Material Insights · Understanding the Material World

Natural gas and Nitrogen (ammonia)

About 72% of the world's ammonia is made from natural gas, which supplies both the hydrogen and the energy, so gas is most of the cost and the marginal producer's gas price sets the ammonia price. When European gas spiked in 2022, half of Europe's ammonia capacity was shut or curtailed, and India's urea plants now depend heavily on imported LNG.

Natural gas (energy) and Nitrogen (ammonia) (commodity): 5 relationships.

How they are linked

1. Feedstock and fuel

Physical flow · Strong · Natural gas to ammonia

Steam reforming splits methane into hydrogen, which is combined with nitrogen from the air to make ammonia, and more gas is burned to heat the reformer.

  • 72% share of 185 Mt of world ammonia made from natural gas, 2020
  • 28 GJ/t best available energy use for gas-based ammonia
  • about 2% ammonia production's share of world final energy use

At 28 GJ per tonne, a modern plant uses about 26 to 27 MMBtu of gas for each tonne of ammonia, counting feed and fuel. About 70% of ammonia goes into fertilisers such as urea and DAP, so gas is in effect the main raw material of nitrogen fertiliser. The process emits about 2.4 tonnes of CO2 per tonne of ammonia on average.

Sources: IEA

2. Gas sets the cost floor

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

Because gas is most of the cash cost, producers with cheap gas earn a wide spread and those on expensive gas become the marginal supplier whose costs set the price.

  • 60 to 70% gas share of US ammonia production cost, 2024
  • more than 3 times TTF-based ammonia cost against Henry Hub-based cost, early 2024

US, Gulf and Russian producers on low-cost gas earn the most, while European plants on TTF gas are the swing producers. The spread between the ammonia price and the gas cost of a European plant is the best single gauge of whether European capacity will run or close.

Sources: Argus Media

3. Price link: Europe 2022

Cost and price · Strong · Both ways, gas leads

European plant closures set world prices when gas spikes, but exporters in the Gulf and Russia use cheaper gas, so monthly moves correlate weakly while yearly moves correlate strongly.

  • 0.18 monthly change correlation
  • 0.70 12-month change correlation
  • 50% of European ammonia capacity (excluding Ukraine) shut or curtailed, 25 August 2022

In August 2022, as European gas prices climbed again, half of the continent's ammonia capacity was idle and Yara ran at 35% utilisation. The episode shows that the gas to ammonia link is strongest when the high-cost region has to curtail output.

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

4. India: LNG for urea

Policy · High in India · Imported gas cost feeds India's fertiliser subsidy

India's urea plants run on a pool of domestic gas and imported LNG at one price, and farmers pay a fixed price, so LNG price swings fall on the fertiliser subsidy.

  • 63% imported LNG share of fertiliser-sector gas, FY2020/21
  • Rs 1.05 trillion fertiliser subsidy budgeted for FY2022/23
  • 3.6 vs 3.3 Bcf/d India's net gas imports against domestic output, 2022

About half of India's industrial gas use goes to basic chemicals, mostly ammonia for fertiliser, so the sector is the anchor buyer of LNG. When India's spot LNG import price rose from about USD 8 to over USD 36 per MMBtu between January 2021 and January 2022, the fixed farm price of Rs 242 per 45 kg bag of urea held and the subsidy absorbed the shock.

Sources: IEEFA; US Energy Information Administration

5. Coal-based ammonia

Substitution · Weak · Coal gasification can replace gas

Ammonia can also be made from gasified coal, mainly in China, which avoids gas but has higher emissions per tonne.

  • 26% share of world ammonia made by coal gasification, 2020

Coal-based plants are concentrated where gas is scarce and coal cheap, chiefly China. Elsewhere gas remains the main feedstock, and low-carbon routes using electrolytic hydrogen or carbon capture still depend on gas or power prices.

Sources: IEA

For investors

Key learnings

  1. Ammonia margins are a gas spread: producers on cheap gas profit most, while European plants on TTF gas set the marginal cost.
  2. The 2022 curtailment of half of Europe's ammonia capacity shows that the gas link is strongest during regional gas shocks.
  3. In India the pooled gas price and the fixed farm price of urea pass LNG swings to the subsidy bill, so gas price risk there is mainly fiscal rather than borne by farmers.

What to track

  • TTF and Henry Hub gas prices: A widening gap raises European ammonia costs relative to US and Gulf exporters (Daily · ICE, CME; monthly · World Bank Pink Sheet)
  • Ammonia price minus European gas cost per tonne: A negative spread signals European closures and higher world prices (Weekly · price reporting agencies)
  • European ammonia capacity utilisation: Low utilisation shows Europe importing nitrogen (As reported · CRU, Yara quarterly results)

For policymakers

Key learnings

  1. Because India pools gas and fixes the farm price of urea, LNG import prices drive the fertiliser subsidy bill.
  2. Long-term LNG contracts or more domestic gas for fertiliser reduce exposure to spot price spikes like 2021 to 2022.
  3. Coal gasification reduces gas dependence but raises emissions, a trade-off between import security and climate goals.

What to track

  • Imported LNG share in fertiliser-sector gas: A rising share means higher pooled prices and a larger subsidy (Monthly · Petroleum Planning and Analysis Cell)
  • Fertiliser subsidy outlay: Shows the fiscal cost of gas price movements (Annual · Union Budget; Department of Fertilizers)

India

India's fertiliser sector is the main buyer of imported LNG, with LNG at 63% of the sector's gas in FY2020/21, and the government absorbs gas price shocks through the urea subsidy.

Sources

  1. Ammonia Technology Roadmap, IEA (2021)
  2. Low US natgas prices help ammonia economics, Argus Media (2024)
  3. Europe nitrogen capacity closure and cost tracker, CRU (2022)
  4. LNG: India's fertiliser sector trillion rupee subsidy burden, IEEFA (2022)
  5. Industry to drive tripling of natural gas consumption in India by 2050, US Energy Information Administration (2024)
  6. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data) (2026)