The government has sealed a deal with US chemical giant CF Industries to restart CO2 gas production at its two UK sites.
The Department for Business, Energy and Industrial Strategy said last night it had reached a “short-term agreement” with CF to enable it to immediately restart production at its Billingham plant in Teesside.
The government is providing “limited” financial support to the business’ operating costs for the next three weeks while the CO2 market “adapts to global gas prices”.
“This agreement will ensure the many critical industries that rely on a stable supply of CO2 have the resources they require to avoid disruption,” said business secretary Kwasi Kwarteng.
“The quick and decisive action we have taken to resolve the issue shows the seriousness with which we have approached it. In our ongoing response to manage the impact of global gas price rises, we will continue to protect businesses and consumers.”
Defra secretary George Eustice declined to comment on the value of the deal in an interview with the BBC’s Today Programme this morning, but he did admit it would extend into “the many millions” of pounds.
The second CF plant at Ince in Cheshire would also reopen in due course “to a capacity sufficient to ensure we’ve got the CO2 that we need”, he added.
Coupled with the expected reopening of a third CO2 gas plant in Norway, which is run by rival manufacturer Yara and had been closed for maintenance, this action would guarantee there would be no shortages after the three week bailout of CF expired, Eustice claimed.
However, he conceded there would be a “significant increase in the cost of CO2 gas that will have to be met by industry”, though he said the increase of CO2 gas prices would not have “any major impact on food prices”, describing it as a “tiny proportion” of the cost of production.
CF halted production of fertiliser at its plants at Ince in Cheshire and Billingham in Teesside last Thursday due to a surge in wholesale energy prices across Europe, which were further exacerbated by a fire that damaged a key power line linking the UK to France. The business gave no indication over when it intended to restart production.
With about 60% of the UK’s CO2 gas supplies met by the supplier as a by-product of its ammonia manufacturing process, the shutdown led to warnings of a fresh CO2 crisis that would “dwarf” the one that almost crippled the food sector in 2018, and was “a threat to national food security”, according to the British Poultry Council.
In addition to mounting concern across the poultry sector, dwindling CO2 gas supplies have also contributed to a near 100,000 backlog of pigs on farms, amid warnings from the National Pig Association that producers will soon have to resort to on-farm culling. Some UK soft drinks brands were also down to “only a few days” left of CO2, the British Soft Drinks Association warned.
Food sector bodies welcomed the news, but many stressed it could take more than a week until the supply chain was resupplied with the gas, while structural issues would remain.
“The announcement the government has reached an understanding with CF Industries is good news for the continuation of CO2 production to keep food moving,” said BPC CEO Richard Griffiths, who added some major processors had resorted to electrical stunning as a result of gas shortages.
However, Griffiths also warned “this is just the start of a long road ahead”. The latest CO2 crisis “demonstrated the importance of CO2 in British poultry production, to avoid both bird welfare and supply issues”, he added.
“We do not underestimate the challenge that faces us over the next three weeks,” added British Meat Processors Association CEO Nick Allen.
“If we are to return to a normal functioning of the CO2 market, there will need to be some complex discussion on how to re-negotiate and restructure CO2 supply and pricing in the UK,” he added.
“Over many years, we have had a major consolidation of the industry resulting in sectors like food and drink, nuclear and health being reliant on a very small number of very large suppliers. If a market-based solution is to be found, it will likely involve longer-term higher prices for CO2, which will be sustainable for some but not all users of the gas.”