Soaring gas prices impact heavy industry and supply chains

LONDON, Sept.22 (Reuters) – Record global natural gas prices are driving some energy-hungry companies to cut production, a trend that adds to disruptions in global supply chains in sectors such as food and could lead to a increased costs. to their customers.

Some companies, including steel producers, fertilizer manufacturers and glass manufacturers, have had to suspend or cut production in Europe and Asia due to soaring energy prices. This includes two of the world’s largest fertilizer manufacturers, who have said they will cut production in Europe. The UK said on Tuesday it had agreed to provide state support to one of the companies to restart production of the carbon dioxide by-product, which is used in food production, in order to avoid a supply shortage. Read more

The prices of natural gas have risen sharply around the world in recent months. This is due to a combination of factors: including increased demand especially from Asia due to a post-pandemic recovery; low gas stocks; and tighter than usual gas supplies from Russia.

Gas prices in Europe have increased by more than 250% this year, while Asia has seen an increase of around 175% since the end of January. In the United States, prices have reached multi-year highs and are about double what they were at the start of the year. Electricity prices have also risen sharply as many power plants run on gas.

Industrial Energy Consumers of America, a trade group representing manufacturers of chemicals, foods and materials, in recent days called on the US Department of Energy to prevent the country’s liquefied natural gas producers from exporting gas. to help reduce energy costs for industry. Read more

Additional gas supplies could ease the pressure. Norway has authorized an increase in gas exports. More supply could come from Russia by the end of the year with the country’s new Nord Stream 2 pipeline awaiting approval from the German energy regulator. The pipeline project has drawn criticism from the United States, which claims it will increase Europe’s dependence on Russian energy supplies. Read more

INTERRUPTIONS OF PRODUCTION

So far, the pressures have been particularly strong in Europe, where gas stocks are well below normal as winter approaches. Norwegian company Yara International ASA (YAR.OL), one of the world’s largest fertilizer manufacturers, said on Friday it would cut its European ammonia production by around 40% due to high gas prices . This came after US company CF Industries Holdings Inc (CF.N) said gas prices were prompting it to shut down operations at two of its UK factories. Natural gas is the most important cost input for chemicals and nitrogen-based fertilizers. Read more

Yara chief executive Svein Tore Holsether told Reuters in an interview on Monday that the company was bringing ammonia to Europe from production facilities elsewhere, including the United States and Australia. “Instead of using European gas, we basically use gas from other parts of the world to make this product and bring it to Europe,” he said. read more CF Industries did not respond to requests for comment.

Some industries are asking governments to intervene on their behalf. The calls come as some countries have acted to protect consumers from soaring energy bills, such as Spain, which last week approved a package including price caps.

Among those seeking help is the food industry following a carbon dioxide (CO2) shortage caused by the suspension of production at some fertilizer factories. CO2 is used in the vacuum packaging of food products to extend their shelf life, to stun animals before slaughter and to make carbonated drinks and beer sparkle.

In the UK, meat processors had warned they would run out of CO2 within five days, forcing them to shut down production. Manufacturers of soft drinks, which depend on gas to make soft drinks, said stocks were running out. Read more

On Tuesday, the British government announced that it had reached a three-week deal with CF Industries for the American company to restart production of carbon dioxide in the United Kingdom. Britain’s Environment Minister, who said state support could reach tens of millions of pounds, also warned the food industry that carbon dioxide prices would rise sharply.

CF Industries said in a statement it would immediately restart ammonia production at its Billingham plant following the deal.

MITIGATE THE STORM

Other energy-intensive sectors such as steel and cement are also affected.

The surge in gas prices over the past two weeks “has forced some steelmakers to suspend operations during the night and day periods when the cost of energy is skyrocketing,” said Gareth Stace, managing director of UK Steel industrial group. He declined to identify which companies.

British Steel, the country’s second-largest steel producer, said it was maintaining normal production levels but “colossal” increases in energy prices made it “impossible to manufacture steel profitably at certain times of the year. the day “.

Some manufacturers say they are able to cope, so far.

Germany’s Thyssenkrupp AG, (TKAG.DE), Europe’s second-largest steelmaker, said the hedging mechanisms he had put in place against increases in energy prices, especially gas, meant he wouldn’t did not reduce production. But he said he was indirectly affected because the industrial gases he used are tied to electricity prices.

Germany’s HeidelbergCement AG (HEIG.DE), the world’s second-largest cement producer, said rising energy prices were pushing up production costs, but operations had not been halted in result.

In China, several steelmakers, ceramists and glassmakers have cut production to avoid losses, according to Li Ruipeng, a local supplier of liquefied natural gas in northern Hebei province. And, southwest China’s Yunnan Province this month imposed production limits on some heavy industries, including producers of fertilizers, cement, chemicals, and foundries. aluminum due to energy shortages, a move that analysts say could reduce exports.

To weather the storm, some energy-intensive industries and utilities in Asia and the Middle East have temporarily switched from gas to oil, crude, naphtha or coal, analysts and traders said. This trend is expected to continue for the rest of the year and into early next year, according to the International Energy Agency, the Paris-based energy watchdog.

In Europe, the demand for coal as an alternative energy source has also increased significantly. But options for switching to alternative energy sources are limited in the region, largely due to government policies to encourage the use of gas rather than more polluting fuels such as coal.

The glass industry historically ran on fuel oil, but almost every site in the UK has now switched to natural gas, according to Paul Pearcy, federation coordinator at British Glass, a UK trade association. Only a few sites have fuel tanks allowing them to switch energy sources if prices soar, he added.

Reporting by Bozorgmehr Sharafedin and Susanna Twidale in London, Roslan Khasawneh in Singapore Additional reporting by Guy Faulconbridge, Nigel Hunt, Eric Onstad and Ahmad Ghaddar in London, Jessica Jaganathan and Chen Aizhu in Singapore, Yuka Obayashi in Tokyo, Nidhi Verma in Delhi, Scott DiSavino in New York, Heekyong Yang in Seoul and Christoph Steitz in Frankfurt, Tom Kaeckenhoff in Düsseldorf, Polina Devitt in Moscow, Arathy S Nair in Houston Editing Cassell Bryan-Low

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