Manufacturing Costs and Plant Food Value
Natural gas plays a critical role in the production of fertilizers that serve as the soil ‘food’ that plants – from corn and wheat to pumpkins and apples – need to produce a healthy and bountiful crop. The cost of natural gas - the basic building block for nitrogen fertilizers - accounts for about 70 to 90 percent of the production costs for nitrogen fertilizer. Natural gas is used to produce ammonia, the primary ingredient in most nitrogen fertilizers and an essential ingredient in many finished phosphate fertilizers. High prices or shortages of natural gas can cause ammonia plants to shut down for lack of raw materials. This, in turn, can cause bottlenecks in fertilizer production. In recent years, the U.S. fertilizer industry has lost almost 50 percent of its production capacity due to high natural gas prices. Even if more supplies of natural gas become available or prices drop, it will take time to resume production in those plants that have not been permanently closed.
Transportation Costs Impact the Fertilizer Industry
More than one out of every three tons of fertilizer produced in the world gets exported, often requiring it to be shipped very long distances. As a result, transportation costs significantly impact the delivery system that begins at the plant or mine and ends at the farmer’s field. Transportation costs affect fertilizer costs because fertilizer is a bulky and heavy product that must often be shipped great distances by a variety of carriers, including ocean-going ships, railroads, trucks and river barges. Because the ships, trains and trucks used to transport fertilizer run on petroleum, higher oil prices raise transportation costs.
"If the power industry is driven to switch from coal to natural gas, natural gas prices would increase dramatically. Because the power industry is generally regulated and therefore fuel costs are passed through to the end user in the form of fuel adjustments, industrial consumers of natural gas, such as nitrogen fertilizer producers, would be forced to compete with power generation companies that will pay whatever is necessary to ensure an adequate supply of natural gas. The end result would be very damaging to industrial consumers of natural gas that will have to compete for natural gas with the power industry while also subsidizing the utilities' advantage by paying for higher fuel adjustments in monthly electricity bills.
Having already witnessed unexpected volatility in the U.S. natural gas market starting in the late 1990s, the fertilizer industry is cautiously optimistic about current reports of large shale gas reserves. We want to see this gas made available with appropriate consideration for public health and the environment and are concerned about the potential for unaddressed public concerns to impact the gas industry’s ability to continue to bring shale gas reserves online. To this end we urge the natural gas industry to address the public’s legitimate concerns in a timely and transparent manner.”