BASF expects €600m-hit from high natural gas prices to rise further

LONDON (ICIS)–BASF has registered €600m in extra costs in the first nine months of 2021 due to record high prices for natural gas and expects “a significant increase” in costs going forward, the German chemicals major said on Wednesday.

The company announced in September it was curtailing ammonia production at its sites in Ludwigshafen, Germany, and Antwerp, Belgium, on the back of surging natural gas prices, which is the key feedstock to produce the fertilizer.

BASF has not ruled out further adjustments to production levels, in ammonia or elsewhere, the company’s CFO Hans-Ulrich Engel told reporters at the company’s headquarters in Ludwigshafen after the publication of the third-quarter financial results.

“We reduced capacities in our ammonia plants in Ludwigshafen and Antwerp because it is very difficult to operate ammonia plants in an economic feasible way with the current high natural gas prices,” said Engel.

“We don’t see reduction [in production capacities] in other areas but we’ll closely observe natural gas prices that may require adjustments in our operations.”

BASF uses gas to produce electricity and steam in its combined heat and power plants, as well as a feedstock to produce ammonia, acetylene, and hydrogen.

Engel said that in Q4 the company was likely to take on additional costs, compared to the same quarter of 2020, but would not put a figure on what the hit could be.

“We have learnt how volatile energy prices are. It is really hard to forecast here, so please bear with me if we don’t provide actual figures [for the potential financial impact in Q4], because that would be speculation,” said Engel.

“One thing is clear: there will be further additional costs [in Q4, year on year].”

Engel said most of BASF’s natural gas purchases are conducted in the spot market, adding some exposure was partly hedged through financial instruments.

Front page picture: BASF’s facilities in Ludwigshafen, Germany (Source: BASF)