Petrochemical companies on alert as soaring gas prices lead to cuts in European fertilizer production

Cuts in European fertilizer production due to high natural gas prices have petrochemical producers on high alert as energy costs could become another challenge after a year in which transport costs hit record highs
.

Some petrochemical producers in Europe signaled higher prices, with some delaying contract pricing due to high volatility in energy markets, sources said
.

"Some PET producers are delaying discussions with their customers about contract prices for 2022 because of the unpredictability of costs such as energy and transportation,
" a source said.

The UK and Spain are two markets that are highly dependent on natural gas to produce fertilizers and electricity; both are highly dependent on imports
.

British trade group the Chemical Industries Association (CIA) said its members feared a tough winter if current gas conditions persisted
.

Gas can be imported as LNG or by pipeline; the UK’s location makes it highly dependent on the former; continental Europe is highly dependent on pipeline supplies, mainly from Russia, whose exports have dwindled in the past few weeks
.

UK fertiliser plants have also cut production, creating a shortage of carbon dioxide widely used in the food and beverage industry
.

British Prime Minister Boris Johnson's government held talks with fertilizer production companies
.
On Tuesday, analysts said that fertilizer production could be subsidized to address carbon dioxide shortages
.

While Spain relies mainly on Algeria for its natural gas supply, high global prices have caused electricity prices to soar as the country's price calculation system prioritizes the price of the last supply entering the energy system
.

"We have had very high energy prices over the past few months," said a Spanish petrochemicals trader.
"It's starting to be critical for some industries
.
"

Prices of petrochemicals in Europe peaked at the start of the year as downstream industries boomed and supply chain issues persisted since the coronavirus outbreak
.

In the past few weeks, several fertilizer producers in Europe have officially said they are cutting output as natural gas prices hit record highs
.

Natural gas prices have surged as the northern hemisphere tries to replenish inventories ahead of winter, with global supply shortfalls and strong demand
.

Unlike fertilizers that use natural gas as the main raw material, the production of petrochemicals in Europe is mainly based on crude oil, and the price of crude oil has also risen, but the increase has not been as high as that of natural gas
.