BASF’s Antwerp, US ammonia output could offset potential shutdown in Germany – bank

Jonathan Lopez


MADRID (ICIS)–A possible shutdown of ammonia production at BASF’s Ludwigshafen flagship site could be compensated by the German chemicals major’s facilities in Antwerp and the US, investment bank Baader Bank said on Tuesday.

Natural gas is the key feedstock for ammonia production; Germany activated on 23 June Phase 2 of an emergency plan aiming to increase gas reserves after Russia reduced its deliveries via the Nord Stream 1 pipeline.

Germany is highly dependent on Russian natural gas; the emergency plan could imply industrial players within the chemicals industry would get allocations for natural gas consumption.

However, BASF’s Antwerp facilities in Belgium would be less exposed to Russian natural gas, while its US ammonia plant – a joint venture with Norway’s fertilizers major Yara – would continue enjoying access to the country’s abundant natural gas reserves.

“Even in the case of an allocation, BASF thinks it should be well supplied. A Russian gas embargo might be less an issue for BASF’s Antwerp Verbund site as Belgium in general only has 5-10% Russian gas exposure and, therefore, Antwerp’s ammonia production might not [be] at risk in the case of Russian supply issues,” said chemical equity analysts at Baader Bank on Tuesday.

“Ammonia and acetylene are the biggest gas consumer in Ludwigshafen and, therefore, might be at risk to be shut down in the case of Russian gas supply stop but could – at least partly – be compensated by Antwerp and fully by the US cracker,” said the analysts.

BASF ammonia production capacities Capacity (tonnes/year)
Ludwigshafen, Germany 880,000
Freeport, Texas, US 750,000

Source: ICIS Supply and Demand database

Production capacities for ammonia at Antwerp are unknown; BASF said on its website its total production capacity for ammonia stands at 1.7m tonnes/year.

The German and wider European economies have slowed down the pace of growth, compared with the first quarter, as high inflation is making consumers wary of big-ticket purchases.

For a producer like BASF, with important operations in China as well, the lockdowns implemented in that country in April and May to contain the pandemic could also take a toll.

However, Baader Bank analysts said the producer’s second-quarter (Q2) results could be better than the analysts’ consensus expects, and BASF may release a trading update ahead of the official Q2 results publication date (27 July).

The company, the analysts went on to say, could do that to prop up its share price, which has taken a battering in June on fears of natural gas supply cuts and global economic woes.

“Despite our view that also the backlog for Q3 might remain good, we doubt BASF will raise its full year guidance due to the unsecure market environment. Therefore, we expect that the potential positive surprise from the better-than-expected Q2 earnings might not lead to a significant share price reaction,” said Baader Bank.

The outlook is also clouded by “many unknown parameters” such the planned divestment of BASF’s oil and gas subsidiary, Wintershall Dea, or the effect an embargo on Russian natural gas could have in the German economy, added the analysts.

“In our view, Q2 demand, with the exception of automotive, might have been very strong. Weaker April demand – due to COVID-19 lockdowns – might have been recovered in May and June. We also expect BASF’s order book might [have] remained strong for H2,” said the analysts.

“In addition, we think BASF had a strong pricing power in upstream and downstream businesses due to supply chain issues and strong demand. However, in Upstream we expect margins to sequentially decline over 2022 from the very strong Q1 level.”

BASF share price
Source: BASF

Front page picture: BASF’s ammonia plant in Ludwigshafen, Germany
Source: BASF


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