Nitrogen Input: Last Week’s Natural Gas Price Update
For the week ended August 12, 2016, natural gas spot prices at Henry Hub fell. Natural gas is a key raw material that accounts for about two-thirds of input costs for nitrogen fertilizers such as ammonia.
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During the week ended August 12, 2016, natural gas spot prices fell by an average of 4.2% to $2.7 per MMBtu (million British thermal units) from the previous week. However, forward one-month contracts moved sideways to $2.7 per MMBtu.
Forward one-month natural gas prices at the NBP (National Balancing Point) in the United Kingdom fell by 8% to $4.3 per MMBtu week-over-week. Henry Hub in the United States and NBP in the United Kingdom are the most heavily traded points for natural gas.
Low natural gas prices positively affect fertilizer producers such as CF Industries (CF), Agrium (AGU), Terra Nitrogen (TNH), and PotashCorp (POT). According to CF Industries, a $1 change per MMBtu in natural gas could change the costs of production for ammonia and granular urea by $32 and $22, respectively.
Natural gas price forecast
Last week, the EIA (U.S. Energy Information Administration) raised its 2016 forecast for average natural gas prices at Henry Hub to about $2.41 per MMBtu from $2.36 per MMBtu a week earlier.
For 2017, it maintained its forecast of $2.95 per MMBtu. In 2015, the average price of natural gas at Henry Hub stood at $2.63 per MMBtu.
In the next part of this series, we’ll take a look at coal prices. Coal is an alternative input material for nitrogen fertilizer production.