# Natural gas and Urea

Urea is gas turned into a solid fertiliser: gas supplies the hydrogen for ammonia and most of the energy, so gas is the largest cost and sets the world price floor. In India a pooled gas price and a fixed farm price push gas cost shocks onto the subsidy bill rather than onto farmers.

Source page: https://www.materialinsights.org/links/natural-gas-and-urea/

[Natural gas](https://www.materialinsights.org/energy/natural_gas/) (energy) and [Urea](https://www.materialinsights.org/chemicals/urea/) (chemical): 4 relationships.

## How they are linked

### 1. Feedstock and fuel

*Physical flow · Strong · Natural gas to urea*

Urea is made from ammonia and carbon dioxide, and in most plants outside China both come from reforming natural gas, which also fuels the reformer and the steam system.

- **about 6 Gcal** energy norm per tonne of urea, RCF Thal unit from April 2025 (5.984 Gcal)
- **almost 70%** of urea's input is gas

An energy norm of about 6 Gcal per tonne is roughly 24 MMBtu of gas for every tonne of urea, counting feed and fuel together; RCF's Thal norm was cut from 6.2 to 5.984 Gcal from April 2025. That makes gas the dominant cost: a plant can improve its efficiency at the margin, but it cannot escape the gas price.

Sources: [IEEFA](https://ieefa.org/resources/lng-indias-fertiliser-sector-trillion-rupee-subsidy-burden); [Rashtriya Chemicals and Fertilizers (NSE filing)](https://nsearchives.nseindia.com/corporate/RCF_31072026164428_SEIntimation_NewEnergyNorm.pdf)

### 2. Price link: feedstock cost

*Cost and price · Strong · Both ways*

Because gas is the main input, high gas prices raise the cash cost of the marginal exporter and can shut high-cost plants, which lifts the urea price.

- **0.18** monthly change correlation, European gas and urea
- **0.70** 12-month change correlation
- **0.51** fitted elasticity

Month to month the link is loose, partly because Middle East producers run on cheaper contracted gas; over a year the two move closely together. In the 2021 to 2022 shock, spot gas rose from about USD 8 per MMBtu in January 2021 to about USD 36 a year later, and urea reached about USD 690 a tonne in October 2021.

Sources: [Material Insights (World Bank, FRED, IMF data)](https://www.materialinsights.org/chemicals/urea/correlation/); [IEEFA](https://ieefa.org/resources/lng-indias-fertiliser-sector-trillion-rupee-subsidy-burden)

### 3. Gas pooling and subsidy

*Policy · High in India · Gas price feeds India's urea subsidy*

Since 2015 India pools domestic gas and imported LNG so that every urea plant on the gas grid pays one uniform delivered price, while farmers pay a fixed retail price and the government covers the gap.

- **63%** of fertiliser-sector gas was imported LNG, FY2020/21
- **about 30%** of India's gas consumption goes to fertiliser, about 2021-22
- **Rs 242** fixed farm price per 45 kg bag of urea

Pooling removes the advantage of plants with cheap domestic gas allocations, so the whole sector rises and falls with LNG import prices. As the farm price is fixed, an LNG price shock shows up mainly in the fertiliser subsidy, budgeted at Rs 1.05 trillion for FY2022/23. Domestic gas available to the sector has shrunk, so the LNG share climbed to over 68% in 2021-22, against a domestic share of over 76% in 2012-13. The New Urea Policy 2015 groups the 25 gas-based plants into three categories by energy norm and sets each category's concession on that norm.

Sources: [IEEFA](https://ieefa.org/resources/lng-indias-fertiliser-sector-trillion-rupee-subsidy-burden); [Observer Research Foundation](https://www.orfonline.org/expert-speak/natural-gas-consumption-in-india-the-tale-of-two-sectors); [Business Standard](https://www.business-standard.com/article/economy-policy/govt-introduces-uniform-gas-price-for-urea-plants-115040100058_1.html); [PRS Legislative Research](https://prsindia.org/policy/report-summaries/implementation-of-new-urea-policy-2015)

### 4. Coal-based ammonia

*Substitution · Weak · Coal gasification can replace gas*

Ammonia can also be made from gasified coal, which China uses widely and India is building at Talcher to cut its dependence on imported LNG.

- **1.27 Mt a year** urea capacity of the Talcher coal gasification project

Talcher, a venture of Coal India, GAIL, RCF and FCIL, uses high-ash local coal blended with petcoke. One plant is small against India's demand, and the coal route has much higher CO2 per tonne, so gas remains the main feedstock for India's urea for the foreseeable future.

Sources: [Ministry of Coal, PIB](https://www.coal.nic.in/sites/default/files/2023-12/PIB1983068.pdf)

## For investors

### Key learnings

1. Urea margins are a gas spread: the producer on the cheapest contracted gas earns the most, and the producer on the most expensive spot gas sets the world price floor.
2. Under the New Urea Policy, Indian plants are paid on the basis of energy norms, so their earnings depend more on beating those norms than on the level of gas prices.
3. The yearly link between gas and urea prices is strong, at 0.70, but the monthly link is loose, at 0.18, so gas is a guide to the urea cycle rather than to month-to-month prices.

### What to track

- **Asian LNG spot price (JKM) and European gas (TTF)**: A rise lifts the cost floor for urea exporters and India's pooled gas price (Daily · ICE, World Bank Pink Sheet monthly)
- **Urea price minus gas cost per tonne**: A narrowing spread signals closures in high-cost regions and a coming price floor (Monthly · World Bank Pink Sheet)
- **Revisions to urea energy norms**: Tighter norms squeeze less efficient plants; relaxed norms lift their earnings (As notified · Department of Fertilizers, stock exchange filings)

## For policymakers

### Key learnings

1. Because India's farm price is fixed and gas is pooled, the fiscal cost of urea moves with the LNG import price, not with what farmers pay.
2. More domestic gas allocated to fertiliser, or long-term LNG contracts at lower slopes, directly cut the subsidy bill.
3. Coal gasification reduces LNG dependence but raises emissions per tonne, a trade-off between import security and climate goals.

### What to track

- **Share of imported LNG in fertiliser-sector gas**: A rising share means higher pooled prices and a larger subsidy (Monthly · PPAC)
- **Fertiliser subsidy outgo against budget**: Overshoots show gas or import price shocks reaching the budget (Monthly · Department of Fertilizers, Controller General of Accounts)
- **Domestic urea output against sales**: A widening gap means more imports and exposure to world prices (Monthly · Department of Fertilizers)

## India

India runs 25 gas-based urea plants on pooled gas, over two thirds of it imported LNG in 2021-22, and fertiliser is the largest single user of gas in the country. The fixed farm price means gas price swings land on the central budget.

## Sources

1. [Price correlation, Material Insights](https://www.materialinsights.org/chemicals/urea/correlation/), Material Insights (World Bank, FRED, IMF data)
2. [LNG: India's fertiliser sector trillion-rupee subsidy burden](https://ieefa.org/resources/lng-indias-fertiliser-sector-trillion-rupee-subsidy-burden), IEEFA (2022)
3. [Natural gas consumption in India: the tale of two sectors](https://www.orfonline.org/expert-speak/natural-gas-consumption-in-india-the-tale-of-two-sectors), Observer Research Foundation (2022)
4. [Intimation of revised energy norm for urea, Thal unit](https://nsearchives.nseindia.com/corporate/RCF_31072026164428_SEIntimation_NewEnergyNorm.pdf), Rashtriya Chemicals and Fertilizers (NSE filing) (2026)
5. [Govt introduces uniform gas price for urea plants](https://www.business-standard.com/article/economy-policy/govt-introduces-uniform-gas-price-for-urea-plants-115040100058_1.html), Business Standard (2015)
6. [Coal gasification plant at Talcher (press release)](https://www.coal.nic.in/sites/default/files/2023-12/PIB1983068.pdf), Ministry of Coal, PIB (2023)
7. [Implementation of New Urea Policy 2015 (Standing Committee report summary)](https://prsindia.org/policy/report-summaries/implementation-of-new-urea-policy-2015), PRS Legislative Research