 77 EIA: “http://www.doe.doe. Therefore. The final number.73 Returning to our Ammonia Grid.755 short tones of ammonia have been produced in 2004 in the U.gov/glossary/glossary_main_page.74 therefore 326. One short ton of ammonia requires 33.eia. This number constitutes 11% of the chemical industry usage.gov/emeu/mecs/contents. 1998 census72 provided by EIA enabled us to perform percentage approximation of the distribution of natural gas between fuel and non-fuel industrial usage. and even further estimation of how much goes towards the chemical industry.eia.77 72 73 EIA: “http://www. The bottom line is that ammonia fertilizer production constitutes a miniscule portion of total natural gas use in the U.
607 Industry Stocks 12/31/2004 6.897 Imports 4.296 Actual Consumption 22.407 Commercial 2.696 Pipeline Canada 3.878 Industrial 7.666 39 2004 Natural Gas GRID Electric Power 5.United States 19.4 NonFuel 740 Chemical Industry 688 NF + 2200 F Fuel 6.424 Trinidad 462 Algeria 120 Industry Stocks 1/1/2004 6.5 Qatar 12 Mexico 397 Canada 395 Japan 62 Mexico 0.052 Malaysia 20 LNG Australia 15 Exports 854 Lease & Plant Fuel 1.352 Ammonia Production 317 .989 Vehicle Fuel 20 Volume Delivered to Consumers 20. SUPPLY 30.S.259 U.647 Other 1.007 Apparent Consumption 22.111 OSU AED Economics (AEDE-RP-0053-05) Oman 9 Nigeria 12 Pipeline & Distribution 666 Pipeline LNG Residential 4.
It should be pointed out that Energy Information Administration (EIA) turned out to be an extraordinary source for natural gas information. given its importance transportation industrial in the and end-use sectors. Fossil fuels . but not as rapidly as fossil fuel 78 79 Energy Information Administration (EIA): www. In the reference79 case. 40 . EIA like other research governmental agencies generate all forecasts under three types of technological circumstances: rapid. and oil remains the dominant energy source. including natural gas. reference (neutral) and slow. International Energy Outlook78 generated by EIA in 2005 provides a very useful illustration of the world energy use.doe. and coal .gov Neutral case. natural gas.oil. No new data available.OSU AED Economics (AEDE-RP-0053-05) MORE ABOUT NATURAL GAS Natural gas has such an impact on production and pricing of all nitrogen fertilizers that we continue our analysis by investigating projections of long-term production and use of natural gas. 80 World forecast is based on 2002 predications.eia. Non-fossil fuel use also grows over the forecast.continue to supply much of the energy worldwide. the use of all energy sources increases over the forecast80 period.
Energy Information Administration (EIA): www. including lease and plant fuel.doe.82 The increase in consumption of natural gas for electricity generation results from both the construction of new gas-fired generating plants. toward the end of the forecast. decreases are expected in the iron.3 trillion cubic feet in 2025. No newer forecast is available.84 Although increases are projected for most industrial sectors.OSU AED Economics (AEDE-RP-0053-05) use.1 trillion cubic feet in 2003 to 10. when natural gas prices rise substantially. coal-fired power plants are expected to be competitive for new capacity additions.4 trillion cubic feet in 2025. higher fuel efficiency.eia.0 trillion cubic feet in 2003 to 30. The outlook for non-fossil fuels could be altered by government policies or programs. is projected to increase from 8. Most new electricity generation capacity is expected to be fueled by natural gas.eia.doe. In the electric power sector. In the EIA reference case.S. such as environmental laws aimed at limiting or reducing pollutants from the combustion of fossil fuel consumption and encouraging the use of non-fossil fuels.doe. and lower emissions. because natural-gas-fired generators are projected to have advantages over coal-fired generators that include lower capital costs.gov 41 . steel. accounting for 31 percent of total demand for natural gas in 2025 as compared with 23 percent in 2003.7 trillion cubic feet in 2025. and aluminum industries.gov 84 Energy Information Administration (EIA): www. The industrial sectors with the largest projected increases in natural gas consumption growth from 2003 through 2025 include metal- 81 82 The following predictions are based on year 2003. and higher capacity utilization at existing plants.0 trillion cubic feet in 2003 to 9.81 total natural gas consumption in the U. Nevertheless. shorter construction lead times. natural gas consumption increases from 5. increases from 22.83 Industrial consumption of natural gas.eia.gov 83 Energy Information Administration (EIA): www.
88 Production of lower 48 states’ nonassociated89 (NA) conventional natural gas declines from 9. petroleum refining.eia. shale.86 Natural Gas Consumption by sector 12 10 Trillion Cubic Feet 8 6 15 4 2 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 10 5 0 Total Industrial Residential Electric Generators Commercial Transportation 35 30 Trillion Cubic Feet 25 20 Source: Energy Information Administration (EIA) Due to technological improvements and increasing prices. and food.5 trillion cubic feet in 2003 to 8.6 trillion cubic feet in 2025 and from 35 percent of total lower 48 production in 2003 to 44 percent in 2025.7 percent per year and in the commercial sector 1.eia. Natural gas use is also projected to increase in the residential sector by 0. bulk chemicals85. as resource depletion causes exploration and development costs to rise. Lower 48 states’ unconventional gas production grows from 6.gov 89 Natural gas that is not in contact with significant quantities of crude oil in the reservoir 42 . Offshore NA natural gas 85 86 That would include nitrogen fertilizer compounds Energy Information Administration (EIA): www. natural gas production from relatively abundant unconventional sources87 is projected to increase more rapidly than conventional production.6 trillion cubic feet in 2003 to 8.gov 87 Tight sands. and coal-bed methane 88 Energy Information Administration (EIA): www.2 percent per year on average from 2003 to 2025.doe.doe.OSU AED Economics (AEDE-RP-0053-05) based durables.6 trillion cubic feet in 2025.
9 trillion cubic feet in 2008. In 2025.5 trillion cubic feet in 2003 to 3.4 trillion cubic feet in 2025.90 Production of associated-dissolved91 (AD) natural gas from lower 48 crude oil reserves is projected to increase from 2.eia.doe. total Alaskan gas production is projected to be 2.doe.gov Natural gas that occurs in crude oil reservoirs either as free gas (associated) or as gas in solution with crude oil (dissolved) 92 Energy Information Administration (EIA): www.4 trillion cubic feet in 2003. both onshore and offshore AD gas production are projected to decline. then decline to 3.2 trillion cubic feet in the reference case.1 trillion cubic feet in 2010 due to a projected increase in offshore production.6 trillion cubic feet in 2025.gov 43 . compared with 0.eia. After 2010.93 Natural Gas Production by Source Total L48 onshore NA unconventional Lower 48 NA offshore 10 9 8 Trillion Cubic Feet 7 6 5 4 3 2 1 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 0 5 10 15 20 Trillion Cubic Feet L48 onshore NA conventional Lower 48 AD Alaska 25 Source: Energy Information Administration (EIA) 90 91 Energy Information Administration (EIA): www.92 The North Slope Alaska pipeline is projected to begin transporting Alaskan gas to the lower 48 States in 2016.doe.OSU AED Economics (AEDE-RP-0053-05) production is projected to rise slowly to a peak of 3.eia. and total lower 48 AD gas production falls to 2.gov 93 Energy Information Administration (EIA): www.
where industrial consumers along the border are closer to U.5 trillion cubic feet in 2025.gov 44 . rise again to 3.95 A steady decline of conventional production in the Western Sedimentary Basin is more than offset by increases in unconventional production in western Canada.doe. net U.OSU AED Economics (AEDE-RP-0053-05) Supplies of natural gas from overseas sources account for most of the projected increase in net imports in the reference case.96 In the reference case.5 trillion cubic feet in 2009.S.eia.0 trillion cubic feet in 2015.S.0 trillion cubic feet in 2005 to 2. because Canada’s gas consumption increases more rapidly than its production.doe. and LNG imports.94 Net imports of natural gas from Canada are projected to decline from 3. begins exporting natural gas from western Mexico to the United States. but the United States historically has been a net exporter of gas to Mexico. 94 95 Energy Information Administration (EIA): www. Mexico has considerable natural gas resources. when an LNG import terminal in Baja California. pipeline imports from Canada decline at the end of the forecast.gov 96 Energy Information Administration (EIA): www. and then decline to 2.4 trillion cubic feet in 2025. Mexico.gov Energy Information Administration (EIA): www.doe. exports to Mexico are projected to increase through 2006.eia.eia. conventional production in the MacKenzie Delta and Eastern Canada. New LNG terminals are projected to start coming into operation in 2006. and net LNG imports increase to 6. supplies than they are to domestic supplies. Although a MacKenzie Delta natural gas pipeline is expected to open in 2010.
new production capacity comes online. After 2011. both wellhead and delivered natural gas prices are projected to increase in response to the higher exploration and development costs associated with smaller and deeper gas deposits in the remaining domestic gas resource base. As a result. Newer predications are not available.eia. Wellhead natural gas prices are projected to decline in the early years of the reference case forecast. these prices may be potentially different from real spot prices in 2004 or 2005.doe.97 (NOTE: EIA price forecasts are based on year 2003. and LNG imports increase in response to current high prices.OSU AED Economics (AEDE-RP-0053-05) Net Imports of Natural Gas 7 6 Trillion Cubic Feet 5 4 3 2 1 0 -1 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Source: Energy Information Administration (EIA) Liquefied Natural Gas Canada Mexico Trends in delivered natural gas prices largely reflect changes in wellhead prices. however. end-use delivered prices are projected to fall. as drilling levels increase.98 ) 97 98 Energy Information Administration (EIA): www.gov The prices have not been adjusted in order to leave the forecast model intact. Therefore. 45 .
they are expected to rely more on higher cost firm transportation service.gov 46 .eia. avoiding local distribution charges. however.OSU AED Economics (AEDE-RP-0053-05) Transmission and distribution margins in the end-use sectors reflect both the volumes of gas delivered and the infrastructure arrangements of the sectors. The projections for lower 48 natural gas reserves are based on expected levels of natural gas 99 Energy Information Administration (EIA): www. As power generators take a larger share of the natural gas market. In addition. because they receive most of their natural gas directly from interstate pipelines. The industrial and electricity generation sectors have the lowest end-use prices. summer-peaking electric generators reduce transmission costs by using interruptible transportation rates during the summer. when there is spare pipeline capacity.99 Natural Gas Prices Wellhead 12 Dollars per ' Cubic Feet 000 10 8 6 4 2 0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Source: Energy Information Administration (EIA) Note: These are spot prices not futures prices (Inflation-adjusted.doe. 2003 dollars) Residential Commercial Industrial Electric Generators Natural gas wellhead productive capacity directly reflects reserve levels.
then decline to 205 trillion cubic feet in 2025.102 In all three cases.gov 47 . resulting in more drilling activity and reserve additions.100 In the rapid technology case. finding and success rates are lower. and then decline slowly to 178 trillion cubic feet in 2025.doe.doe. lower 48 reserves grow to 207 trillion cubic feet in 2008. then decline to 159 trillion cubic feet in 2025.eia. reserve additions early in the forecast generally exceed production. and rising costs of gas well development reduce drilling activity. lower 48 reserves are projected to peak at 215 trillion cubic feet in 2009. production generally exceeds reserve additions.OSU AED Economics (AEDE-RP-0053-05) exploration and development drilling resulting from projected cash flows and profitability. resource depletion reduces reserve additions per well. As a result.gov Energy Information Administration (EIA): www. exploration and development costs are higher and drilling activity and reserve additions are lower than projected in the reference case. the natural gas resource base is sufficient in the early years of the forecast to support the increases in drilling activity and reserve additions that are stimulated by higher projected prices.doe. 100 101 Energy Information Administration (EIA): www.eia.101 In the slow technology case. In the reference case. causing total reserves to decline toward the end of the forecast. In later years. the finding and success rates for gas well drilling are higher than in the reference case. Lower 48 reserves are projected to peak at 200 trillion cubic feet in 2008. As a result. In this case.eia.gov 102 Energy Information Administration (EIA): www. and exploration and development costs are reduced.
nitrogen solutions.OSU AED Economics (AEDE-RP-0053-05) Lower 48 Natural Gas Reserves 250 225 Trillion Cubic Feet 200 175 150 125 100 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Reference Rapid tech Slow tech Source: Energy Information Administration (EIA) CONCLUSIONS With persistently growing use of nitrogen in agriculture and also other sectors of the economy. of the production cost of ammonia. The fundamental ingredient necessary for production of ammonia is natural gas. In the United States for instance. ammonia and its by-products . which accounts for ninety percent or more. ammonium nitrate and ammonium sulfate . depending on its price.are in high demand in Northern America and in more general terms worldwide.S 48 . Therefore. profitability of production of ammonia hinges on the access to cheap fossil fuel. A population boom in China and India sustains itself only due to access to one-third of the total world ammonia that is manufactured in the region. corn production would be a fraction of what it is today without consumption of 40% of all nitrogen-based fertilizers. Conversion costs stay relatively fixed.urea. Even though the U.
is not able to satisfy its growing demand. Ammonia producers in the United States have already started to feel the pain of higher resource prices. one of the leading producers of fertilizers. Moreover.OSU AED Economics (AEDE-RP-0053-05) owns vast natural gas reserves.S. The only breather for North America may be Trinidad & Tobago’s and Venezuelan natural gas. some of it decreased permanently. Price of natural gas overseas often tends to be much lower as many countries do not have the infrastructure able to support larger demand. Others strive to move in the same direction as in the long-term this action may constitute one of the few survival strategies. Such producers relying on cheap natural gas offer the most competition for the ammonia production industry in Northern America. its large and growing demand from various sources causes natural gas to be priced much higher than in other parts of the world. the future looks very uncertain. Asian plants sparked by high prices in 2002 and 2003 should be coming online as soon as 2006-07 leading to increased cheaper supply. Natural gas is 49 . demand is expected to grow worldwide. New LNG docks are also ready to open in next 2-3 years allowing large quantities of cheaper gas to enter the United States. Capacity plummeted. On one side. now produces approximately 60% of its ammonia in Trinidad & Tobago. PotashCorp. must rely partially on imports. Thus the U. frequently they focus on exports of LNG and/or production of ammonia to capture foreign exchange revenue. particularly through the LNG shipments.S. supported by relatively little new investment in infrastructure. U. In terms of ammonia pricing. in more recent years. which creates a risk premium in the market. production. In such situations. Nevertheless. Imports will increase in the up-coming years. we do witness reallocation of ammonia production capacity to parts of the world with lower natural gas prices. which is close and cheap.
thus if petroleum stays expensive. even higher supply may not influence substantially the price of natural gas. It is clear thus that high prices for all nitrogen fertilizer materials will remain high for a while. oil. and eventually food prices. And the risk premium surrounding oil trading these days is expected to stay for some time. 50 . This naturally may have consequences on agriculture.OSU AED Economics (AEDE-RP-0053-05) also highly correlated with oil. as about 6% of all farm costs are fertilizer costs and another 6% are fuel. and electricity costs.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.