Robert Bryce 0:04
Hello, everyone, welcome to the power hungry Podcast. I’m Robert Bryce. On this podcast we talk about energy, power, innovation and politics. And I’m pleased to introduce Chris Lawson. He is the head of fertilizers at the CRU group, which is a London based consulting firm. Chris, welcome to the power hungry podcast. Thanks for having me. So if you don’t mind, I told you that do you mind adjusting your mic and bring it just a little closer to your mouth there was you’ll just get a little better volume on your end. Yeah. Yeah, that’s a little better. If you could just bend it just a tad more. I think that would be. So please introduce yourself.

Chris Lawson 0:42
Yeah, so as you said, my name is Chris Lawson. I head up the fertilizer team at Cru co U is a market intelligence company. We’ve been around for over 50 years based in London. We’re covering fertilizers, steel, aluminium and base metals. So we do lots of in depth research into those markets and lots of forecasting. myself, personally, I’m based in New York City, and we’ve got a small little office here, was in London for about nine years before moving here last year. And I’m originally from Australia. So my background is in agriculture grew up on a dairy farm in in Australia and studied Agricultural Science University and have kind of moved into the world of ag commodities since then.

Robert Bryce 1:24
Gotcha. Well, I was gonna ask because you sounded like an Aussie. So where are you from in Australia?

Chris Lawson 1:29
So I’m from a little town called MinGi, which is at the end of the River Murray, that muddy river Mary. And like I say, from a from a dairy farm there.

Robert Bryce 1:38
And what? So forgive me give my Australian geography what state is that in?

Chris Lawson 1:43
South Australia? So it’s about two hours south of Adelaide. I wouldn’t expect anyone in the world to really know we’re meeting years. But yeah, it’s about two hours south. Okay,

Robert Bryce 1:51
good. So South Australia gets us in the neighborhood. So I’ve written about the fertilizer business. I’ve had my friend John Harpole on recently on the podcast to talk about it. My piece was in Newsweek a few weeks ago, it bring us up to date on what’s happening in fertilizer. In Europe. The you’ve reported already that between 50 and 70% of capacity is offline. What what’s Why is so much capacity offline. And what’s what’s next for the fertilizers sector in Europe?

Chris Lawson 2:20
Yeah, so Europe is really the talking point of the fertilizer market right now. As you say, there’s over 50% of capacity there is curtailed or running at very, very reduced rate. So that’s that’s very much a function of the high gas prices that European European general is paying right now, the economics just don’t stack up for nitrogen fertilizer producers to be running their plants as of a few weeks ago. If you’re producing ammonia, which is the main kind of intermediate product that goes into all the different downstream fertilizers, you’re losing around $2,000 a tonne in producing that. And again, not so much, not quite the extent of those losses and the downstream products, but still some fairly significant losses. So when the economics don’t stack up, you have to shut down. And when you don’t have the government support, you have to shut down. And that’s essentially what has happened.

Robert Bryce 3:12
Now, that was a couple of weeks ago, and nat gas prices at TTF. Were at $100. And they’ve fallen substantially since then. And I you shared with me some data more recently. So what are the losses? Now? It was down to about 1000? I mean, still $1,000 a tonne. That’s a lot of money. But is it? What is the what is the current economics of producing ammonia in Europe?

Chris Lawson 3:32
Yeah, so looking at it today, it’s still at around $1,000 loss for producing ammonia. If you’re producing the more important element here for the fertilizer producers is the downstream product. So the main form of nitrogen fertilizer in Europe is ammonium nitrate. Interestingly, if you look at gas prices this week, and where we’re picking our prices for everybody, I’m not trading here this week. It’s basically breakeven again. So those gas prices coming down has been helpful, we’re yet to see producers restart because of that. But we are kind of at more of a breakeven level for that downstream ammonium nitrate now.

Robert Bryce 4:11
So I know a little bit about the fertilizer business and I do mean a little ammonia is the is one of the the you identified as an intermediate product, but you but fertilizers in general are that that is the foundational part, right? Explain to me how that fits into urea ammonium nitrate anhydrous ammonia, how does that work? If you don’t mind, just give us a brief explanation of those different products and how they come into the market.

Chris Lawson 4:38
For sure. So if we go through kind of the full supply chain in a very simplistic way. Ammonia is generally produced using hydrocarbon as a feedstock predominantly gas but from really coal within China. So using that hydrocarbon feedstock, you’re liberating the hydrogen and then you’re pulling nitrogen from the air and the haber bosch process. You’re combining that nitrogen and hydrogen together to get an h3 which is ammonia. And that ammonia is and generally consumed at the same fertilizer plant, whether it was produced that to then produce a more usable, granular product like urea, that is the most predominant form of nitrogen fertilizer around the world, or ammonium nitrate, which as I say, is a more popular products within Europe. Ammonium nitrate is also used as an explosive. So some of the properties are minutes, it’s banned in a lot of company and a lot of countries around the world to use as a fertilizer. And another popular form of nitrogen here in the US is urea ammonium nitrate or UAM. So they’re really there’s three main nitrogen products that are that are used and which are all made using ammonia.

Robert Bryce 5:48
Right? So we’ll all fertilize all fertilizer producers produce UA N ammonium nitrate and urea.

Chris Lawson 5:56
It’s really a mix of where you are in the world and what your product mix is, generally, in the US, all of the different action producers here will be producing those three products. Yes.

Robert Bryce 6:07
But so it would be somewhat similar to an oil refinery where not all of them are going to be producing diesel fuel or jet fuel or propane that will produce depending on what the market demands and so on. Correct? Yeah. So let’s talk about what you’re the knock on effects then, because a few weeks ago, John Harpole told me that essentially, the fertilizer industry is over in Europe, isn’t that dire situation is just all hinging on the price of natural gas.

Chris Lawson 6:36
The price of natural gas is definitely the key component here. It is such a large component of the overall production costs.

Robert Bryce 6:44
So what does that I’m sorry to interrupt, but I’ve heard 70%, but not

Chris Lawson 6:48
70 to 80% is the general benchmark that we’re we’re using, when when thinking about that total cost? So yeah, it’s massive. So it really does depend on what those future gas flows into Europe look like and what cost it’s going to come down to current fertilizer prices and current gas prices are obviously unsustainable. And again, it’s going to take some time for European gas prices to come down to more normal ish levels, we’re not going to see the same level of arbitrage that we’ve seen in Europe compared to other markets this year, in five years time, there will definitely will be some kind of correction there. And that will ultimately help with the economic sustainability of those European nitrogen producers. That they are, if you look it up a cost curve, we stack up all the different producers of nitrogen around the world, where Europe sits well on top of that cost curve right now, and is essentially double or triple the cost of all the other producers in the world. Which is, which is absolutely astonishing. If we go back to 2020, when gas prices were considerably lower, and DCF was around $4 and MMBtu. After the kind of COVID shocks, those European producers really kind of spread across the second and third quartiles of the cost curve. So so it really does depend on how those gas flows evolve and what gas prices ultimately come out at. I wouldn’t necessarily say that, Oh, I definitely wouldn’t say that the European nitrogen industry is over, it faces a significant number of challenges for sure. But again, they’ve got some very specific products that they’re selling, which can sell it a bit of a premium compared to what they do here in the US that ammonium nitrate being then kind of one of the Met. So again, they’re in a very, very tough spot right now. But there are, I wouldn’t say it’s over.

Robert Bryce 8:44
But you did say earlier that it could take years for this to for these costs to come down. And I think that’s right, you know, that Europe, their their their gas production is falling, it’s going to take at least two years, but from people that I know if the UK immediately started to pursue shale gas, they’ve got a lot of issues around seismicity permitting, getting the labor getting the drill rigs get installing the pipelines. This is a multi year process. That’s I’m telling you what I how I see it. How long will it take for Europe to come out of this? Will it be five years? Could it be that long?

Chris Lawson 9:16
I would probably agree with you there. It’s late, at least a couple of years. And that’s how we’re kind of forecasting our gas prices at the moment is it is this isn’t just going to end the end of next winter. And everybody’s going to correct again, we still see a significant premium on European gas for the next couple of years. And still over the longer term. There’s still going to be quite a large premium there. But not to the kind of extent that we see now.

Robert Bryce 9:46
Sure. So I’ve talked with people recently some academics and others who said oh, well, you know, the European energy crisis is all due to Vladimir Putin. But I recall a year ago that fertilizer plants in Europe were shutting down Long before the invasion of Ukraine, why was that?

Chris Lawson 10:04
Again, that was a function of high gas prices, you can probably partly relate that back to Russia, because they did start to reduce flows of gas into into Europe last year. So yeah, but there have been a number of issues that have that European producers have been facing over the years. So I do think Russia and the energy politics is playing a big component. It’s not absolutely everything. But it is. It is a big contributor to the problems they’re facing. Yeah.

Robert Bryce 10:33
But the fertilizer, but it, is it correct to say that Europe’s fertilizer sector was already facing problems before the invasion of Ukraine? Yes, yeah. Because of the high gas prices that were, as I recall, were fluctuating in part because of the curtailment of flows. But also because Europe had, they were burning more gas, because the wind wasn’t blowing as much right? They were they were facing more higher gas burned because they couldn’t rely on the wind.

Chris Lawson 10:56
Correct. It’s all about the the energy mix, that’s coming into your bullet that has an impact on those gas prices. And again, the economics of running a fertilizer pump.

Robert Bryce 11:07
So you’ve been very good at running us through kind of the basics of the different products. What is global production? If we’ve ammonia is the key input. What is global? What are the global numbers in terms of ammonia production on an annual basis? And what is your and what percentage is Europe account for that?

Chris Lawson 11:23
So Europe is around 30% of total ammonia capacity between 30 to 40%. I can’t remember the number exactly if it’s all bad. Yeah, in terms of total production, it’s just under 200 million tons of ammonia. 200 million globally. 200 million globally. Yep. Now, what’s interesting with the ammonia market is some of that is traded, it’s around 10% of that is traded between different countries. So around, usually a 20 million tonne traded market. So most of the money that is produced isn’t really sold off outside of the planet, it’s consumed internally. One of the really, when we specific about fertilizer, when we speak about nitrogen production, it’s really important to consider as well, it’s not just agriculture that it’s feeding into. So one of the really interesting issues that that Germany is facing right now is that there’s a really important urea based product called de sol, diesel exhaust fluid. So that gets put into fuel stations to essentially reduce the emissions of the burnt from from a car. So lots of nitrogen production within Europe is also going to lots of these different technical components. And many, many different there are many, many different uses for these types of products. So it’s not just agriculture that this is impacting. It’s a lot of different industrial markets and lots of day to day activities, like driving a car, for example, where some of these certifications can kind of reverberate down to.

Robert Bryce 12:53
Yeah, I’ve read about these urea shortages and how it could affect transportation. And that’s darn scary. But yeah, Chris, I’ve written about this before, but the and talked about it quite a lot in different lectures. But the Euro metallic just a few weeks ago put out a letter saying that we’re talking about the shutdowns of shutting the shuttering of smelters across Europe. I mean, how dire is the situation in which they talked in that letter to the European Commission about the deindustrialization of Europe? Is that what we’re seeing now? Because if it’s so this, as you say, it’s going to have knock on effects across Europe, for automakers, beverages, food and all these other industries? How bad is the situation in your in your view?

Chris Lawson 13:33
It’s pretty bad. And we look at all of this across all the different commodities that we’re covering, as there’s a cruise covering steel and aluminium and all the different base metals that are out there. And we see lots of smelters, curtailing their production, it’s not just the natural producers that are impacted by this. There is there’s obviously lots of different moving parts in the whole policy perspective within Europe. There’ll be there’s lots of debates that are happening around the the kind of worthiness of different emissions trading schemes and Cotter carbon border adjustment mechanisms. We do lots of work on that as well. So there’s lots of elements to kind of consider here when we’re thinking about the future of industrial production within Europe. It’s definitely facing its most challenging our right now and again, how it survives over the winter is going to be really telling I think, is a lots of guests that’s to be rationed. I think kind of where come kind of March, April, will be really telling to the future of this industry, and just how many companies unit for being the most recent example, just how many of these companies actually need to be bailed out by governments?

Robert Bryce 14:49
Right? Well, and we’ve seen just in the last week or so, Germany, taking over the rosneath refineries, three of their rosneath refineries in Germany the Univer effectively Germany nationalizing Juniper it I mean, as I see it, I look at these utilities across Europe, whether it’s gas or electricity, they’re all effectively insolvent, aren’t they? I mean, they don’t they they’re not producing enough revenue. They’re the cost of their their energy they’re buying far exceeding their revenues. Is this just this? I’m calling them nationalizations? Is that the right way to think about it? How do you how do you view it?

Chris Lawson 15:20
Yeah, I mean, when to speak about the fertilizer producers, more specifically, we, they’re facing massive cost pressures right now. And they’re obviously pulling back on volumes and their total amount of production. Their financial results haven’t been that bad so far this year, it’s going to be because they’re receiving higher prices at the end of the chain. And, and lots of the larger producers have some form of geographic diversification as well, which has been really helpful. Again, one of the major European fertilizer producers is Yarra, they’re Norwegian. They were kind of formed from norsk hydro many, many years ago. Their financial performance has been relatively robust so far, despite their big exposure to Europe because they’ve got assets in in the US they’ve got assets in Australia and all over the world, which kind of helps to buffer the impacts on what that again, yeah, the future those European assets are really going to have some some doubt costs over them over these coming few years. Will the fertilizer

Robert Bryce 16:21
plants be like the base metal plants would because that’s what your Mattel shed and their ease in their letter to the see if these smelters close, they’re gonna stay closed, that are the fertilizer plants saying, Well, we’re gonna keep these and just close them for now, how are they talking about this publicly? Looking at the longer term, as you say to the next two, three years? Are they planning to keep these assets and not shutter them permanently? Yeah,

Chris Lawson 16:43
no, no suggestion of permanent shuttering? Yes, and I’m not sure whether it will happen that definitely considering the flow of raw materials, and the types of feedstock that they’re using it these plants, there’s lots of work going on right now. around building new electrolyzers for green ammonia production and green hydrogen production, all of that, again, the jury’s still out over the costs and efficiency of that whole aspect of the market. But right now, we’re not seeing any producers coming out and saying,

Robert Bryce 17:16
We’re never gonna, we’re out. So I was interested as well. And what you said about the amount of fertilizer out of that 200 million tonnes, only about 10% is traded globally, so put on board ships and or I suppose you could do it in trucks, or rail cars, but has this how’s this changed the European shortfall or the shuttering of these European fertilizer plants has that meant more inflows of fertilizer from other other parts of the world into Europe or European farmers just using less

Chris Lawson 17:47
combination of the two, Robert so we are seeing some demand destruction set in and usually when you think about fertilizer, particularly nitrogen, you think of it as relatively inelastic, you need nitrogen for your crop of a farmer is very rarely going to cut back on their nitrogen, they will might cut back on some of their potash or phosphate over a couple of years. And we’re definitely seeing that happen. But we have also seen some demand destruction on the nitrogen front because it is just too expensive. But we are seeing a pretty drastic change in trade flows, we’re seeing more ammonia being imported. And to kind of run into the downstream plants, which again, has some kind of technical hurdles with that and infrastructure hurdles, but that is definitely happening. We’re seeing more ammonia being pulled in, from the US from Trinidad from North Africa and the Middle East. One of the kind of complicating factors with this is that would that traded ammonium market which is around 20 million tonnes, usually around 25% of that comes from Russia. And that isn’t all directed into Europe. But what is what is really interesting with this whole kind of geopolitical environment at the moment is those two thirds of those Russian ammonia exports actually move through Ukraine is a pipeline that goes from essentially a pretty obscure small part of Russia, passes through Ukraine, and then it’s essentially exported from that pipeline out of a port, which is neighbouring Odessa. So in what actually in the Black Sea? Yeah. So if you’re trying to export ammonia in a war zone, that’s that’s got its challenges. And this pipeline has essentially been shut off since the war broke out. So one of the really interesting things we’re monitoring at the moment with the Green Deal that was signed a couple of months ago, a key component of that from Russia’s perspective was we want to see these ammonia exports start to flow again, and we want to get this pipeline up and going. And that has yet to happen so far, and there’s lots of negotiations that have been happening over this past week or so, with the involvement of the UN to get those ammonia exports cranked up again.

Robert Bryce 19:54
But didn’t Russia curtail exports? I mean before this, right, I’m trying to I’m working on have a memory here. But it was, was it an April earlier this year they there was a public announcement that they were going to curtail exports. No

Chris Lawson 20:07
public announcement doesn’t always come to reality. So what we’ve seen happen, there was lots of fear mongering that was out there, also coming from Russia, but lots of different people that was kind of speculating the market, Russia was just going to be out when it comes to fertilizers. That hasn’t really been the case. In terms of sanctions, there haven’t been any real direct sanctions on the fertilizer companies themselves. There were sanctions on some of the owners of the fertilizer companies and the ownership structures changed very quickly as a result of that. But in terms of the amount of urea that is left Russia, it’s modestly down, they’re still maintaining a relatively good share in that market. In terms of potash, which Russia typically export to around 20% of global supplier, that share is going to essentially stay the same this year, again, total global volumes will be down, Rush’s will be down, but their share in the market is still going to be the same. And on the phosphates. They’re actually going to be exporting more this year compared to what they’ve done last year, and again, actually increasing their share in the market. So Russia is still being able to export fertilizer, which is again, something that’s widely misunderstood in the market, we think.

Robert Bryce 21:21
So what about China? Because I’ve also seen it, I reported it that the China began limiting exports last October, if memory serves, are they still curtailing exports and why?

Chris Lawson 21:32
They are yet again, when these kinds of announcements come out, there’s lots of fear mongering out there that they’re going to completely stop exporting. That hasn’t been the case that we are still seeing product move out there. And it is a significant reduction to what they have typically done. But yeah, they’ve put in the government has put in a number of different mechanisms over the past 12 months or so to reduce the amount of fertilizer that’s been leaving the shores of China. They’re doing that to conserve supply for their own farmers and keep their domestic prices down. So it kind of isolating themselves from from the worst of the world. They’re partly doing and it’s a kind of energy conservation effort, as well, as I say lots of the nitrogen that’s produced in China uses coal as a feedstock rather than gas. So that that kind of comes into play with this as well. And yeah, like I say that there’s still product that’s moving out of there, but it is significantly less than than what we’ve seen over the last decade or so.

Robert Bryce 22:29
And so are they exporting urea, ammonia, ammonium hydrate, ammonia, hydrogen? I’m sorry, ammonium nitrate, ammonium nitrate. Are they exporting all of the products? Or is it Are they mainly

Chris Lawson 22:39
mainly urea. So they’re the China’s for a long time being the kind of marginal exporter in the urea market. So they’ve always been very important for determining where price has come out. That’s less important this year with with how the whole whole economics of the industry changing with with Europe, and with China having a less prevalent role in the market, because of those export restrictions. where China is actually more important is on the phosphate market. They’re over 20% of global phosphate exports. And so then pulling back on that has had a bit more of an impact in that market. So that increases the world’s reliance on phosphate coming out of the US out of Morocco, out of Saudi Arabia. And it’s also kind of created some demand destruction as well.

Robert Bryce 23:25
And forgive me here. So phosphate is produced from ammonia as well.

Chris Lawson 23:30
phosphate is mined out of the ground. And then you typically you combine that with ammonia to produce a kind of granulated product. So yeah, again, it’s when we think about the fertilizer industry, generally we think about nitrogen, which is your key nutrient. And then your other macronutrients are phosphate and potash,

Robert Bryce 23:49
right? And so what does that? Again, I’m showing my ignorance, I do it all the time. But the combination of nitrogen and phosphate what is that product called?

Chris Lawson 23:56
So that’s mainly sold as diammonium phosphate or DAP or mono phosphate, which is Ma P, they’re they’re the main products, but there’s a multitude of different phosphate fertilizers that you can buy.

Robert Bryce 24:08
Sure. So you mentioned earlier that the the market being the global market seeing more exports, you mentioned Trinidad, the Middle East and the US. So the fertilizer market of the fertilizer production ammonia in particular is shifting to places where there’s low cost natural gas and it sounds are lower cost than any and right now that’s pretty much anywhere but Europe, but this is that trend going to continue then?

Chris Lawson 24:31
Absolutely. Yep. That’s that’s what we see happening now with the different Nigerian assets that have been built around the world. Nigeria has built, built up its capacity over the last couple of years. They’ve they’ve commissioned a few new plants. There, they’ve got relatively cheap gas, they’re looking to monetize that a little bit more. So they’re building up their share in the market. There’s been lots of new capacity that’s been built in Russia and other kind of states around Russia, again with that relatively cheap gas. The mid leases have seen a big expansion in capacity over the last few decades. And there was a kind of burn in capacity in the US. After the last kind of big fertilizer rally back in 2008, there was lots of capacity that was built here in conjunction with the kind of shale gas revolution, which is lots of a lot more cheap gas. I

Robert Bryce 25:21
recall that there were the Egyptian firms. Pakistanis during there were numerous numerous international companies that put assets into that built in the US. Do you recall who those were? I

Chris Lawson 25:31
think the Yeah, the Egyptian firm you’ll be referring to there is OCI who were kind of Egyptian and based in the Netherlands. So they’ve got some assets in Louisiana as well as the Midwest. So they built them. CF industries is a big nitrogen producer within us. They’ve got the biggest nitrogen plant in the world and in Louisiana that’s called Donaldsonville. So they’ve done a lot of expansions over the last decade as well. Koch Industries produce quite a lot of nitrogen here in the US. nutrien is the largest fertilizer player in the world. They’re typically a potash player in Canada, but they’ve also got a lot of nitrogen here in the US, but also in Trinidad. So yeah, there’s a number of different names that are out there that kind of expanded their footprint here in the US over the last decade.

Robert Bryce 26:18
So in his latest book, Peter Zion talks about the shift in in Indus industry around the world. He’s very bullish on long the US I’m I’m a homer here, too. I guess I’m long the US. But is this deindustrialization of Europe? Is that going to accrue to the benefit of the US? Or we’ve already seen? I saw a headline today, I didn’t read the story, but about more heavy industry fertilizer moving to the US, because we have lower cost energy. Is that is that a macro trend? In your view? Or have you followed that have a view on that?

Chris Lawson 26:49
It is it’s it’s quite interesting. Yes. I mean, we’re monitoring the capacity all the time. That’s the bread and butter of what we do, we’re looking at all the different projects that are out there and taking a view on what’s going to eventuate. And what isn’t in tracking their financing, and development and all of that kind of thing. So we do, yeah, we have seen more projects here in the US. And we do see more coming up. Some of them aren’t kind of typical fertilizer projects, there’s there’s lots that’s going on here. Now that’s focused on blue and green ammonia. And that’s probably going to become even more prominent after the inflation Reduction Act. And some of the generous subsidies have been put in place there. We see other Nigerian parts, I guess, have been built in places that’s probably desirable places for investment like Nigeria, and you know, the CIS and some Southeast Asian countries as well, because they’ve got that cheaper level of gas there, they’ve got some government supported gas prices as well, which, which ultimately, kind of helped us the structure and the cost curve in the industry and the competitiveness of the industry.

Robert Bryce 27:55
So what is explained to me, I know there are a lot of shades of colors of hydrogen, which, in my view, hydrogen, the chemical symbol as H stands for hype, but nevertheless, that’s my view. Yes. Bring me up to speed on blue and green ammonia. What is that?

Chris Lawson 28:13
Yep. So again, it’s essentially using that blue hydrogen or the green hydrogen and converting that into ammonia. And then using that for various different uses, and lots of that isn’t actually to do with fertilizer, there’s lots of studies that are going on right now around using that ammonia as a Marine fuel. So you’re fueling your, your vessels to go around the world using ammonia, again, and reducing the carbon footprint because you’re using that rather than a bunker fuel. There’s also talk of using that ammonia as a kind of a carrier vector for hydrogen, because hydrogen is not easy to carry. Neither is ammonia. That does seem to pass a lot of people by. And then, you know, we also see kind of developments in places like Japan and South Korea where they want to use ammonia as a kind of cofiring fuel to put alongside their coal in the power generation plants, we can reduce some of the co2 emissions there. So it’s essentially the same kind of projects that are with the green and blue hydrogen, just converting that another step to the ammonia because it’s a little bit easier to carry around again, you need some very specific infrastructure to carry ammonia around, you have going to have to invest a hell of a lot in that to make this successful. Sure. We

Robert Bryce 29:36
it’s an easier but it’s an easier carrier than hydrogen, because of all the problems of hydrogen, the small molecule damage leakage, all these other issues. Yeah, I think,

Chris Lawson 29:46
as you point out there are but there are a number of other kind of efficiency issues around this whole space that do need to be addressed again, ammonia isn’t completely when it’s burnt, as As a few, it’s not completely clean, yes, you know, releasing any carbon dioxide, but you have other different greenhouse gases, which you’re kind of burning off in that process. So they need to make sure that they’re properly abated. So there are a number of different challenges there in this space. But it’s certainly got a lot of momentum and hype around it.

Robert Bryce 30:22
Right. So cast this forward, then Chris, what does this mean longer term for food? I’ve seen, you know, and I’ve talked to people that are projecting famine, because of this shortfall, because this isn’t going to be resolved anytime soon. This is a multi year challenge, right? In terms of the overall supply of these fertilizers into the global marketplace. I heard. This is anecdotal, but that that something like Peru is facing a shortfall in potential grain production of something like 40%, we’re looking at damage and obviously in Sri Lanka, because of the fertilizer issue there. In my Newsweek piece, I quoted the head of the African Development Bank saying that Africa today is something like 30 30 million metric tons short of grain now. So what cast this forward and talk about what this means over the medium and longer term, which I would say six to 24 months in terms of food production, in which countries are the most vulnerable?

Chris Lawson 31:17
Yeah, so we’ve had done some studies in this, we’ve worked with a number of different other organizations to try and essentially quantify, okay, with there’s less fertilizer in the world, whether that be 5%, less 10%, less, what does that actually mean for yield and how much less corn wheat rice production is that they’re going to be? Now on demand estimates in total for this year, and next year on is doom and gloom is what many people were kind of anticipating a few months ago. Part of the reason for that is because we’re still seeing those flows out of Russia, part of the reason for that is in the nitrogen space, you do have a decent kind of diversification in supply, you’ve still got some capacity that is out there that it has been underutilized. So we’re not as

Robert Bryce 32:02
when you’re talking about that diversification. You’re talking about geographic diversification, right? Yeah.

Chris Lawson 32:06
Yeah, yeah. So it’s not you don’t have all potash is a great example, where you don’t have that same level of geographic diversification, you’ve got most of the production in Canada, then you’ve got the rest in kind of Belarus, and Russia and then a few other small producing. So that’s quite a concentrated market, whereas nitrogen is got a much better spread nitrogen, when we’re talking about these kind of 12 to 24 month, kind of risk naturally, is that the really key one that we need to be considering because it has a much more immediate impact on us. So the work that we’ve done suggests that, yes, there will be a reduction in yields this year, and a reduction in kind of overall crop production, partly attributed to a lack of fertilizer, but fertilizer is not the only thing that determines yields. Weather is really the key determinant and climate. There are a number of other different inputs that matter here as well. So just because there is some some strains in the fertilizer supply chain, right now, it doesn’t necessarily mean there is going to be a widespread famine, which has, which many people have kind of projected, we don’t necessarily think that it’s going to be challenged, it’s going to be very, very tight, you’re developing parts of the world who are far more exposed to these high fertilizer and input prices are going to face a lot more of the brunt of it. So Africa, for example, is really where a lot of the risk is right now. Southeast Asia, those kinds of places that are really where the big, big risks are. But again, we don’t see the world kind of running out of fertilizer. And just kind of ultimately, who’s going to there is some demand rationing is taking place, there are some low yields gonna get a result from that, if we have a kind of complete disaster in from a weather perspective, then grand and all seed stocks are going to become even tighter. But again, we’re not expecting right now for it to be that kind of Armageddon scenario, which many people have put out there.

Robert Bryce 34:06
It’s interesting, because what the other story that I’ve heard on this, and I don’t claim to be an expert here, but we’ve seen in the last six to nine months doubling the price of wheat doubling in the price of soybeans. And the line that I keep hearing as well, the US and the developed countries are going to be able to absorb those higher prices, but the lower income countries aren’t and they’ve simply it’s not going to be necessarily a lack of grain, it’s going to be a problem of affordability. Does that make sense to you? Is that how you see it as well? Yeah,

Chris Lawson 34:41
absolutely. The the affordability issue is is really key here and you’re right, you’re developed countries can absorb that shock a little bit more. Obviously, we’re all seeing inflation have an impact on our day to day day to day lives at the moment that’s far more prominent in some of the developing areas. Some of the world who are much more exposed having to import their grains and import their their fertilizers and other import inputs to essentially grow their own food as well. So yeah, I would agree with that.

Robert Bryce 35:12
So it’s going to be rationing by price rather than rationing by supply. Is that Is that another way to think about it?

Chris Lawson 35:19
I think so. Yeah. Again, probably a bit of a combination of the two and how this plays out. But again, we’re not as concerned about some others when it comes to the supply side of things, particularly on fertilizers. Again, when it comes to grains, and all seeds, things are looking relatively tight there. And we don’t want to see any kind of, you know, disasters from from a weather front, because that’ll only tighten things further. But yeah, we think that we could, we’re going to get through this, it is going to be challenging, there is going to be a number of areas of the world that are way more challenged by this than others, but we don’t think we can.

Robert Bryce 35:55
And that’s going to be Africa and Southeast Asia, the lower income countries in both of those in those regions. Well, so tell me, how does a guy who become a fertilizer expert I mean, this is something that what is this? I know you grew up around cows and cattle and milking via, you know, milking machines. Was this a dream as a child to be a fertilizer guy? How did you end up in this sector? It’s

Chris Lawson 36:16
a very specific niche. It is, it is quite a niche. You would be very sad if I said I had laundry becoming a fertilizer analyst. I didn’t

Robert Bryce 36:25
even look, you’re an expert. You’re an expert. I’m not I don’t. That’s not I’m not being facetious. I think it’s a very interesting part of the industrial sector that I haven’t given much thought to. And I’m from Oklahoma, there’s a big CF industries is a huge fertilizer plant in Catoosa. Right outside of Tulsa. So I’m familiar with the industry. But that’s come right to the fore. So how did you come to it?

Chris Lawson 36:49
Yeah, it’s I mean, it is it’s fascinating industry. It really is. So I kind of started my career as a research scientist looking at plant nutrition and going to me and things like that and worked at some grain trading houses as well. So

Robert Bryce 37:04
is that your training as an education? Were you an agronomist or ag guy? What happened? Yeah,

Chris Lawson 37:08
so agricultural science is what I studied at university and did a bit of agriculture economics as well and kind of got into the industry through that.

Robert Bryce 37:19
Moved to lovers D in Australia, in Adelaide,

Chris Lawson 37:21
invest in us, right, yeah. And Adelaide University of Adelaide, I studied a Bachelor of Science majoring in agricultural science. So that’s kind of how I got into it, again, worked in the grains industry for a while and then moved to London got a an offer from cru, who were looking for agricultural economists to help with their demand projections in the fertilizer team, it was quite a obscure job, I would say. But again, once you kind of get into the industry, it is really fascinating. And you know, what I’ve got lots of colleagues that I’ve worked alongside that are kind of entrenched in the industry now. And once people are in it, they, they really do love it, because you’ve got the interplay of energy with with gas and coal, you’ve got the interplay of, of agricultural markets. So knowing what’s going on in the world with wheat prices, corn prices, soybean prices, you’ve got all these different climatic patterns that you’ve got to be keeping an eye on. And then just an absolutely fascinating market, when it comes to the geopolitics of dealing with this whole fallout of Russia and Ukraine and the importance of both of those players in the fertilizer market, the the kind of publicly listed players here in the US that we keep a close eye on like CF nutrient and Mosaic, you’ve got some really interesting analysis you can do on that front. It really is just a fascinating industry. And as you say, it’s quite, quite niche. And it’s been a really interesting time over these last couple of years to have been an analyst. But yeah, it’s been really enjoyable. And it’s, you know, we like to think that it’s pretty important as well, because without fertilizer, you really do struggle to grow food. And, yeah, we think that there’s it’s important that the word is getting out there around the importance of this industry, and just some kind of transparency as to what is going on right now.

Robert Bryce 39:18
So I’m just curious, because there aren’t, I mean, the world has changed a lot in the last few decades where from where a lot of people grew up and lived on farms to now we’re much more of an urban urban society. You grew up on a farm my friend Isaac or grew up on a farm here in the US in Wisconsin. How many of the people I’m just curious, my own curiosity here you have a farming background of actually being on the farm and mud on your boots and the rest of how many other people in this consulting world that you live in have that experience? Oh, seemed to give you it would seem to give you a very a much more I’m going to use the word grounded. It’s in the mean the thing is, I didn’t mean the pun. there, but you’re not an experience and what this actually means on the farm. So I’m just curious how many of your colleagues or people in the industry in the industry you’re in now have that background.

Chris Lawson 40:09
I do think it does really helped by having that perspective of actually kind of felt the fertilizers running through your fingers. It’s a bit of a weird expression. But it has really helped to know the product that you’re talking about. I mean, from CI US perspective, we’ve got people in from from all different types of backgrounds, we’ve got geologists within our team, because again, mining potash. And phosphate is an important component of the whole fertilizer industry. We’ve got economists within our team, we’ve got journalists within our team, we’ve got lawyers within our team, it’s a really interesting mix of people that that come into the consulting world, in terms of the industry itself. You’ve got people from all walks of life, and then different backgrounds, whether that being you know, there’s lots of chemical engineers that work in this industry, because they got that kind of production plot. There’s, it’s, it’s an incredibly sophisticated operation running a nitrogen plant, and the kind of high pressure systems that you’re dealing with, uh, yeah, incredibly complicated. So it again, it’s fascinating,

Robert Bryce 41:11
that you are unusual, what I’ve heard you say, or what I’m hearing you say is that you are unusual among your colleagues. And then actually, you’ve you’ve, you know, the thickness of the thing you’ve held, you know, the fertilizers about it, is that if I reading you, right, when you read through that litany, that list of people in where their backgrounds are, I didn’t hear you talking about many other farmers?

Chris Lawson 41:29
No, there’s there’s not too many other people who have studied agriculture, in my team or in the consulting space. And yeah, so again, I do find that quite interesting.

Robert Bryce 41:39
So let me ask you about the haber bosch process, because I’m familiar with it. And this is a century old process. What are the numbers in terms of grain production globally? For wheat, soy, rice, and corn? What would the world production of those four grains be without artificial ammonia? Where would that reduction in grain output be? I’ve heard it would be half or something. You know, I’ve seen figures there. Something like 3 billion people on the world in the world today wouldn’t be able to live because there wouldn’t be enough food. Yeah. Have you seen similar calculations on that?

Chris Lawson 42:12
Yeah, similar calculation, similar, similar figures. Again, I think the best example is the Green Revolution. within India, from I think it was the 60s or 70s, when the plant scientists, Norman Borlaug went there and basically helped them to breed new varieties of wheat, which were shorter not going to fall over as easily and, you know, ultimately helped to improve their agronomy as well. And where nitrogen use increased through that kind of those new varieties and food production increased a significant amount as a result. So it’s an incredibly important process, I would 100% Recommend recommend that anyone reads the book, The Alchemy there, it gives a really good background into that it’s a fantastic book, and something that I try and recommend all the different analysts that start in our team to read gives a great background as to the importance in this industry.

Robert Bryce 43:10
So you also mentioned the use of coal in the haber bosch processes, which is something I, you know, you get you get the hydrogen molecule in the hydrogen, you can do reformat into what are all different kinds of things I didn’t realize that China was was using coal for the haber bosch process. How much? I guess we’ll I’ll ask it this way, how much more efficient? Is it to use natural gas ch for for your feedstock than to use coal? If you if your goal is to produce ammonia? Is there a cost differential there? Or do you know that

Chris Lawson 43:41
there is a there there are a number of different differentials as in terms of the overall efficiency? I’m not quite sure they’re not going to try and guess what those numbers are? The cost differential really just depends on you know, your kind of

Robert Bryce 43:55
the color of the Okay, sure,

Chris Lawson 43:57
precisely. So, China for a long time was a very competitive niche producer in in the industry. And as their coal prices started to rise and move further up the cost curve, and that’s why everyone was all the analysts out there were tracking what is China gold prices doing, because that’s ultimately going to dictate what your air and nitrogen prices are doing. We do a lot of work on. We do lots of cost curves and build up kind of industry stacks in that front. We also look at that from an admissions perspective as well. So typically, if you’re producing ammonia from natural gas, for every tonne of ammonia, you’re going to produce around two tonnes of co2 in that process. If you’re using coal, that’s going to be closer to three and a half to four tonnes of co2 that process so there’s a lot more kind of implication many more implications from an emissions and environmental perspective when when using coal.

Robert Bryce 44:57
I see so it’s roughly twice as it will it’s almost as As though you will very similar to the combustion figures, and it’s roughly twice the co2 emissions from going from methane to coal. Whether whether you’re trying to produce electricity or or fertilizer. Well, so what do I know you’re you follow? You’re an Aussie. So you’ve been following Australia’s exports. And one of the things that’s been remarkable to me, and just since we’re talking about coal, I just want to just touch on a little bit is the price of coal out of Newcastle now it’s over $400. And what is it 430 Or something like now now that actually, when looking across the different commodity markets, the price of coal has been, in terms of multiples has been far greater increase than we’ve seen in almost any other energy commodity, whether oil, jet fuel, natural gas, etc. It’s up 8x or more. I mean, it’s truly remarkable. If you follow that at all. I know that China and Australia have been back and forth on geopolitics here in terms of coal exports, and so on. But if you see any relief in the coal markets, or I know that’s not necessarily your your field, but I would imagine you’re passingly familiar.

Chris Lawson 46:04
Yeah, we I mean, we do track coal here at cru, that is such a key input to steel production. So we have a number of different analysts that are looking at we’ve got offices in China, in Australia as well, so often speaking with our analysts here about what’s going on in that market. And yeah, it’s been a fascinating one to watch. It really, really has one of the things that we kind of update pretty regularly here is the the basket of commodities that we cover it at cru. And yeah, it’s really been fertilizer and cold, it’s been sitting at the top of that basket for the last probably three to six months, I would say, if you rewind back around a year or so ago, it was iron ore that was sitting at the top of that basket, and now it’s your more kind of energy intensive commodities

Robert Bryce 46:49
because of the change. And that’s because of the Delta in terms of the changing and the changes in the prices or the changes in geopolitics or all of those.

Chris Lawson 46:56
Yeah, it’s, I mean, it’s a price based kind of metric that we’re looking at. So it’s the prices that are driving that. But yeah, the geopolitics when it comes to coal has been a big, big driver in how that market is unfolded. There’s been some supply issues in Australia with some flooding in major coal producing regions there in Queensland. Yeah, yeah, Queensland, New South Wales that have kind of impacted that. You’ve obviously got a greater pool for coal at the moment as well with the different kind of what’s going on with gas prices. Usually Europe’s demanding a bit more coal at the moment, all of those factors have an implication and global trade flows and supply and demand dynamics. And, again, supply and demand will almost always win out when you think about prices and projecting prices.

Robert Bryce 47:43
But that multiple change in the cost of fertilizer will on ammonia, it’s gone. It went from what $250 A ton out of in Europe to what was it? $2,000 a tonne or something? What was the change in price? Well, I know it’s come down now. But I’m looking at your was January of 2020. What was what was a ton of ammonia out of night? What’s been the price change since then, since the beginning of 2020?

Chris Lawson 48:09
Yeah, you’re looking at a five to 6x price increase in, in ammonia. It’s been fairly extraordinary. When we think about some of those downstream natural products like urea, it’s kind of it’s fluctuated a huge amount through the course of this year was in a lot of volatility in that market. But it did get up to as high as four times the amount. Again, it’s been a really interesting market to follow over this past couple of years, because, sure.

Robert Bryce 48:40
So what are these the we’ve talked about some of the long term impacts, you’ve said that these aren’t going to be maybe as severe as other other other. Other analysts have said in terms of food family? I mean, there have been some very dire projections around famine because of this. You think they’re overblown? Or maybe just too extreme? Perhaps I’ll put it that way. Yeah. So can Russia keep these it? Clearly, the Russian companies that are producing these, these fertilizers want to stay in the market, they don’t want to lose their market share. I mean, this is the tension, though, isn’t it between because Russia is such a key player. We’re at war, but we’re going to continue trading. How long does this dance go on? I mean, is there is there some breaking point in this relationship? Or is this simply going to be commerce is going to continue regardless of the war? How did you see that playing out?

Chris Lawson 49:30
I mean, after the escalation over the last couple of days and some of the comments that have been coming out of Russia, particularly Vladimir Putin, it’s a it’s a big question mark. Definitely. When it was intriguing. When when the whole situation broke out, we had a conference in Miami that we kind of hosted with another company and there was around seven or 800 Different fertilizer players within the US and Latin America there and Latin America is hugely reliant on Russia. fertilizer, and is such an important player when it comes to agricultural production in those kind of overall grain supply and demand dynamics and ultimately, the well gets fed or not. So it was a great deal of panic there, this was back in kind of March, when everything could just started to kick off that they were not really going to be able to get what we can, what we need from Russia. And there was lots of concerns around financing and being able to move product from the Baltic and Black Sea into these key areas like that in America. Those kind of concerns were alleviated pretty quickly, because the sanctions pressure wasn’t as great. And I think that there was a recognition from governments around the world that okay, we still do need some of these key inputs like fertilizer from Russia, because we are relatively heavily reliant on them. So the fact that you’re during the whole kind of crux of this situation, and everything really kicking off the fact that there wasn’t, there was that initial disruption for kind of three or four weeks, and then things really did smooth out. That gives me a little bit of hope that, well, not too much hope, but it kind of signals, okay, we are going to continue to see volumes flowing out of Russia, there is a big push from the UN to make sure that these volumes continue to flow out how the geopolitics of all this plays out is again going to be really, really interesting. We’ve seen over the past week or so that Russia has said it’s going to start imposing some more export taxes and duties on its producers, that may be seen as an effort to kind of fuel the war chests a little bit more when we look at. We did some calculations last week and looking at the total kind of export revenue that fertilizer brings in. Last year, it was about $15 billion. This year, we’re projecting that to be around $20 billion into Russia, into Russia. Yeah, in terms of that fertilizer, export revenue. Now, if you think about that, compared to wheat, the overall fertilizer complex is slightly larger than wheat in terms of that export revenue. When you compare that oil and gas, it’s pretty miniscule. Really, I think they’re they’re closer to the billion dollar levels or something like that. Closer

Robert Bryce 52:17
to the what I’m sorry, what, how many 100 and 50 billion 150. Right. Yeah,

Chris Lawson 52:21
I think the last year they might have done $120 billion worth of all the revenue from from exports, I think is right, that Ministry of Commerce came out. So very small compared to that, but not insignificant.

Robert Bryce 52:35
Right. But still, the big wildcard is that if this war escalates, then that Russia could cut those exports off altogether. And then the whole dynamic changes, then within the outlook big could become much more gloomy than what we’ve been discussing here. Is that fair?

Chris Lawson 52:51
I think so. There’s no again, outside of the the initial initial kind of threats, we haven’t really seen too many more of those kinds of comments from Russia saying, Hey, we are going to start to cut off. We’ve got Russia as a large fertilizer consumer, but it’s not huge. It’s got to be agricultural market that’s got a relatively large domestic market to serve. But if it was just say we’re favoring domestic markets over exports, and we’re just going to send a link to that there will be oversupply very, very quickly. They will continue to export and we’re we’re relatively confident in that again,

Robert Bryce 53:26
because the internal market just isn’t big enough to absorb all the stuff they’re they’re producing. I got Yeah, precisely. Well, we’ve been talking I haven’t had a station to station break here. My guest is Chris Lawson. He’s the head of fertilizers at CR U group, which is a London based consulting firm. You can follow them at cru group.com. And at Cru group on Twitter, and more specifically on Twitter at Fertilizer Week One, it’s Fertilizer Week numeral one. So just to last a couple of questions, Chris, because we’ve been talking close to an hour and I don’t want to take too much of your time today. I keep my podcast to about an hour. This has nothing to do with fertilizer has more to do with you. But these are questions I ask all my guests. So what are you reading you were the books that are on the top of your list or the top of your bookshelf or nightstand these days.

Chris Lawson 54:14
Right now I’m reading the backlogs simile book, which I know you’re a big fan of so

Robert Bryce 54:21
one of the 45 or whatever it is that guy writes to me

Chris Lawson 54:26
the most, the most recent one, which again, has some some great context of the fertilizer market there and kind of how that overall that fits into the overall picture of the important thing. So that’s that’s what I’m reading at the moment. And again, with everything that’s been going on, I’ve been doing some reading around some of the different industrial chemical companies that are out there and kind of more around the kind of geopolitics of energy and and things like that. So

Robert Bryce 54:53
what does that mean? You’re reading trade publications, you’re reading the popular press what opponents are On the above,

Chris Lawson 55:00
yeah. On the bookshelf at the moment. I would say in terms of things that I read regularly, I do subscribe to doom Berg substack. I think that they do some really interesting work again, so relatively similar to Derek, what you’re talking about hero, but I think again, it

Robert Bryce 55:20
has been very gloomy. I mean, Bloomberg has been a guest on the podcast, and they have been very well, gloomy, I think is not even quite that mean, very pessimistic about about the future and the lack of fertilizer. But what you’re you’ve said today is that you think that that was too pessimistic and outlook?

Chris Lawson 55:40
It is. Yeah, like I said, there’s there’s lots of risks that are out there in the fertilizer industry right now. But again, we look at things that are in a great deal of detail, we have a great deal of insight into the production capacity that’s out there in the world, and the way that supply and demand dynamics are unfolding. And like I say, there are there are a lot of different risks that are that are out there. There are a lot of companies that are going to really struggle over these coming couple of years. But in terms of widespread kind of shut downs and complete doom and gloom forever, we don’t. So let’s see if they mean that last. So we’ll

Robert Bryce 56:15
muddle through is the Is that Is that

Chris Lawson 56:18
fair? Okay, yeah, exactly.

Robert Bryce 56:21
So my last question, then, Chris, is what gives you hope, you’re, you’re looking at a lot of this key industry, you’re looking at geopolitics and industrial capacity, doesn’t have to relate necessarily to fertilizer, but what gives you hope,

Chris Lawson 56:35
it gives me hope, I think, I really enjoy being in the agriculture space, I really enjoy being in the fertilizer space, I do think there is a great deal of scope for innovation and investment in the industry. And like you’ve said, it’s a relatively niche area of the world and the market. But it’s an incredibly important one, when there’s so much attention being shown on the market like there is now there is ultimately investment that comes from that. And there are new technologies that are that are spawned. And there is a great deal of fertilizer, in developed parts of the world is already very efficient. If you look at the US, for example, essentially been applying the same amount of fertilizer for the last 20 years that crop yields crop output has increased significantly. So you’ve got a great deal of efficiency that’s already kind of steeped into the industry. But there’s still a lot more to go as well, there’s lots of the nutrient that is applied that isn’t really fully utilized by crops, right. So there are a number of different technologies that are out there that I do think that can ultimately help to improve the efficiency of of agricultural production. And it’s times like these, where those new kind of technologies really do get the opportunity to shine and get the investment and transform an industry. So I do have hope on that front. And again, it’s it’s a relatively conservative industry by nature. But I do think that given the situation we’re in now in some of these new things, we’ve got to stick.

Robert Bryce 58:08
So I just want to follow up just because one thing and I thought your answer was great. I heard you say that US fertilizer consumption hasn’t changed in 20 years.

Chris Lawson 58:18
I mean, there are there are seasonal fluctuations, sure, based on you know, the weather and the types of crops that are planted, but if you kind of look at a long term curve of us fertilizer use, you know, it really, the grain is not all that state, it’s quite astonishing. And particularly compared to crop output, you know, that there’s been a great deal of efficiency, that’s, that’s come through. And that’s through advancements in you know, the types of fertilizers that are being used and some of the different coatings that golden but probably more so through

Robert Bryce 58:54
genetic genetic improvements and in plant plant the genetics of the plants themselves.

Chris Lawson 59:00
Yeah, well, that’s true and all that kind of thing as well. They all have an input into this. So yeah, right.

Robert Bryce 59:05
Well, no, that isn’t that is fascinating, in fact, that the just we’ve seen crop yields rise dramatically over the last 20 years, but the amount those inputs on these critical cotton, not just cost, but energy inputs, etc. They stayed flat that that is that is reason for hope, another example of how innovation can change the change the trajectory of markets and sectors. So that’s, that’s great. Well, listen, Chris, you’ve been very kind with your time. My guest again, has been Chris Lawson. He’s the head of fertilizers at Cru group that’s a London based consulting firm. You can find them cru group.com, on Twitter at Cru group at Cru group and more specifically for fertilizer at Fertilizer Week One, Chris thanks a million for being on the power hungry podcasts been great fun to talk to you. Thanks for having me. And thanks to all of you in podcast land for tuning in. Tune in for the next episode of the power hungry podcast. It might be as good as this one. Maybe not. We’ll find out. See you later.