In the Istanbul pass quadripartite meeting devoted to the “grain deal”. The next extension of agreements on the export of food products from Ukrainian ports may extend to an “ammonia agreement”. Russian and Western politicians spoke of the need to resume Russian ammonia deliveries in September last year. Russian media understood who cared about the ammonia deal, who would make money and what is Russia’s role in the global fertilizer market.
Why Russia Needs an “Ammonia Deal”
In 2021 in transit through Ukraine pass 2.3 million tons of ammonia, for which Ukrkhimtransammiak received about 108 million dollars from Russia, Ukrainian Forbes reported. Vladimir Poutine said on its willingness to supply 2 million tons of ammonia to world markets, and Ukraine can receive about 94 million dollars for its pumping. At the same time, Russia will be able to count on more than a billion dollars in annual deliveries.
Ammonia production in Russia is managed by United Chemical Company Uralchem of Dmitry Mazepin, owner of Togliattiazot.
The export of Russian ammonia ceased immediately after the outbreak of hostilities, on February 24, 2022. Its main route between Russia and Western countries was and remains the Togliatti-Odessa ammonia pipeline. In the Odessa port plant, the gas was loaded onto ships for subsequent export.
The Togliatti-Odessa pipeline departs from the Togliattiazot enterprise in Togliatti through the territory of Ukraine, one of the branches of the pipeline went to the Ukrainian company Stirol in Gorlovka on the territory of the DPR. The maximum capacity of the pipe can reach 2.5 million tons per year.
In November Mazepin address to Putin with a request for help “under the grain agreement to temporarily open and provide drainage and transportation of ammonia to Odessa.” According to him, the raw materials for the production of mineral fertilizers can also go to developing countries, especially in Africa. The president responded by saying that Russia would work with the UN to resume operation of the ammonia pipeline.
For Russia, it is important to increase ammonia exports, which fell sharply after the outbreak of hostilities in Ukraine.
In 2022, the volume of Russian fertilizer deliveries fell by only 10% in annual terms, and the volume of ammonia supplies in the first 9 months of 2022 – by 76%. In the first three quarters of 2022, ammonia production in Russia decreased by 14.1% to 12.7 million tons, underline Analyst FG “Finam” Alexey Kalachev.
Why do we need ammonia
Irina Bujor / Kommersant
For effective plant growth, plants need three types of fertilizers: nitrogen, phosphorus and potash. The deficiency of one of the components leads to a decrease in yield. At the same time, more than half of the world’s fertilizer consumption is precisely nitrogen. This is due to the fact that nitrogen does not stay in the soil for a long time, and its reserves must be constantly replenished. At the same time, phosphorus and potassium are stored in the earth for up to three years.
The main component of nitrogen fertilizers is ammonia. Fertilizers themselves are divided into three subgroups: ammonium nitrate (ammonium nitrate), urea (urea) and carbamide-ammonia mixture (UAN). The most common method of producing ammonia in industry is the use of natural gas. The hydrogen is extracted from it, then associated with the nitrogen which is in the atmosphere. Thus, the pricing of nitrogen fertilizers by 70-90% depends on the cost of natural gas. However, this method of production is considered unsustainable due to the large amount of carbon dioxide emissions.
Prices and consumers
The increase in world fertilizer prices, including ammonia, occurred at the end of 2020 and peaked in the summer of 2022. At the same time, natural gas prices increased significantly in Europe and in Asia due to lower production volumes and increased global demand. Supply chain disruption caused by the coronavirus outbreak has also become a negative factor.
Western Europe, which buys the most ammonia in the world, also imports most of the natural gas. Until recently, Europe accounted for over 30% of Russian ammonia and over 40% of natural gas.
The largest importers of the end product, nitrogen fertilizers themselves, according to 2021 data in physical terms, were India (11.7%), Brazil (11.1%) and the United States (7 .93%). At the same time, the Indian market is almost entirely dependent on China, while Russia was Brazil’s main supplier. The South American country accounted for around 27% of all Russian fertilizer exports.
In 2021, Russia also supplied the United States with a significant share of urea (19%) and urea-ammonia mixture (43%). This, among other things, is related to the reluctance of the United States to include Russian fertilizers in the list of sanctioned goods.
In recent months, the cost of fertilizers has decreased, although it is above the historical average. The spot contract for anhydrous ammonia in Tampa was awarded at $590 per metric ton, the lowest since July 2021. reported February 24 Bloomberg, citing its own data.
“Maize farmers hit by a spike in fertilizer prices since (the start of the conflict) in Ukraine expect the situation to improve as wholesale prices have fallen to their lowest level in nearly two years. “, noted the agency.
The downward trend in ammonia prices is also indicated by data from the US Department of Agriculture, which sets farmers’ costs for fertilizers. On November 3, 2022, the price of anhydrous ammonia reached $1.434 per ton and continued to decline, falling to $1.237 per ton on February 23, 14% below the November level, noted in a policy note prepared by economists at the University of Illinois.
According to the European Commission, in March, farmers’ costs for fertilizers decreases 38.7% in annual terms and 3.6% compared to the previous month. At the same time, spending on fertilizers is still twice as high as at the start of 2020.
Main exporters and deficit
In recent years, Russia and China have shared first places in terms of nitrogen fertilizer exports. At the same time, in 2021, Russia has taken the lead. It supplied the world market with 25% ammonia, 14% urea and 42% urea-ammonia mixture (UAN) in kind.
At the same time, at the end of 2021, a shortage of nitrogen fertilizers began to appear. Russia and China have imposed export quotas to meet domestic demand. In Russia, export restrictions were in effect until May 31, 2022, but were later extended until the end of the year. They did not apply to deliveries to the DPR and the LPR (which became part of Russia in the fall), as well as to Abkhazia and South Ossetia. In January 2023, the government increase a quota for the export of ammonium nitrate of 375,000 tons, and sulfoammophos – of 102,000 tons. The total volume of the export quota thus exceeded 12 million tons.
The restrictions imposed by China primarily affected the supply of nitrogen and phosphorus fertilizers. The Chinese government has decided to take such measures in order to also meet domestic demand, limit the rise in food prices and reduce the emission of harmful gases into the atmosphere. China is not only one of the world’s largest producers of ammonia, but also the largest consumer – it accounts for 22%. At the same time, China practically does not import foreign fertilizers, but is engaged in its own production.
According to UN Comtrade data for 2021, Russia’s revenue from ammonia exports was over $1.668 billion. Among the top five suppliers, it ranked second, behind Trinidad and Tobago, whose exports amounted to $1.688 billion. Saudi Arabia ($1.454 billion) and Indonesia follow ($898 million) and Canada ($672 billion).
Obstacles to the “ammonia agreement”
For other countries, including the European Union, unlocking cheap supplies of Russian ammonia is an opportunity to drive down prices of the chemical and thereby reduce consumption of their own gas reserves and cut costs for farmers. .
In September last year, attempts to conclude an “ammonia agreement” were made at the UN, but it was not possible to reach agreements: the main condition for Ukraine resuming its ammonia supplies was the return of all Ukrainian POWs to Kiev. With such a proposal, the Ukrainian president turned to the UN.
Moscow immediately rejected the offer: “Are people and ammonia the same thing?” Putin’s press secretary Dmitry Peskov responded to the terms of the deal.
The representative of the Russian Foreign Ministry, Maria Zakharova, said that Western countries themselves should ask the Ukrainian authorities to unblock the possibility of transiting Russian ammonia, if they are really interested in its supply.
“There are no problems on the Russian side, we are interested in that,” she said.
The Russian side has repeatedly stressed that the conditions for the supply of ammonia are spelled out in the Istanbul agreements, but their implementation is hampered by Kiev’s position, Deputy Foreign Minister Sergei Vershinin told Russian media.
Learn more about what the Istanbul Accords include and where the “ammonia accord” fits into Russian media’s material.
“The provision on the supply of fertilizers and raw materials for their production, including ammonia, to world markets is set out in the two Istanbul agreements. The transshipment of ammonia through the Togliatti-Odessa pipeline and its export were to resume with the launch of the “Black Sea Initiative” and the start of the transport of Ukrainian food. However, this did not happen and is not happening because of Kyiv’s position, which surrounds the restoration of the ammonia pipeline with political conditions,” Vershinin stressed.
Read the Latest Ukraine War News on The Eastern Herald.
