Gas prices heat up industry

The whole country has felt the effects of higher energy costs, whether in the form of gasoline costs or heating bills. So it should be no surprise that the high prices have also affected the green industry. High prices not only impact the operation of equipment, but the production of fertilizers as well.

The increase in natural gas prices has lead to a decrease in the production of nitrogen fertilizers. This is because natural gas is such a major cost component. The first step of making nitrogen fertilizers is the production of anhydrous ammonia. According to The Fertilizer Institute, the production of one ton of ammonia requires about 33.5 MMBtu of natural gas. The price of natural gas rose from about $2 per million British Thermal Units (MMBtu — the standard measure of thermal energy in the United States) in January 2000 to about $10 per MMBtu in January 2001. As a result, production of anhydrous ammonia decreased 48 percent from the same time last year. In turn, inventories of nitrogen solutions dropped 48 percent and urea dropped 27 percent compared to January 2000.

Prices of natural gas are not likely to change much for some time. According to's “The Dismal Scientist,” natural gas prices will probably be two or three times higher for the next few years than they have been in the past. The reason: Supply is relatively inflexible and will likely require a couple of years to rebuild inventories.

Economists also predict severe price increases this summer for gasoline. Gasoline prices have remained elevated throughout the off-season for driving. At the same time, gasoline inventories have remained relatively low, with only a small increase of 4.5 percent from last year. (See Figure 2.) In addition, crude oil stocks in March were only slightly above last year's low levels. Crude inventories provide a cushion should there be any supply disruptions. If inventories are not sufficient, fluctuations in supply and demand are amplified, resulting in higher prices. If crude oil prices remain high, gasoline prices will remain high with a potential for even greater increases.

So what does this mean for the green industry? The Fertilizer Institute suggests that you check with your supplier to find out about availability and cost of fertilizers for this spring. While imports can cover some of the shortfall of production in the United States, there are transportation limitations. As for gasoline prices, be prepared for potential high and volatile costs after Memorial Day.

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