High gas prices halt roughly 40% of Europe's ammonia production – Nutrien CEO

At least 40% of Europe's ammonia production capacity has been taken offline due to a perfect storm of surging energy prices, plant outages and fertilizer import caps in China, according to fertilizer giant Nutrien Ltd.

Nutrien's overall gas costs more than doubled year over year during the third quarter as natural gas prices in Europe hit record highs. Energy-intensive industrial sectors have been enduring a historic spike in natural gas prices, caused in part by a sharp ramp-up in energy demand following an extended lull during the COVID-19 pandemic.

According to Nutrien executives, ammonia capacity in central and Western Europe, excluding Ukraine, totals roughly 20 million tonnes, and an estimated 8 million tonnes of ammonia capacity is offline. Ammonia is an ingredient used to make nitrogen fertilizers.

"European gas prices have been trading at around $30/MMBtu, equating to an ammonia production cost of approximately $1,100 per tonne," Nutrien CEO and President Mayo Schmidt said during a Nov. 2 call.

Nevertheless, tight fertilizer supply and rising demand for its crop products pushed Nutrien's earnings up year over year. Sales during the third quarter reached $6.0 million, increasing from $4.2 million in the same period in 2020 thanks to strong agricultural fundamentals. Nutrien produces several crop nutrient and protection products in addition to nitrogen.

"We expect nitrogen markets will remain very tight through the first half of 2022, and there is limited new nitrogen supply expected to come online over that period," Schmidt said. "We plan to increase our nitrogen production next year by approximately half a million tonnes through higher operating rates and the benefit of our recently completed expansion projects."

Nutrien expects the energy price spike to ease within six to 12 months.

The Saskatchewan-headquartered company reported third-quarter net earnings of $726 million, or $1.26 per basic share, swinging year over year from a loss of $587 million, or a loss of $1.03 per basic share. The company's adjusted ammonia output totaled 856,000 tonnes, down from 1.0 million tonnes in the year-ago period.

Adjusted EBITDA surged 145.1% year over year to $1.64 billion in the September quarter. Nutrien further raised its guidance for full-year adjusted EBITDA to a range of $6.9 billion to $7.1 billion, compared to a range of $6.0 billion to $6.4 billion as of August.

Rising natural gas prices have pushed up prices for crop growers, making key food staples such as corn and soybeans more expensive too. Nutrien shares dropped to a low of $67.02 per share Nov. 2, down from $72.51 per share at open.