Oil prices have affected prices of natural gas and supply conditions for nitrogen-based fertilizer. According to the Economic Research Service (ERS) for the U.S. Department of Agriculture, links between the oil and natural gas markets have weakened dramatically because of growth in the demand for natural gas and deregulation throughout the natural gas supply and demand system. As a result, prices for natural gas and fertilizer will continue to be unpredictable. U.S. imports of fertilizer will lessen the impact of rising natural gas prices.

While the United States has imported substantial amounts of natural gas from Mexico and Canada, North America had been largely self-sufficient in natural gas production until the last few years, according to the ERS. The natural gas market tightened as the demand grew.

Natural gas imports through shipments of liquefied natural gas will become important in supporting North American supply and relieving the demand pressures on pricing, according to the ERS. Currently there are not enough facilities to convert liquefied natural gas to meet the projected demand, so natural gas prices could be high over the next few years.

North American nitrogenates are produced using natural gas, but as U.S. natural gas prices rose in recent years, some plants that produce nitrogen-based fertilizer shut down, reducing domestic fertilizer production capacity. Fertilizer imports help keep prices for nitrogenates in the United States from rising as much as natural gas prices.

Source: Agricultural Baseline Projections: Macroeconomic Assumptions, 2005-2014. Economic Research Service, United States Department of Agriculture, www.ers.usda.gov.