Ukraine gas demand may rise as fertilisers ramp up output

BUCHAREST (ICIS)–Ukrainian natural gas demand is expected to pick up as nitrogen fertiliser plants have been ramping up output and exports in recent weeks.

Data collated by the ICIS fertiliser desk showed ammonia and urea producers such as Odessa Port Plant (OPZ), Dniproazot and Ostchem have been increasing production, targeting exports in countries including Turkey, India, Morocco.

After years of subdued output Ukrainian plants are thought to have become globally competitive as domestic gas prices have plunged to record lows.

OPZ and Dniproazot, for example, are expected to ship around 200,000 tonnes of urea to India by 15 June following a tender that closed on 7 May. Deepika Thaplyial, ICIS senior editor manager for urea, said domestic production had increased by 50% year-on-year to around 200,000 tonnes per month in 2020.

SOARING PRODUCTION

Ukraine exported 160,534 tonnes of urea in the first two months of 2020, a threefold increase from 47,4000 tonnes over the same period last year.

Richard Ewing, deputy managing editor and ammonia market editor at ICIS fertilizers, said production and exports of ammonia, one of urea’s key components, have also been soaring.

Ewing said OPZ received at least 8,000 tonnes of domestic material earlier this month, which arrived from producers including Ostchem.

This is ready export, possibly to Turkey from the Black Sea Yuzhny port.

The delivery is part of a trans-shipment deal involving 256,000 tonnes over the rest of 2020.

OPZ, which is responsible for trans-shipment, ammonia and urea production, is in further talks for handling an additional 60,000 tonnes/month from as-yet unidentified suppliers.

Ewing said some producers delivering ammonia to OPZ may include Dniproazot and Ostchem, and that traders may look to sign offtake agreements to secure a steady flow of volume, rather than source on a spot basis.

OPZ restarted ammonia and urea production in August 2019 after an 18-month break.

GAS PRICE INCENTIVES

The two ICIS editors said the ramp-up in production was primarily linked to falling gas prices.

The Ukrainian front month more than halved since ICIS started assessing the contract in March 2019.

June ’20 closed at €7.042/MWh on 18 May, which was €11.00/MWh lower than the front month assessment on the same date last year.

Ukrainian gas prices have been dropping in line with European hubs.

Many domestic and regional gas traders have suggested they expect weak demand from the industrial and commercial sectors due to coronavirus lockdown measures.

Data provided by the Ukrainian gas transmission system operator GTSO suggests that demand has been relatively stable compared to last year.

The restarting nitrogen fertiliser production and exports may help to increase gas demand.