Material Insights · Understanding the Material World

Ammonia and Natural gas

Most of the world's ammonia is made from natural gas, which supplies both the hydrogen and the process heat, so gas is most of an ammonia plant's cost. When gas prices spike, as in Europe in 2022, ammonia output is cut and fertiliser prices rise.

Ammonia (chemical) and Natural gas (energy): 6 relationships.

How they are linked

1. Feed and fuel

Physical flow · Strong · Natural gas to ammonia

Steam reforming splits methane to supply the hydrogen that combines with nitrogen from air, and more gas is burned to heat the reformer, so gas is both raw material and fuel.

  • 72% of 185 Mt of world ammonia made from natural gas, 2020
  • 28 GJ per t best available technology energy use for gas-based ammonia
  • 170 bcm natural gas used for ammonia, about 20% of industrial gas demand, 2020

Older plants use more: Indian gas-based plants were reported to use about 36.5 GJ per t on average. Because the chemistry fixes most of the gas need, efficiency gains are limited, and the gas bill moves almost one for one with the gas price.

Sources: IEA; Climate Technology Centre and Network (UNEP)

2. Gas sets the cost

Cost and price · Strong · Gas price to ammonia cost and output

With gas making up most of the cash cost, plants on expensive gas become the marginal producers and shut first when gas rises faster than ammonia prices.

  • 70 to 90% of ammonia production cost from natural gas
  • 3.1 Mt a year ammonia capacity curtailed by Yara in Europe, August 2022
  • about 35% Yara's European ammonia capacity utilisation after the cuts

In 2022 several other European chemical makers also curtailed ammonia output as gas prices soared. The episode showed how the cost of the marginal gas-based plant can set ammonia prices.

Sources: Climate Technology Centre and Network (UNEP); Yara International

3. Price link: product made

Cost and price · Strong · Both ways, gas leads

Because gas is most of the cost, ammonia and nitrogen fertiliser prices follow gas over a year, though month to month they also respond to farm demand and trade.

  • 0.13 monthly change correlation
  • 0.78 12-month change correlation
  • 1.61 fitted elasticity

The proxy is a US nitrogen fertiliser index, which reflects cheaper US gas, so the monthly link is weak while yearly changes track closely. An elasticity above one fits a market where gas sets the marginal cost and fertiliser margins widen in tight years.

Sources: Material Insights (World Bank, FRED, IMF data)

4. Coal route in China

Substitution · Medium · Coal gasification instead of gas

Coal can supply the hydrogen instead of gas, and China, short of cheap gas, makes nearly all coal-based ammonia.

  • 26% of world ammonia from coal gasification, 2020
  • 1.8 t against 3.2 t CO2 per t of ammonia, best gas route against best coal route

The coal route caps how far China depends on gas for nitrogen fertiliser, but it emits almost twice as much CO2 per tonne. Outside China, gas remains the default feedstock.

Sources: IEA

5. India's imported gas for urea

Policy · High in India · LNG prices to India's fertiliser subsidy

Indian ammonia plants feed urea units whose farm price is fixed, and much of their gas is imported LNG, so gas price swings flow into the fertiliser subsidy.

  • 63% share of imported R-LNG in the fertiliser sector's gas use, 2020-21
  • Rs 1.05 trillion fertiliser subsidy budgeted for 2022-23

Gas pooling gives all urea plants a common delivered price, which spreads LNG costs but does not reduce them. With most of the sector's gas imported, India's fertiliser budget is in part an exposure to LNG prices.

Sources: IEEFA

6. Green ammonia

Transition · Rising · Electrolytic hydrogen replaces gas

Hydrogen made by electrolysis with renewable power can replace the gas feedstock, removing both the gas exposure and the roughly 1.8 t of CO2 per tonne.

  • about 10% premium of India's 2025 green ammonia auction price over grey ammonia

India's 2025 auctions brought green ammonia close to the cost of gas-based supply, which gives importers of LNG a route to cut gas demand. The gap depends on gas prices: cheaper LNG widens it again.

Sources: IEA; JMK Research

For investors

Key learnings

  1. Gas is 70 to 90% of ammonia production cost, so ammonia margins are mainly a spread between nitrogen prices and the producer's gas price.
  2. Producers with cheap gas, in the US and Middle East, gain when European gas spikes, as in 2022 when Yara curtailed 3.1 Mt a year of capacity.
  3. Ammonia used about 170 bcm of gas in 2020, a fifth of industrial gas demand, so fertiliser plant closures can noticeably change gas balances.

What to track

  • TTF and Henry Hub gas prices: A wider gap favours US producers and pressures European plants (Daily · ICE, CME; monthly · World Bank)
  • Ammonia and urea prices against gas cost: A narrowing spread signals curtailments ahead (Weekly · trade press; monthly · World Bank Pink Sheet)
  • European ammonia capacity utilisation: Low utilisation means more imports and support for global prices (Quarterly · Yara and peer results)

For policymakers

Key learnings

  1. With 63% of the fertiliser sector's gas imported as LNG in 2020-21, India's urea subsidy rises with global gas prices.
  2. Gas pooling evens out prices across plants but leaves the total exposure to LNG unchanged.
  3. Green ammonia, about 10% above grey ammonia in India's 2025 auctions, offers a way to cut both LNG imports and fertiliser emissions.

What to track

  • Pooled gas price for urea plants: Shows the gas cost being passed into the subsidy (Monthly · Department of Fertilizers, PPAC)
  • LNG import price (JKM) and volumes: Rising prices raise fertiliser subsidy needs (Monthly · PPAC; daily · Platts)
  • Green ammonia adoption by fertiliser plants: Shows progress in reducing gas dependence (Yearly · MNRE, Department of Fertilizers)

India

India's urea industry runs on gas, 63% of it imported LNG in 2020-21, so LNG prices feed the fertiliser subsidy, budgeted at Rs 1.05 trillion for 2022-23.

Sources

  1. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  2. Ammonia Technology Roadmap, IEA (2021)
  3. Ammonia (technology description), Climate Technology Centre and Network (UNEP)
  4. Yara implements further production curtailments in Europe, Yara International (2022)
  5. LNG and India's fertiliser sector: a trillion rupee subsidy burden, IEEFA (2022)
  6. Green ammonia is only 10% costlier than grey in the latest SIGHT Mode 2A auctions, JMK Research (2025)