BASF cuts ammonia production in response to soaring gas prices

Germany’s BASF, one of the world largest fertiliser producers, is to implement fresh cuts to its ammonia production in response to soaring natural gas prices, the company announced on Wednesday.

"We are reducing production at facilities that require large volumes of natural gas, such as ammonia plants," BASF’s chief executive said during a media call following the release of the company’s results for the second quarter 2022.

He added that the higher energy costs would be passed onto consumers and farmers can expect a sharp increase in fertiliser costs next year.

According to the company, the gas bill for its European production sites during the second quarter of 2022 has increased by around €8 million compare to the same period last year.

The company reported that, where possible, it will substitute natural gas for alternative energy sources such as fuel oil while increasing ammonia purchases from external suppliers in order to plug immediate supply gaps.

The company also reports that it expects to be able to sustain operations at its Ludwigshafen production site in the event that the German government activates the “emergency” phase of its response plan to natural gas shortages.

Under the emergency plan, all participants in the German market are obliged to take coordinated action to avoid gaps in supply and to achieve the target storage level of 85% by October 1, 2022.

“Should the German government declare the third and final 'emergency' stage, we currently expect that BASF would still receive sufficient natural gas to maintain operations at the Ludwigshafen site at a reduced load,” BASF chief Martin Brudermuller said, speaking at a press conference on Wednesday.

European gas prices have soared after Russia’s Gazprom announced on Tuesday that it would reduce daily gas deliveries to Germany and other central European countries via the Nord Stream pipeline to 33m cubic metres a day or around 20% of the pipeline’s capacity.

Germany imports approximately 55% of its gas from Russia with most of it being delivered via the Nord Stream 1 pipeline.

The statement from BASF follows an announcement from Yara International that it is reducing fertiliser production at several plants and has so far curtailed output amounting to an annual capacity of 1.3 million mt of ammonia and 1.7 mt of finished fertilizer.