Egyptian Nitrogen Fertilizer Producers Face Dual Pressure: Higher Gas Procurement Costs and Supply Cuts
Egyptian nitrogen fertilizer producers are facing simultaneous pressures from higher global natural gas prices, which have increased the cost of procuring LNG imports, and reductions in natural gas supplies allocated to fertilizer plants.
Following an initial 20% reduction in gas supplies earlier in November, the reduction was increased to approximately 33% effective November 8, 2026. This presents a new operational challenge for producers, particularly given that natural gas is both a key feedstock and an energy source in ammonia and nitrogen fertilizer production.
Potential Impact on Production: Abu Qir Fertilizers as an Example
Abu Qir Fertilizers has total annual nitrogen fertilizer production capacity of approximately 1.8 million tonnes, comprising around 1.097 million tonnes of urea and 725 thousand tonnes of ammonium nitrate.
To estimate the gas requirements associated with nitrogen fertilizer production, we assume that producing one tonne of ammonia requires approximately 36 MMBtu of natural gas. Based on the chemical conversion requirements, producing one tonne of urea requires approximately 0.567 tonnes of ammonia, while one tonne of ammonium nitrate requires approximately 0.425 tonnes of ammonia.
Accordingly, each tonne of urea requires approximately 20.41 MMBtu of natural gas for ammonia production, while each tonne of ammonium nitrate requires approximately 15.30 MMBtu.
Based on the respective annual production capacities, average monthly production stands at approximately 91.4 thousand tonnes of urea and 60.4 thousand tonnes of ammonium nitrate.
This translates into monthly ammonia requirements of approximately 51.8 thousand tonnes for urea production and 25.7 thousand tonnes for ammonium nitrate production, bringing total monthly ammonia requirements to approximately 77.5 thousand tonnes.
At an estimated consumption rate of 36 MMBtu per tonne of ammonia, the combined monthly natural gas requirements for producing the ammonia feedstock used in both products amount to approximately 2.79 million MMBtu.
What could be the potential production decline under a 33% reduction in gas supplies?
For the purpose of assessing production sensitivity to gas shortages, assuming that the 33% reduction applies proportionately to the gas allocated to ammonia production for both urea and ammonium nitrate, with no alternative sources available to offset the shortfall, the monthly gas deficit could theoretically reach approximately 921 thousand MMBtu.
This shortfall is equivalent to approximately 25.6 thousand tonnes of ammonia, potentially reducing monthly production by approximately 30.2 thousand tonnes of urea and 19.9 thousand tonnes of ammonium nitrate, assuming the gas shortfall is distributed proportionately between the two production streams.
Accordingly, theoretical monthly nitrogen fertilizer production could decline from approximately 151.8 thousand tonnes to 101.7 thousand tonnes, representing a potential reduction of around 33%.
However, this estimate should be treated as a hypothetical scenario to assess production sensitivity rather than a forecast of the actual production decline. The actual impact will depend on available ammonia inventories, gas allocation across production lines, the company’s product mix, and its ability to adjust operating rates.
It is also important to note that this calculation covers only the natural gas required to produce the ammonia feedstock used in urea and ammonium nitrate manufacturing. It does not represent Abu Qir’s total gas consumption or the impact of supply cuts on all of the company’s products and production processes.
Potential Impact on Unit Production Costs
It is important to distinguish between the direct cost of natural gas and the overall production cost per tonne. Assuming the gas price and consumption rate per tonne remain unchanged, a reduction in gas volumes supplied does not, by itself, increase the direct gas cost per unit of output.
However, if supply constraints result in lower operating rates and production volumes, fixed costs may be spread over fewer tonnes, potentially increasing fixed costs per tonne. Therefore, the extent of the impact on unit production costs will depend on the actual decline in operating rates and each company’s cost structure.
Export Outlook
We expect lower production, if gas supply restrictions persist, to reduce the volumes available for export, particularly after meeting domestic market demand and fulfilling existing supply commitments and contractual obligations.
Nevertheless, the extent of the impact on exports will depend on companies’ finished-goods inventories, the duration of supply restrictions, and their allocation priorities between domestic and international markets.
Investment Recommendation
Given the uncertainty surrounding the duration of gas supply restrictions and their potential impact on operating rates and profitability, we recommend that investors consider trimming part of their positions in nitrogen fertilizer stocks at this stage, until there is greater clarity on the stabilization of gas supplies and the return of plants to normal operating levels.
Conclusion
Egyptian nitrogen fertilizer producers are facing dual pressure from higher gas procurement costs and reduced gas supplies, which could weigh on operating rates, production volumes, and export availability.
Although the companies covered by the supply reduction face the same percentage cut, the actual impact may vary depending on their product mix, gas requirements, available inventories, and operational flexibility.
The current quarter’s financial results will provide the clearest indication of the actual impact of these developments on the sector’s operating and financial performance.
Walaa Mosalam - Prime Research
WMosalam@egy.primegroup.org