Co2 gas canisters

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A previous agreement for the chemicals giant to continue production expired on 31 January

A deal has been struck with US chemical giant CF Industries to continue production of CO2 gas at its Billingham plant, safeguarding supply for the foreseeable future.

The market-led agreement, which the Department for Business, Energy and Industrial Strategy stressed was “not a taxpayer-funded deal”, comes a day after a three month-pricing arrangement between gas buyers and CF expired on 31 January.

With little sense of whether CF would continue production past this date, the food sector has been mired in uncertainty in recent weeks, with a potential shut-down of the facility threatening the supply of a raft of different foods if the situation were to go unresolved.

CF first halted production of the gas – a byproduct of ammonia production – last September amid soaring energy prices, prompting fears of a CO2 gas crisis last seen in 2018.

After the government stepped in with a short-term financial bailout to help restart production on 21 September, a fixed price agreement, brokered by BEIS, was agreed on 11 October, running until the end of January.

The department said the new arrangement, which is understood could last until the spring, would allow CF “to operate while global gas prices remain high”.

A BEIS spokesman said the government “welcomes industry’s agreement, which is in the best interests of businesses”. However, he added that the government “would like to see the market take measures to improve resilience, and we are engaging on ways this could happen”.

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The announcement was described “as all-round good news”, by British Poultry Council CEO Richard Griffiths, who said the poultry sector would also “continue measures to improve resilience through alternative sources” for the gas.

The news came as “a relief”, according to a spokeswoman for the British Meat Processors Association. However, she warned the body’s members were “still waiting to find out the price level that’s been agreed”.

This would become clearer once new orders and contracts started to be processed, she added.

“Higher CO2 prices will certainly add to food price inflation but for the meat industry, particularly the lamb/beef producers, it’s not a significant component of overall costs,” she said. ”But when many input costs go up at the same time (for example energy and wages) it will inevitably start to put pressure on food prices.”

The longer-term concern would be if CF Industries decided to pull out of UK production in the future, “but given the fluctuation in energy and other input prices, it’s hard to predict when or if that might happen”, the spokeswoman suggested.

Elsewhere, Emma McClarkin, CEO of the British Beer and Pub Association, said she was “encouraged” by the agreement.

“However, we urgently need further details on the nature of the arrangement in order to understand the impact on our sector and the longer-term sustainability of CO2 supply for the UK drinks sector,” she added. 

“Our sector is still reeling from the impact of a devastating winter and face rising cost pressures from all angles. A swift resolution to the CO2 supply issue is crucial in ensuring a strong and sustainable recovery for the beer and pub sector.”

Meanwhile, the FDF’s chief scientific officer Kate Halliwell said the deal would “ensure continuity of CO2 supply, keeping our shops, pubs and restaurants stocked with our favourite food and drink”.

But with the supply chain still vulnerable in the longer-term, she said the body planned to “continue to work with the UK government to boost our efforts to build resilience into the production of CO2 and protect our food and drink supply chain”.