Global scramble for urea leaves Australian supply exposed

(Left to right) Panel moderator Rob Hart, RPCQ Vice-President; Stewart Morland, IOR; Jared Seiler, LRTAQ and Josh McGregor, McGregor Gourlay. Picture: Rural Press Club of Queensland THE challenges ahead for Australia’s fuel and fertiliser supply were laid out in stark detail at a Rural Press Club of Queensland (RPCQ) lunch last Friday, where three industry leaders delivered plain-spoken, hard-hitting assessments of the pressures building across the ag sector. The panel featured Stewart Morland , director of fuel importer and distributor IOR; Josh McGregor , managing director of agricultural inputs and service provider McGregor Gourlay; and Jared Seiler , managing director of Seiler’s Transport and president of the Livestock and Rural Transporters Association of Queensland. Panel moderator Rob Hart. Picture: Rural Press Club of Qld Panel moderator Rob Hart , managing director of Upscale Farmland Funds and Vice-President of the RPCQ, said the speakers were chosen because they were all business owners and large buyers of either fuel or fertiliser at the frontline of the supply chain, able to provide direct insights into the now two-month-long supply disruption. “The world has changed and it’s never going to go back to the old,” Mr Morland said in his opening comments. While there was hope the Middle East conflict would ease, the damage to infrastructure and global supply chains meant Australia still faced a “really, really tough next three to four months” and elevated prices at least until the end of the year, he said. More productive configurations slash diesel use per head Livestock transporter Jared Seiler said operators were working on tight margins and had already seen fuel costs rise by more than 40 percent since the conflict began. “There is only one thing we can do is pass it on,” he said. “I know with our business in February our fuel bill was about $250,000, and in March it was close to $500,000. It is a hell of a jump.” The issue was causing transport businesses major problems with credit limits and cash flow, he said. Trucks burning $4000 of diesel a week when the price was $1.70 were now $8000 a week to run. As a result many trucking businesses suddenly found themselves pushing past credit limits, unable to buy more fuel but still waiting to be paid for completed work. Mr Seiler presented data showing how higher productivity vehicle combinations could significantly improve fuel efficiency and enable more livestock to be moved with less diesel. A B-double transporting cattle from Roma to Brisbane uses about 27.7 litres of diesel per head, he pointed out. That fell to 8.9 litres per head using a Type 1 (two-trailer) road train, and just 8.3 litres per head with a triple road train. “So there are certainly some savings in fuel to be made with higher productivity,” Mr Seiler said. The industry was also actively lobbying Governments to allow last mile access to properties for high productivity vehicles. Instead of “splitting up and running up and down the road”, this would allow trucks to drive straight in, saving time and fuel. Non-essential livestock movements at risk Looking ahead, Mr Seiler said that if the fuel supply situation worsens, decisions may have to be made on which type of livestock movement gets priority. “So prioritising what gets moved first, and what has to stop,” he said. “So definitely the intensive industries – piggeries, feedlots, chickens – all of that side of it certainly going to have to keep on moving. “But things like rodeos and camp drafts will probably be the first to be dropped off. “I think that might be coming further on down the line, but that’s something we need to be thinking of and starting planning ahead for.” Call for Government-owned fuel reserves IOR director Stewart Morland outlined how a combination of geopolitical instability, disrupted supply chains and “just in time” inventory strategies had left Australia exposed. Right now there was a massive difference between supply and demand, he said, which had created an ‘unbelievable opportunity’ for the large majors, traders and refiners to make huge margins because they had the product the market wants. “So please understand that it’s not IOR or the Australian market driving up the price, it is the ability for us to buy product in the marketplace. So that’s super important.” Panellists Stewart Morland, Jared Seiler and Josh McGregor. Picture: Rural Press Club of Qld It was imperative the Federal Government build more strategic storages and maintain ownership of that infrastructure itself, he said. “That strategic storage should never be owned by the importers. It should be owned by the federal government so they can, if there is some sort of conflict, start releasing products from strategic storage. “And that’s what they do in the US, that’s what they do in Japan, and that’s what they do a whole lot of other countries. “We have no ability to release any strategic storage, because we don’t have any. The federal government doesn’t own it.” (On Sunday the Queensland Government announced plans to build new refineries – see separate article here ) In the first 30 days of the crisis, he said, there were many ships already at sea transporting crude oil and gas to refineries in Asia and Europe. “So that saved us,” he said. “But what is happening now is that reality is starting to set in,” he said, as refineries in Asia struggled to source feedstock from the Middle East and began winding back production. “If you don’t have the right amount of feedstock, you can’t run your refineries at 100 percent.” “This is not an issue that is going to be resolved any time soon. “What we have to do is prepare for the worst, and dare I say it, hope for the best.” Mr Morland said IOR has been working with customers to keep them educated and informed throughout the crisis. “We’ve got to look at our businesses and understand where we can take costs out of our businesses and become more efficient, because that’s the only way we’re going to survive,” he said. Multiple solutions were needed to fix the energy crisis Australia faces, he said. Australia was very gas rich, while the Taroom Trough oil field also offered another “glimmer of hope”, but new developments would still take some years to come online. “We need to invest in more strategic storage, and if we want to get from 30 to 60 days, we consume 100 million litres of product a day. So just to go another 30 days we need 3 billion litres of refined product stored onshore. 3 billion. “...So when I say there is a solution, even building strategic storage is going to take somewhere between two to three years. So that is why I am saying there is just no end in sight for some time.” “People really, really need to understand the predicament we find ourselves in today. “And its ugly.” Fertiliser situation precarious On the fertiliser front, Josh McGregor explained that Australia’s cropping sector is heavily exposed to an international urea market that is “one of the most volatile large volume commodities on the face of the planet”. The market was vulnerable to disruption from currency movements, energy prices, freight costs, insurance pressures, geopolitics and weather. Rising costs are also intensifying capital requirements, adding to a high-risk environment with importers and distributors increasingly reluctant to carry stock without firm commitments from buyers. He said the current dry conditions have stalled purchasing decisions across the supply chain, with importers unwilling to bring in shipments without confirmed demand and distributors also hesitant to contract product with farmers also delaying purchase decisions because of the seasonal uncertainty. “Importers are going, ‘well, we’re not going to be bringing a boat if you’re not putting your name on it’. We’re going, we’re not going to contract it unless we’ve got a farmer who’s willing to put their name on it. And farmers are going, well I don’t even know I’m going to need it, if it doesn’t rain soon,” he said. The supply pipeline was running well below normal levels. Mr McGregor said his company can account for up to 15 percent of the urea imported to Brisbane, depending on water levels in the valleys it services, but at present it holds a quarter of its typical supply. If rain triggers a spike in demand “it’s not going to suddenly be there”. The situation was particularly acute in southern Australia, where farming systems relied heavily on in-crop fertiliser applications, unlike northern regions that apply most fertiliser upfront. Southern farmers depend on timely supply later in the season but “none of that urea has arrived yet”. “We’re looking at a lot of loss production in Australia,” he said. Mr McGregor also provided insights as to how supply issues are being compounded by fierce international demand. Countries such as India, Pakistan, Bangladesh and China which make a lot of urea made with imported gas from the Gulf are competing aggressively on the world market for limited volumes. For a country such as India, with half of its population dependent on agriculture, acquiring the gas it needs was “a matter of life on death”. A cooking gas shortage in India last month led to widespread panic and public protests. “They have to get that urea so they will be out there competing with Australia for every single tradable tonne,” Mr McGregor said. And that is what they have done, he said, with India securing 2.5 million tonnes in the last few weeks, absorbing most of the trade in urea available in the world over that time. Non-diesel rural trucks an option? Livestock and Rural Transporters Association of Qld president Jared Seiler was also asked during lunch whether alternative energy sources such as LNG or hydrogen or electric batteries offered potential solutions for the livestock transporting industry. He said weight and distance were key impediments to those technologies finding a place in the Australian industry. He said he had the opportunity recently to test drive a battery powered truck in the United States. “It was great, but all very short haul – beautiful roads, nice and wide, nice and flat, not up and down hills and around corners and no where near the amount of weight that we tow here,” he said. “Maybe in the future. And if the technology can actually handle it, the issue of the weight of the truck trying to stick to our legal weights, and we start putting big, heavy batteries in things, starts to blow it as well.” He said he was aware of major diesel engine manufacturers working on energy alternatives, but with work programs still planned around diesel engines for the next 10 years. “So we’re still a long way off of anything yet.”