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Urea-ka blockade

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Why a South Korean mercy flight for urea solution might spell trouble for Australian farmers

Worldwide shortages of urea are starting to pinch — which could spell trouble for Australian farmers who use 1.8 million tonnes of urea every year (90% of which is imported, mainly from China).

First, a quick chemistry lesson. Plants require nitrogen to create the proteins that let them grow. Although the atmosphere is 78% nitrogen, plants (except legumes) can’t absorb nitrogen straight from the air — they have to absorb it from the ground in the form of ammonium or nitrite. Farmers want to maximise the ammonium and nitrite in their fields, to increase growth of their crops.

Humans actually produce a lot of nitrogen naturally — in the form of urea, in their urine (which is why many people think peeing on a lemon tree will help it grow). Urea is also produced synthetically — by combining natural gas, atmospheric nitrogen and water together at a high temperature. The result is ammonia and carbon dioxide, which can be reacted together to form urea (in liquid form). The liquid urea can then be cooled and turned into crystals. When these crystals are spread in soil, they create the ammonium and nitrite that can feed nitrogen into plants.

Despite our agriculture industry relying on it, Australia’s urea production capability has diminished to the point where we only produce 10% of our urea requirements locally — and even this is about to end. Incitec Pivot announced the closure of the last local urea production plant at Gibson Island (QLD), driven by an increase in the cost of gas. While Perdaman Chemicals and Strike Energy are planning new urea production plants in Western Australia to take advantage of off-shore gas reserves, these won’t come online until 2025 (at the earliest).

In mid-2020, in the midst of the pandemic, low gas prices sent the price of urea to 10-year lows — a boon for farmers, who spread more of the fertiliser on their winter crop. It’s a different story this year though as rising gas and thermal coal prices have led to the price of urea increasing by approximately 70% in 2021. The record-high thermal coal price has since led Chinese factories to reduce capacity, creating shortages of urea and further impacting the price. Concerned about their own domestic needs, in the past few weeks China has suspended all exports of urea.

While the urea shortage hasn’t been felt in Australia yet — we only need to look to South Korea, another country highly reliant on China’s urea exports, to see what might be in store for us. In South Korea — and across the world — diesel trucks and factories are required to use a urea-based solution (AdBlue® or Diesel Exhaust Fluid) that helps reduce emissions. The suspension of Chinese exports this week caused acute shortages, and sparked panic buying amongst truck drivers. The government even chartered an oil-tanker to fly to Australia to pick up 27,000 litres of the urea solution!

In the short term, the shortage of the urea-based solution is going to cause trouble for the automotive aftermarket and truck drivers locally. But the bigger story might be in the agriculture space. Australian farmers typically start spreading urea in May — if global export restrictions haven’t calmed by then, expect to hear from farmers complaining about the fact that it’s very hard to get their hands on urea. If things get really desperate, farmers might have to resort to a more natural (albeit less scalable) means to spread urea on their crops. Let’s hope it doesn’t get to that!

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