Carbon dioxide: Cycles

Gas spikes, shut plants and empty beer taps

Merchant CO2 is sold on long contracts and prices are not public, but supply shocks are regular. The pattern: high gas prices close ammonia plants, CO2 output falls, and food, drink and meat processors run short. Governments then intervene, as the UK did in 2021. Seasonal peaks come in summer drinks demand, often when ethanol or ammonia plants are in maintenance. In the long run new demand from CCS and e-fuels may make CO2 a priced feedstock.

No public CO2 price spread; the effective signal is the gas price at which ammonia plants close.

Booms and busts

1. June 2018 (Europe)

   Several European ammonia plants were in maintenance at once; UK beer, soft drinks and meat producers ran short of CO2 during the World Cup summer (indicative).

   prices not public

2. September 2021-January 2022 (UK)

   CF Industries shut its Billingham and Ince plants on high gas prices, removing 60% of UK food-grade CO2. The government paid for a three-week restart of Billingham, then users agreed a price deal to keep it running to end-January 2022.

   UK wholesale gas up 250% since the start of 2021; CO2 price under the deal not disclosed

3. 2022 (Europe)

   European gas reached a $70/MMBtu monthly average in August 2022; more ammonia plants closed and CO2 supply again tightened (indicative).

   World Bank Europe gas $70.04/MMBtu (Aug 2022)

What drives the cycle

• European and Asian gas prices. They decide whether ammonia plants, the main CO2 source, run.
• Ethanol margins. Fermentation is the steady biogenic source in the US and parts of Europe and India.
• Summer drinks and food demand. Demand peaks seasonally while supply is fixed.
• Carbon policy (45Q, EU ETS, CBAM). Gives CO2 a negative or positive value for storage and use.

Metrics to track