China reserves urea while plundering Aussie gas

Late last year, the Chinese Government banned the export of urea, a naturally occurring chemical component that is used in both fertiliser and as a vital anti-pollution additive for diesel fuel named AdBlue.

At the time, around 80% of Australia’s urea had been imported from China, which has the world’s richest supply.

However, China banned the chemical’s export in order to lower fertiliser prices domestically.

China’s ban of urea has potentially devastating implications for Australia’s agricultural and freight transport industries, and therefore the Australian economy.  As explained by Australian Trucking Association chair David Smith:

“They wanted to retain their urea themselves to hold the price of urea in China … to make it cheaper for their farmers,” Mr Smith told RN Breakfast.

“(But they) left Australia swinging, basically”…

As a result, the price of urea has gone up more than 400 per cent since January, and the price of AdBlue has more than doubled in the last two months…

Queensland cattle farmer Matt Ferguson-Tait was equally concerned:

“If we run out of urea, not only will we not be able to grow cattle, we will not be able to grow food, we will not be able to grow grain or anything like that, but even if we could, we can’t move it because we can’t turn a wheel in a truck because we have no AdBlue”…

“It’s more terrifying than any Covid headline, I can tell you.”

Australia temporarily averted disaster last year when the former Morrison Government granted fertiliser juggernaut Incitec Pivot $29.4 million to produce extra supplies of AdBlue.

However, Incitec Pivot has announced that it would cease AdBlue production at its Gibson Island facility in Brisbane at the end of 2022, which will yet again leave Australia’s agricultural and freight transport industries dangerously exposed:

“The issue for us is if we don’t have a local plant producing high-grade urea for use in AdBlue, we will face the same situation [as last year] come December this year, because urea is used in fertiliser as well … and we’re seeing globally with food supply issues, it has a knock-on effect with higher demand for fertiliser”, [Road Freight NSW CEO Simon O’Hara said].

So what has China’s decision to ban urea exports got to do with Australian gas? First of all, the Gibson Island plant is closing because Aussie gas is too expensive.

Australia is the world’s biggest LNG exporter at the same time as East Coast domestic gas supplies are experiencing an acute shortage and East Coast gas prices have soared to nosebleed levels.

71% of eastern gas exports went to China in 2021-22:

Gas exports

Both Chinese state-owned enterprises, CNOOC and Sinopec, are equity partners in two of three LNG export facilities, making them card-carrying members of the east coast gas export cartel.

Every single household and business east of WA is now subsidising the foreign-0wned, tax-free, China-beholden gas cartel to the tune of $50bn in annualised energy costs. In turn, Australian gas is effectively subsidising Chinese industry and its war machine, while Australian households and businesses are ruthlessly squeezed with higher costs.

In turn, Australian inflation will be pushed higher, which will prompt more aggressive rate hikes from the Reserve Bank.

And, like urea, it will hollow out Australian industry and make the economy ever more dependent upon Chinese, even as the geopolitical environment deteriorates.

The solution is for the Albanese Government to do to gas exactly what the Chinese Government did to urea: impose East Coast reservation to ensure a plentiful and low cost supply of gas to domestic household and industrial users. Alternatively, apply super profits taxes or export levies to achieve a similar result.

Anyone still screaming “sovereign risk” needs to ask themselves: “Why is it okay for China to reserve urea, but not okay for Australia to reserve gas?”.

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments

  1. BadaBingMEMBER

    “Why is it okay for China to reserve urea, but not okay for Australia to reserve gas?”

    Cos the same shareholders benefit in both those circumstances.

  2. If the supply of urea is such a strategic concern – and it does indeed seem to be – then surely the government can persuade Incitec Pivot to continue production at Gibson Island?

    • Strange EconomicsMEMBER

      This plant produced Urea for the last 40 years, until it was priced out by gas non-reserved prices.

      Its a strategic commodity – ie if imports are closed food production is impacted.

      Because the gas price is cheaper in China so its cheaper to import. Until you can’t import. Its essentially a strategic commodity now. Ironically, the govt could persuade by subsidising gas to the plant, and pay for that by taxing the untaxed export gas.

    • Nationalise it, as it’s now a (not so natural) monopoly & strategic national security issue. Not doing so could lead to a Sri Lankan style uprising 😜

      Friendly Jordies gonna be like these Sri Lankans counting out Rajapaksa’s cash in his house https://t.me/voynareal/27796

    • SchillersMEMBER

      Or set up our own government owned and controlled facility for the manufacture of urea. Just like China. Why do we always have to leave the mining and production of inputs essential to economic survival in the 21st century to private enterprise? Like oil (only two refineries left) and fertiliser? Will we squander our supply of critical minerals (lithium, cobalt, alumina, silicon and other rare earths) and give it away for nothing, just like we have with gas? Or will be smart and start owning it ourselves, like numerous government owned enterprises overseas?

    • Magnus MaximusMEMBER

      You would think with all the billions thrown at “Sovereign Defence Industry” they could spare a few bilion to ensure the ADF isn’t defending a collapsing state in war


  3. Anyone still screaming “sovereign risk” needs to ask themselves: “Why is it okay for China to reserve urea, but not okay for Australia to reserve gas?”.

    Nuff said.

  4. Despite Labor having already made a truck load of excellent decisions in trying to put right the Libs neocon policies & the fact they can’t be blamed for the mess they have inherited #onetermAlbo will only have himself/Labor to blame, they have the power.

  5. Farmers need to train themselves off urea using rotational cover crops with a high % legume, works for some of the best growers in the world.

    Mining needs it for explosives but with their margins, they can afford to pay higher prices.

    Adblue is slightly different but fleet managers can make engine purchasing decisions based on Diesel Oxidizing catalysts or DPF’s.

    • nuthin to worry about then. we’ll make all the required changes to enable china to keep plundering our gas.
      silly us, the answer was there all the time !

  6. History is repeating. Hard and soft commodities are strategic and the cause of wars, in a world of geopolitical rivalries (which are deglobalising). Australia is a huge player in these items as a supplier but it is also extremely vulnerable in others.
    Its been a long time coming. Wake up Australia.

  7. Oh Totes where art thouMEMBER

    So what has China’s decision to ban urea exports got to do with Australian gas? First of all, the Gibson Island plant is closing because Aussie gas is too expensive.

    So people have to potentially starve before we enforce gas reservation?! This is further strengthening my fear that Labor will be a one term government.