“Lower natural gas costs meant US fertiliser producers were able to realise their dream of converting low cost inputs into higher priced outputs”, states Rabobank analyst, Suzanne Pera. “As a result, the US is set to move away from being a net importer of urea and is en route to self-sufficiency, which is set to have sizeable impact on global urea markets”.
The US nitrogen fertiliser industry faces production cost challenges. The recent abundance of cheap natural gas may be offset by LNG exports as the US takes its first steps towards exporting part of its shale gas reserves to other regions, such as Europe. Disappointing returns on investments in shale exploration could also lead to a decrease in supply and put upwards price pressure on natural gas prices in the short to medium term. The same applies to domestic demand: the long, cold winter of 2013/14 also caused natural gas prices to peak. Increasing construction costs are another challenge, and are resultant of rising costs for engineering, procurement and construction (EPC) contracts.. Similarly, attracting investment to secure plant financing is under pressure as a result of increased capacity supply outweighing demand globally, which is putting pressure on nitrogen fertiliser prices.
Nitrogen fertiliser capacity that is due to come online will first feed into domestic demand, meaning that the US could potentially reach self-sufficiency in urea by 2017. If US demand for granular urea imports begins to fade, producers will be forced to look for other destination markets such as Europe. Further capacity expansions in nitrogen fertilisers in the longer term in the US cannot be ruled out. Even when US oversupply in the medium term continues to put pressure on nitrogen fertiliser prices, producers there can still incur lower fertiliser prices and make a return on invested capacities.