Natural gas prices render Brazilian nitrogen fertilizer production 'unviable,' official says

Current natural gas prices in Brazil make the production of nitrogen-based fertilizers in the country "completely unviable," Carlos Fávaro, minister of agriculture and livestock, said Aug. 27. During the 11th Brazilian Fertilizer Congress, the minister said recent changes in the regulatory framework will boost domestic natural gas production and will change this situation.

With the recent changes promoted by the federal government in the market, natural gas should decrease to half of its current price, Fávaro said.

A source put the current price of natural gas in Brazil at $14/MMBtu.

Natural gas prices are a point of legal dispute between Petrobras and Unigel, as the latter company closed two nitrogen plants leased from the state-owned company, saying natural gas prices, a key input for fertilizer production, are too high.

The decision to allow direct market sales of gas from production-sharing fields will gradually decrease prices until 2030, Favaro said. However, he added, this change won't occur in the short term.

"We also cannot, with a magic wand, change the established rules with a government decision," Fávaro said. "Petrobras is a publicly traded company that must answer to the market."

Brazil is responsible for around 8% of global fertilizer consumption, ranking fourth behind China, India and the US, but according to the National Fertilizer Plan published by the Brazilian government, over 80% of the fertilizer used in Brazil is imported and costs $25 billion yearly.

In the 1990s, Brazil was able to meet about 50% of its domestic fertilizer demand through local production, but a combination of increased demand and policies that favored imports over domestic production resulted in a significant decline in Brazil's self-sufficiency in the sector.

This shift was accompanied by the privatization of factories and a reversal of Petrobras' involvement in the fertilizer industry after the 1973 oil shock.

To reverse this trend, Brazilian authorities created a National Fertilizer Plan that targets meeting 45%-50% of domestic demand with local products until 2050.

Brazil must be free of its almost total dependence on fertilizer imports as they are a "national security product," Fávaro said.