India's fertilizer industry is facing fresh supply and cost pressures after Qatar halted liquefied natural gas (LNG) production following attacks on its facilities, triggering supply cuts of up to 40% for Indian consumers and pushing up gas prices.
The disruption, driven by force majeure declarations and shipping constraints in the Strait of Hormuz, has hit LNG cargoes linked to QatarEnergy and India's largest gas importer, Petronet LNG. The fallout is rippling through gas-dependent sectors, particularly fertilizer manufacturing, where natural gas is a critical feedstock for urea production.
Petronet's long-term contracts with Qatar account for roughly 35% of India's LNG imports, underscoring the scale of exposure. Industry executives say fertilizer producers are now reassessing supply arrangements as uncertainty over gas availability deepens.
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"We are revisiting all the contracts because upstream suppliers cannot supply downstream. For now, stockpiles will sustain operations, but there is uncertainty about how the trajectory will evolve," an executive at a listed fertilizer company said on condition of anonymity.
Companies may be forced to ration limited supplies if the disruption persists. "We will decide whether to proportionally distribute whatever gas we get on a pro rata basis or withdraw downstream contracts altogether," the person added, noting that downstream customers are already putting pressure on fertilizer producers to maintain supplies.
While LNG disruptions threaten energy availability, the fertilizer industry is simultaneously grappling with rising costs and logistical bottlenecks in sourcing ammonia, another critical raw material.
India is heavily dependent on imports for ammonia used in fertilizer production. Industry estimates suggest the country imports over 2.5 to 3 million tonnes of ammonia annually, used largely for the production of urea and other nitrogen-based fertilizers. However, shipping constraints triggered by the regional conflict are sharply driving up freight costs.
Abhishek Wadekar, Chairman of Tradelink International Private Limited, said the situation is becoming increasingly complicated as suppliers and traders invoke contractual clauses.
"The Middle East force majeure situation means everyone is trying to wash away their obligations," Wadekar said.
Freight costs in the ammonia market have already surged. "Rates have jumped from about $14 per tonne to nearly $20, which is a $6 increase, and vessel shortages are making logistics difficult," he said.
With fewer ships available and higher insurance premiums on key routes, fertilizer manufacturers are being forced to search for alternative sources. "Ammonia can be brought from Korea, Southeast Asia or Indonesia, but freight and transit costs will rise," Wadekar said.
The cost escalation could soon be reflected in fertilizer prices globally. "Overall ammonia prices could rise by as much as 30% if these conditions persist," he added.
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Higher ammonia costs directly impact fertilizer production economics, as ammonia is a key feedstock for urea and other fertilizers such as diammonium phosphate (DAP). "If ammonia becomes expensive, the end product cost will also increase," Wadekar said.
For now, industry participants say the government is closely monitoring the situation given that fertilizers are a heavily subsidised sector in India.
Dr. Suresh Kumar Chaudhari, Director General of the Fertiliser Association of India, said there is no need to panic as the industry is working with the government to ensure supplies remain stable.
"We are working with the government on a solution for LNG supplies and raw material availability. We currently have enough stocks of LNG and fertilizer raw materials for the coming agricultural season," Chaudhari said.
As a priority-sector product, industry players expect the Department of Fertilizers to intervene if disruptions persist, potentially through fresh import tenders for finished urea or alternate sourcing of ammonia.
In the longer term, the crisis is renewing calls for India to diversify supply chains and reduce reliance on imports for key fertilizer inputs, particularly in a global environment increasingly shaped by geopolitical shocks.
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