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Nitrogen+Syngas 392 Nov-Dec 2024

30 November 2024

Political threats loom large

Editorial

Political threats loom large

“Regional tensions have already caused urea prices to spike in early October…”

While underlying supply and demand criteria continue to set floors and ceilings for nitrogen and other syngas derived products, political events as ever have the potential to derail all calculations. While much attention has focused on the US election, the escalating crisis in the Middle East continues to have the potential to threaten fertilizer trade in multiple ways. As this issue was going to press, Israel had just launched its retaliatory missile strike on Tehran, on October 26th, the latest in a series of tit for tat attacks between Israel and Iran, in particular an Iranian missile strike on Israel on October 1st. The Iranian government appeared to be downplaying the results as “limited”, but said that it considered itself “entitled and obligated to defend itself”.

One of the potential scenarios is an Iranian attempt to blockade of the Straits of Hormuz, the narrow stretch of water between Oman and Iran that is the transit route for significant quantities of nitrogen, sulphur and phosphates. Around 31% of global urea exports, or 16.4 million t/a, are shipped from producers in the Arabian Gulf, west of the Strait of Hormuz. For ammonia the figure is 3.16 million t/a, or around 18%. Hormuz is also a major choke point for global energy flows, and one that the Islamic Republic of Iran has a history of highlighting. Iran threatened to shut Hormuz in 2019 and again in 2011/12, and during the Iran-Iraq war of the 1980s, the so-called ‘tanker war involved 168 attacks by Iranian forces and 283 by Iraq. Around a third of global liquefied natural gas (LNG) and a quarter of the world’s crude oil passes through the strait, which is just 21 miles wide at its narrowest point and stretches between an Omani enclave on the Musandam peninsula and mainland Iran to the north. Iran has seized multiple vessels in the strait this year and last, suggesting some were “linked to Israel”.

One of the issues for Iran is that it is itself a major exporter of ammonia and urea, and indeed has been exporting high quantities this year, most of it going to Brazil, Turkey or other countries in the region. Urea exports were over 450,000 tonnes in September 2024, up 12% year on year, taking the annual total to 4.4 million tonnes for Q1-Q3 this year, up 18%. Iran also exported 580,000 tonnes of ammonia for Q1-Q3 2024, with more than 80% destined for India. Iranian ammonia exports are up 28% this year so far.

Regional tensions have already caused urea prices to spike in early October, with Brazilian c.fr prices reaching $395/t, up $30/t. Offer prices into India have also increased. Demand in India is expected to provide a floor for urea prices in the short term and an escalation in the Middle East points to potential upside.

There are two key risks to fertilizer markets from the current escalation in the Middle East. The first is a repeat of the ‘war-risk premium’ that was last seen in June 2019. While there is a possibility of marginal arbitrage opportunities as a result, the production costs of Arab Gulf producers remain among the lowest in the world. This would make a lower Middle East f.o.b. netback more likely, but it would be unlikely to upend markets. However, if vessel movements out of Hormuz were compromised for a sustained period, a significant proportion of nitrogen, phosphate and sulphur trade would be at risk.

Richard Hands, Editor

Latest in Middle East

Duqm Refinery looking at further expansion

Following an increase in its processing capacity, Duqm Refinery is now looking at further expansion projects at the $9 billion refinery project located, in the Special Economic Zone at Duqm (SEZAD) on Oman’s southeast coast. The refinery, which now has an expanded capacity of 255,000 bbl/d, is run by OQ8, a joint venture between Kuwait Petroleum International (KPI) and Oman’s OQ Group. Speaking to local media, CEO Abdulla Al Ajmi said that OQ8 has now begun front end engineering design on a reformer unit to upgrade naphtha into high-octane gasoline components such as reformate, a critical step in producing finished, specification-grade fuels. In addition to the proposed reformer unit, Duqm Refinery is also exploring opportunities to enhance value creation from its refining by-products, notably sulphur and coke.

Contract awarded for sour oil field development

The Kuwait Oil Company (KOC) has awarded global oilfield services firm SLB a five-year integrated contract worth about $1.5 billion for the next phase of development at Kuwait’s Mutriba oil field. The contract covers design, development and production management work and builds on SLB’s existing subsurface studies of the Mutriba field. It includes development of high-pressure, high-temperature reservoirs with sour conditions, expanding SLB’s scope as the project moves into more technically complex stages. SLB says that the award reflects its long-standing partnership with KOC and gives the company end-to-end responsibility for planning and execution as field development progresses.

Memorandum of understanding on strategic ammonia collaboration

Polymer manufacturer Covestro has signed a memorandum of understanding with ammonia and urea exporter Fertiglobe and chemical producer TA’ZIZ to explore collaboration across the ammonia and nitric acid value chains. The MoU reflects the parties’ shared interest in assessing both near-term supply solutions and longer-term opportunities supporting the transition toward lower-carbon production pathways. The agreement was signed during the visit of German Chancellor Friedrich Merz to the UAE.