Shale gas could expose fertiliser firms

There are two quite different theories that try to explain the mystery of fertiliser prices.

The first is that the price is directly linked to the price of natural gas. This is the theory most often quoted in the press when analysts from smart City offices are interviewed on the matter, or when the fertiliser companies themselves are asked for an explanation for yet another biblical hike in prices.

The second theory is the one heard whenever a bunch of farmers gather in the Jolly Flowerpots: prices are set by a tiny handful of companies, supplying a product that we simply can’t do without, shamelessly charging a penny a tonne less than the price at which we would stop buying it. It won’t be long before these two theories are put to the test – and it’s all down to shale gas.

Just like any source of energy these days, it has fierce supporters and equally fierce opponents. Not altogether surprisingly, the opponents of shale gas tend to be fans of wind power and other “alternative” energies. The supporters tend to be those who want their lights to come on when required in 20 years’ time.

Both sides agree on some of basic facts: shale gas is a natural gas extracted from shale. A process of drilling into and fracturing the rock using high pressure water and chemicals is used to extract the gas. Reserves of it are huge, especially here in the UK.

But at this stage the arguments start. The drilling causes earthquakes, the sandal-wearing yoghurt-knitters cry; there was one near Blackpool, where drilling has started. It was a tremor, point out Cuadrilla (who are doing the drilling), and it was an unlucky place to drill. It’s unlikely to happen again. “You would say that,” cry the antis.

Then there’s the dramatic film of flaming tap water in a house near a drilling site in USA: turn on the tap and you can set fire to methane coming out along with the water. Sure proof of the lethal danger to life and property, howl the antis. Not exactly, point out the pro-shalers. This natural phenomenon was documented in the 1970s – well before any drilling.

But back to fact. Across the Atlantic there is a glut of natural gas. It’s true that the unusually mild winter has contributed to this, but the extra supplies coming online from shale gas extraction are hugely significant. The forward price fell by 35% in the past year – 13% in one week in January. CF Industries, based in Deerfield, Illinois, which makes ammonia and other fertiliser ingredients, has seen its daily natural gas costs fall from $6m to $2m over the past few years.

Shale gas is coming here soon, big time. It will turn on its head the doom-laden predictions about the end of fossil fuels. It will drastically reduce our reliance on a pipeline bringing in fuel from other iffy regimes. It will make for cleaner power stations. Sure as eggs is eggs, natural gas production will soar, and prices will fall.

But far more importantly, all the farmers sitting in the Jolly Flowerpots will be watching very closely indeed to see what happens to our fertiliser costs. Will they plummet correspondingly, as they have predictably and inexorably risen when gas prices soared? Or will Flindt’s Law of Completely Exploitative and Utterly Cynical Fertiliser Price Setting continue to be proved right?

Charlie Flindt is a tenant of the National Trust, farming 380ha at Hinton Ampner, in Hampshire.

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