Can’t You Hear the Whistle Screaming?

The North American nitrogen market has entered a period of severe uncertainty. As reflected in this Department of Energy graph which we picked off of their Natural Gas Weekly Update, natural gas prices have soared 80% in the last quarter.

Last Thursday spot gas hit a record of $14.20 mmbtu with $15 dollar gas now more a probability not a possibility. The DOE report also highlights the fact that as of last week 79% of the U.S. Gulf’s natural gas production is still down or shut-in because of infrastructure problems. For instance, the Sabine Pipeline which delivers gas to the Henry Hub has been down since they declared force majeure on 23 September after Hurricane Rita.

The North American Nitrogen market is therefore standing squarely on the tracks looking directly into the oncoming headlights. In our view, it is only a matter of time before we see a major train wreck: production shutdowns, causing demand to evaporate because of soaring – and then collapsing prices.

We are already starting to see some of the marginal producing units elect to go down for maintenance turnarounds. Royster-Clark’sunit in East Dubuque has been down since 10 September and we have heard murmurs that the turnaround will not be completed as scheduled. Additionally, Green Markets reported on Friday that PCS was taking their Lima Ohio plant down, for maintenance for a reported 45 days.

From what we can tell, few of the major North American producers have natural gas covered through the winter. If history repeats itself, even producers who are covered will shutdown and sell their gas, as opposed to taking their chances producing unsold nitrogen for sale into what could be a very difficult spring market. Stay tuned...