Exactly what does growing corn and other crops have got anything to do with natural gas? It requires about 33, 000 cubic feet associated with natural gas to produce one ton associated with nitrogen fertilizer. About 96 percent of the corn planted in the United States depends upon fertilizers, such as Anhydrous Ammonia (NH3), 28pct-Liquid Nitrogen, Urea and Ammonium Sulfate. Fertilizers consume more than three percent of total U. Ersus. natural gas use. The ethanol growth could dramatically impact natural gas costs.
Some 90 percent of the cost of manufacturing nitrogen fertilizer depends upon the price of natural gas. The more fertilizer produced, the more natural gas is utilized and the increased both eventually cost. And based on widely followed natural gas commentator Phil Flynn of Chicago-based Alaron Trading, “Ethanol plants are going to require natural gas consumption to produce electricity. ” Flynn hadn’t yet conducted a study straight into how much natural gas consumption would be required for these plants, but said in a telephone interview that he could be going after this.
We asked Flynn when the ethanol mania would have any effect on natural gas prices. “Absolutely, ” he responded, citing that increased hammer toe planting would require natural gas for that nitrogen-based fertilizers and to power the 116 existing ethanol plants. One more 78 plants are now being constructed. Flynn pointed out natural gas prices would benefit from the ‘front and back end’ from the ethanol boom.
Nearly 95 percent of U. S. ethanol distilleries use natural gas boilers. Citigroup analyst Gil Yang estimated 28 billion dollars cubic feet of natural gas would be ingested for every one billion gallons of ethanol produced. Cumulative ethanol manufacturing could surpass 12 billion gallons. Some analysts are predicted an all natural gas demand increase up to a single percent from the ethanol boom. But their estimates do not include increased fertilizer demand to increase corn yields.
Record Corn Planting and Natural Gas
Corn acreage is one of the largest consumers of nitrogen-based fertilizer. And because of the current ethanol subsidies, more corn will be planted this year than in the past six years. According to the U. S. Department of Agriculture, corn growers intend to grow 90. 5 million acres within 2007.
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Because forecasts of ethanol production are expected to increase, expect more corn to be grown. In 08, about 25 percent of U. T. corn production is planned to create ethanol. By 2012, 4. three or more billion bushels of corn are usually anticipated for ethanol production. It requires about 450 pounds of corn to produce 25 gallons of ethanol fuel to power an VEHICLE.
The recent ethanol boom has become a blessing for fertilizer companies and their share prices. Since this past summer, shares in Saskatchewan-based Potash Corp have more than doubled to a record $191. 46/share. The company is the world’s largest potash producer plus a significant producer of nitrogen manures. Shares in Illinois-based CF Industries have nearly tripled in the exact same period. The company manufactures both nitrogen and phosphate fertilizers. Both have gained from relatively lower natural gas costs in the face of strong demand for their products.
In 2004, about 12 mil tons of nitrogen nutrients were consumed. But the increased corn planting has started causing shortages in nitrogen manures, according to Potash chief executive William Doyle. He told Bloomberg News last week that some farmers are not getting sufficient fertilizer supplies because transportation facilities are nearly overloaded along with shipments. This could impact fertilizing in mid summer if supplies always remain tight.
Corn planting takes place now through May in the Midwestern U. S. Some farmers pre-plant their nitrogen in March plus April and skip the ‘side dressing’ in the summer. Fertilizing is generally finished two to three weeks at corn planting time. Side dressing is done over another two to three week period in July. “Knee high by the 4th of July, ” describes once the second fertilization is done. This describes the height of the corn plus represents the last fertilizer application for your growing season. Side dressing is said to give plants a boost and provide a simple, smooth and better harvest.
All of us talked with an Ohio farmer who else told us, “Even though all of us farmers are complaining about the additional cost of fertilizer, we can not afford to not apply adequate amounts for corn production. ” He explained, “If 28-percent Nitrogen costs me $100/ton more, and I use one-third bunch per acre, that is an additional price of $33/acre. With a yield of 150 bushels/acre, the cost is $0. 22 more per bushel. But if corn prices are $1. 50/bushel increased, then I can’t afford to under-apply the nitrogen. ” There is a much better return in higher corn-producing claims, such as Iowa and Illinois, where yields are 200 bushels for each acre.
The western Ohio farmer also compared his fertilizer expenses for this season compared to previous plantings. “In 2000, my cost regarding NH3 was $242/ton, ” he said. This year’s cost has nearly doubled to $580/ton. For your 2001 planting season, he paid $165/ton for 28-percent liquid nitrogen. Their costs would have been about $280/ton for this season, but he pre-paid for this fertilizer in December, paying about the same he would have paid in 2004. For every one dollar increase or even decrease in natural gas prices, fertilizer costs can swing up or down by 95 cents.
For this farmer’s fertilizer applications, he prefers 28-percent liquid nitrogen for each of handling and application. While anhydrous ammonia (NH3) can also be used, and is cheaper per unit of nitrogen, he sees it is less safe for use. NH3 is also a favorite among the illegal methamphetamine-manufacturers, which siphon off the ammonia through farmer’s nursing tanks. Urea is usually volatile and used mainly to get wheat, but it also used by western Hammer toe Belt farmers.
Fertilizer prices have more than doubled over the past 15 many years, and there is no respite in the near-term. A recent Energy Information Administration perspective forecasts benchmark natural gas prices rising by 9. 2 percent in 2007 and increasing another several. 7 percent in 2008. World demand for fertilizers grew by 13 percent between 2001 plus 2005, according to The Fertilizer Institute. After China and India, the Oughout. S. is the world’s third largest nitrogen producer. Next year, the Ohio farmer could be faced with a steeper bill to fertilize his hammer toe and other crops.
Global Nitrogen Demand to Drive Natural Gas Demand
The ethanol success story in Brazil offers spread worldwide. Fortunately for Brazilian, ethanol is produced by sugarcane, not corn. The country relies mostly upon non-nitrogen-based potash for its fertilizer — possibly as much as 6. 5 mil tons in 2007. But Brazil’s productivity of liter per hectare from sugarcane dwarfs corn’s productivity.
According to The Worldwatch Institute, sugarcane produces about 6, 500 liters associated with ethanol for every hectare compared to lower than 3, 000 liters of ethanol produced on every corn acres in the United States. The ratio of energy output of sugarcane, compared to the fossil energy insight required to produce ethanol, is higher than 8 times. The same ratio put on corn stands between 1 . 3 and 1 . 8.
As with all of commodity discussions, one must discuss China and India. Ethanol production is rising, but remains significantly below the percentage shares of the U. S. and Brazil. Fertilizers are serious business in China, where nearly 50 million tonnes of fertilizer are annually ingested. By 2011, fertilizer production could top 63. 5 million metric tons, according to China’s National Farming and Rural Economic Development (NARED). Of this, China hopes to produce forty two million metric tons of nitrogen manures.
By 2020, there could be as little as zero. 2 hectares of agricultural land per person. But China is faced with a significant problem while maintaining a good annualized 7. 5-percent GDP growth rate during this time. How will China obtain sufficient natural gas to reach this target?
Earlier this month, a mature adviser to the National Development and Reform Committee (NDRC) announced, “We are seeing difficulties importing fuel. ” China has been stymied in meeting its annual LNG import target of 20 million loads by 2015. The country has been trying to reduce its dependence on imported oil by increasing use of natural gas.
China’s NDRC has targeted natural gas to comprise 8 percent of the state’s energy mix to help ease the particular pollution burden the coal sector places on China. The country is the world’s largest copper consumer and the largest steel manufacturer. For its energy, it draws heavily upon its coal production – and is today expected to become a net importer associated with coal for 2007.
High natural gas prices have forced China to rely more upon coal and accelerate its emphasis on the nation’s growing natural gas sector. In Mar, PetroChina and Royal Dutch Cover PLC started commercial production within the joint venture’s Changbei gas industry in northwestern China. Other natural gas fields in southwestern China, PetroChina’s Longgang gas field, and Sinopec Corp’s Pugang gas field within Sichuan province, may both show promise in increasing gas’s role in the country’s energy mix. However the NDRC’s plans of 92 billion dollars cubic meters of natural gas creation by 2010 is likely to fall short. At the moment, gas may only reach a little higher, at 5. 3 %, of the China’s overall energy manufacturing.
Which brings us back to fertilizer. Cina plans to annually increase hemp productive capacity by 0. sixty-five percent within five years : and hopes to decrease planted materials acreage by 0. 18 percent. The state planning commissions will be required to improve yields. Hence, we anticipate an increased reliance upon nitrogen manures to realistically achieve the country’s target. Significant percentage increases in nitrogen-based fertilizers may be needed to overcome the poor soil nutrients in Tiongkok.
How will China reconcile lowered expectations of natural gas imports in the context of increasing nitrogen-based fertilizers? We have previously covered China’s emerging coalbed methane (CBM) sector because (a) the country hopes to reduce the number of coal mining accidents resulting from methane explosions and (b) CBM can help boost the country’s energy mix.
According to the Carbon Finance Unit of The World Financial institution, China has placed a significant emphasis on coal methane projects. China’s National Climate Change Coordination Committee place coal methane projects into the best four prioritized categories for developing projects. Over a 20-year period, China hopes to reduce the carbon dioxide comparative of 40 million tons simply by capturing the methane gas in the country’s coal mines and making use of the gas to produce clean power.
Now there is a third reason to follow along with the country’s CBM sector. A large share of China’s coalbed methane consumption has been allocated for nitrogen-based fertilizers. The industry generally depends upon methane gas for nitrogen production. Because the country increases fertilizer production, the country’s state-owned CUCBM (China Usa Coalbed Methane) company will play a responsible role in helping bring numerous early-days CBM projects into production.
This could also explain BP Plc’s announcement, earlier this year, planning to heavily purchase the expansion of the company’s CBM fields in the San Juan Pot (Colorado, New Mexico). BP plans to spend more than $2 billion to boost its methane gas production. Some other countries are also looking to CBM an additional way to meet the increased demand regarding natural gas.
When CUCBM began awarding the production-sharing contracts (PSC) to foreign-owned companies, such as Far East Power, Green Dragon Gas, Fortune Oil and Pacific Asia China Energy, the company probably did not forecast a sizable share of the methane production to be produced from the coalbed would go for fertilizer production. But , at this stage, this could increasingly become the case.
As the entire world moves forward to manufacture ethanol for its energy needs, or to create its soil yield a greater collect, the role of natural gas can increase dramatically. Subsequently, the floor intended for natural gas prices could begin rising as has been found with many various other commodities. Not just in the United States, but in many other countries where fertilizer consumption could grow by leaps and bounds.