UK Strikes Emergency Deal With CO2 Producer To Restart Operations Amid Shortage

US company CF industries will restart carbon dioxide (CO2) production this week at one of its two shuttered UK plants after the government offered financial support. CF closed both plants last week after soaring natural gas prices made it uneconomical to produce CO2, a byproduct of fertilizer that is derived from natural gas. 

According to FT, CF’s ammonia plant at Billingham will “immediately restart operations” after the government signed an “exceptional short-term arrangement” with the company. 

“The government will provide limited financial support for CF Fertilisers’ operating costs for three weeks while the CO2 market adapts to global gas prices,” the Department for Business, Energy and Industrial Strategy said on Tuesday. Sources told FT, financial support could be upwards of £20 million. 

British Business Secretary Kwasi Kwarteng said the short-term financial agreement with CF will last for several weeks to increase the production of CO2 for critical industries.

“This agreement will ensure the many critical industries that rely on a stable supply of CO2 have the resources they require to avoid disruption,” Kwarteng said.

George Eustice, environment secretary, said with one plant coming back online, it would be enough to divert new CO2 supplies to industries that need it the most, such as the meat industry, food packaging industry, hospitals, and nuclear power plants, among others. 

The closure of CF’s Billingham and Ince plants is about 45% of the country’s commercial production of CO2. The government warned with limited supplies. Companies could pay upwards of 500% more for the CO2. This will make the production or handling of products even more expensive for companies that will either eat costs and experience margin compression or pass the costs on to consumers. 

COMMODITY INFLATION: UK government flags massive jump in industrial CO2 prices.

“The food industry knows that there’s going to be a sharp rise in the cost of CO2 […] from £200 a ton, eventually closer to £1,000,” Environment Secretary George Eustice said pic.twitter.com/B36nO1KQ21

— Javier Blas (@JavierBlas) September 22, 2021

With soaring natural gas prices, British Prime Minister Boris Johnson said earlier this week that his government would do everything in its power to prevent an energy crisis from severely disrupting the economy. 

There’s also been destabilization in energy markets where smaller power companies are folding left and right as a bankruptcy wave appears to have begun. 

The disruptive nature of soaring natural gas prices is rippling through the UK economy and may get worse ahead of winter.