Power shortages disrupt production across Europe’s food processing, energy-intensive industries

Power shortages disrupt production across Europe’s food processing, energy-intensive industries

As energy prices in the UK and other parts of Europe have soared in recent weeks amid a confluence of factors, energy-intensive manufacturing facilities have started to reduce or even shut down operations, potentially causing shortages of certain key industrial gases used in a variety of industries from medical, to beverage making and food processing. 

Energy prices have been particularly impacted by depleted gas storage levels that providers have been struggling to refill for several main reasons: First, one of Europe’s top energy suppliers in Russia continues to experience pandemic-induced production disruptions. Finding alternative suppliers has been largely unsuccessful due to maintenance at North Sea fields and concurrent rising demand for liquified natural gas (LNG) in Asia. Second, the impacts of these external trends have been compounded by the continent’s efforts to shut down coal-powered plants and pivot toward green energy. The region’s push for renewable energy has led many countries to divest from fossil fuels, halting operations at many coal-and nuclear power plants, while renewable energy supply has been failing to meet the increasing industrial demand. Third, a series of problems in the UK’s electricity system has caused a particular acute energy crunch across the country after a main power cable from France was shut down following a fire last week, and wind turbines have slowed during some of the least windy months in 50 years.

Energy crisis halts agricultural fertilizer production

As European gas inventories plummet to the lowest levels in a decade, major agricultural fertilizer companies have begun to reduce or even halt production due to high energy prices. In the UK, for instance, gas prices have increased by 70 percent over the past months.

U.S.-based agricultural fertilizer maker CF Industries was forced to shut down its manufacturing complexes in Billingham and Ince, U.K. indefinitely, citing the impact of high gas prices on profitability. The company’s Ince facility produces 1 million tons of hydrogen and nitrogen fertilizer products each year, serving as a key supplier for farms across the country. Meanwhile Norwegian agricultural fertilizer producer Yara reported that it would limit ammonia production by 40 percent at its plants in the Netherlands, Germany, Norway, Italy, France, U.K., and Belgium. Yara trade’s one third of the world’s ammonia supply, used as a critical input in agricultural fertilizers.

Food processing industry warns of shortages due to lack of ammonia, CO2

Ammonia hydroxide, less potent than the chemical in its purest form, is also used as an effective preservative in a variety of food products. While in France Roquette Freres SA, a food processing company, and Tereos, the country’s top sugar producer, have both warned of impending disruptions due to the lack of ammonia, U.K. meat producers and packagers have been warning of the imminent risk of shortages due to the lack of carbon dioxide (CO2), an indirect consequence of the energy crisis. CF Industries manufactures CO2 as a byproduct of fertilizer, used in food packaging and distribution to extend shelf-life. The Billingham facility alone is responsible for 60 percent of the U.K.’s food-grade CO2 supply. U.K. online grocer, Ocado Group, has cited the lack of CO2 as the reason for halting frozen meat deliveries to consumers. Without the critical component, grocers like Ocado lack the dry ice needed to transport and deliver frozen products. This will inevitably compound existing meat transportation disruptions provoked by both Brexit and the pandemic as the U.K. continues to experience ground freight delays due to an acute shortage of truck drivers.

CO2 is also used as a stun for 80 percent of pigs and chickens in the U.K. to ensure the most humane form of slaughter. Considering low buffer stocks of CO2 at food processing sites and with the remaining supply being prioritized for medical uses such as surgeries, the British Meat Processors Association (BMPA) has warned that, without additional CO2 supplies, meat availability could be significantly reduced within two weeks. Similarly, U.K. poultry producers stated that 60 percent of processing facilities would shut down within a matter of days, while the Food & Drink Federation (FDF) warned of serious disruption in beverage supply chains as CO2 is also an essential ingredient for the carbonation of fizzy drinks and beer to prevent the growth of bacteria and fungi.  

Beyond the food processing industries, energy-intensive facilities in sectors such as steelmaking and chemicals are particularly exposed to the impact of energy costs. The steel industry association UK Steel has warned that steelmakers have already been halting work during the hours of peak power demand to avoid record high prices.

As winter season looms, European governments and companies respond to gas shortages

Governments across Europe are formulating policies aimed at quelling the energy crisis in advance of the winter season. Norwegian authorities, for example, have increased the permitted number of gas exports from two offshore fields operated by state controlled Equinor to increase the region’s supply. Italy and Spain, in a more consumer-centric approach, have prepared aid packages to offset household energy bills. The U.K. government, to stabilize the crisis, is working with energy and food industry representatives to identify actionable solutions.

Some measures by the private sector have been taken to mitigate the impacts of the energy crisis. Yara announced on September 20 that it would bring ammonia to Europe from other facilities in Trinidad, the U.S., and Australia. Through ammonia production in Europe has become unprofitable, Yara will support regional fertilizer capacity and ensure all existing contracts are fulfilled. Despite a bleak outlook in the U.K., authorities have vowed not to bail out failed power suppliers but have instead encouraged larger, more stable power companies to absorb their operations. This approach was recently deployed by Centrica, when it absorbed the roughly 350,000 customers of failed small-scale supplier, People’s Energy. The U.K. is reportedly weighing the option of providing emergency loans to companies that absorb customers from failed suppliers. Sources report on September 21 that U.K. authorities have also reached an agreement to subsidize fertilizer maker CF Industries to resume production and bolster CO2 supplies.

In light of the wide-ranging impacts across various industries, customers with regional supply chain dependencies in the affected sectors are advised to keep abreast of latest economic developments and to get in touch with key suppliers to assess business continuity plans for logistics and supply in the days and weeks to come. Everstream Analytics’ Intelligence Monitoring capabilities enable supply chain managers to better understand the scope and impacts of such events and spot early warning signs before they cause significant impacts on their business. In the long-term, building up buffer stocks of critical components or onboarding alternative suppliers – both from a geographical and vendor perspective – could also offer a prudent strategy to anticipate future disruptions.

References

Battered UK food supplies hit by fallout from Europe’s energy crisis (businesslive.co.za)

Europe Faces Bleak Winter Energy Crisis Years in the Making – Bloomberg

CF Industries Shuts UK Plants After Fire Shuts Cable, Energy Prices Soar – Bloomberg

High Natural Gas Prices Prompt Shut Down of British Fertilizer Plants – The New York Times (nytimes.com)

Europe faces a winter energy crisis years in the making (worldoil.com)

Opinion: Europe’s power crisis is an expensive reminder that renewable energy has its limits – The Globe and Mail

https://www.bbc.com/news/explainers-58626935

https://www.theguardian.com/business/2018/jun/20/co2-shortage-could-hit-uk-beer-and-chicken-supplies-during-world-cup

https://www.reuters.com/article/businessNews/idUSKBN2GG0FN

https://www.gazettelive.co.uk/news/teesside-news/c02-shortage-downing-street-working-21617489

https://www.business-live.co.uk/manufacturing/cf-industries-halts-operations-uk-21584113

https://www.reuters.com/business/energy/equinor-wins-permission-hike-troll-oseberg-gas-exports-dn-reports-2021-09-20/

https://www.ft.com/content/0fba039b-9e1a-413f-aa3a-7478d02ef3a5

https://www.reuters.com/business/energy/yara-brings-ammonia-europe-after-gas-price-hike-ceo-says-2021-09-20/

https://www.bloomberg.com/news/articles/2021-09-20/energy-firm-green-warns-it-may-not-survive-winter-power-update

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