Run on Ammonia: Shale Gas Drives Fertilizer Projects in the US
A secondary consideration in the steep demand for fertilizers/ammonia, was the rise of biofuels production beginning in the early 2000s and accelerating in 2005 to 2006. The two largest ethanol-producing countries are the U.S., which primarily uses corn as its feedstock for biofuels production, and Brazil, which relies on sugar cane for its biofuels feedstock. Corn is by far the most fertilizer-intensive of major row-crops. The recent increase in biofuels production has put an additional demand on global crop production. The International Fertilizer Association estimates that up to 3 percent of global fertilizer consumption is used to grow biofuel crops.
The Biofuels Boom in the US
With these two demand drivers in play, it might seem that ammonia demand is likely to continue to grow unabated. However, one of the main foundations of recent above-trend fertilizer demand growth appears to be under pressure. In November 2013, the U.S. Environmental Protection Agency proposed changes to its new Renewable Fuels Standards (RFS2), the main legislation supporting rising domestic ethanol production and consumption. This proposal, which IHS analysts expect will be implemented largely as written, mandates corn-based ethanol production of between 12.7 billion to 13.2 billion gallons in 2014, a decline from 13.3 billion gallons in 2012 and 13.9 billion gallons in 2011.
The anticipated resulting reduction in biofuels production will limit growth of U.S. corn acreage and of overall fertilizer demand. Fertilizer for corn is the dominant end-market for ammonia in North America, and the U.S. ethanol business currently consumes approximately 5 billion bushels of corn annually, which is equal to 40 percent of a typical U.S. corn crop. The three largest grain crops, wheat, rice and corn (maize), consume about half of all fertilizer used in agriculture.
Food vs. fuel: A Subject of Political Debate
“We believe this example of weakening legislative support for crop-based biofuels is taking hold elsewhere, including Germany,” said Keel. “The rationale for this shift differs by country. Some countries may be concerned about the effects of crop-based biofuels on the cost and availability of grain or on federal budget considerations.”