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Falling Gas Prices Prompt Terra, Agrium to Resume Fertilizer Production

The $8 price drop in near-month natural gas futures since the $15.780 price peak in mid-December is attracting some demand back into the market. Fertilizer manufacturers Terra Industries and Agrium Inc. said last week that falling gas prices and other factors have enabled them to resume production of ammonia and upgraded products at three of their idled facilities.

Terra suspended all production at the Woodward, OK, plant last November due to soaring natural gas costs and a Midcontinent drought that was expected to negatively impact spring farming. In December, the company also shut down its Yazoo City, MS, facility because of high natural gas costs. That plant remains down. Terra's other three plants in Iowa, Ontario and Tulsa, OK, are operating.

While high gas prices were the major factor impacting the decision to shut down the Woodward facility, Terra spokesman Joe Ewing said drought also had a significant impact. "We've had very little rainfall out there so the farming has been delayed.

"We're still thinking that demand for our products will be off slightly, anywhere from 3% to 7% because of the high prices of inputs to our farmers and what they will get for their crops, particularly corn. The price of corn has been depressed somewhat since the fall," Ewing said. "Farmers have had to pay higher prices for fuels, fertilizer, irrigation, all those things. A lot of them use natural gas for irrigation.

"We think the demand from planting will be off a bit this year. But we've taken some product out of the production cycle, so we think maybe inventories are low enough that we'll be prepared for the spring without too much surplus inventory."

Agrium Inc. also announced last week that weaker gas prices have enabled it to restart production immediately at its Borger, TX, facility and prepare to restart operations in Fort Saskatechan, AB, by mid-February.

Natural gas is a feedstock in ammonia production with the cost of gas making up more than 80% to the total cost of production. It takes about 32-35 MMBtu of gas to produce one short ton of ammonia. Terra's five North American plants typically consume 100 Bcf of natural gas annually. Terra CEO Michael L. Bennett said last year that a $1/Mcf hike in the price of gas adds approximately $14-15 million to the company's gas bill.

According to the Washington, DC-based Fertilizer Institute, since 1998 17 U.S. fertilizer plants have shut down permanently due primarily to high natural gas prices. Five were idled until last week.

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