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24TH
SEPTEMBER 2006
THE EUROPEAN FERTILIZER INDUSTRY’S RESPONSE
TO THE EUROPEAN COMMISSION’S GREEN PAPER ON
ENERGY
Green Paper, Brussels, 8.3.2006
COM (2006) 105 final
“A European Strategy for Sustainable, Competitive and Secure
Energy.”
I. STRATEGIC COMMENTARY
II. GENERAL CONTRIBUTION ON GAS, (EFMA
PUBLICATION, “The European Fertilizer Industry’s Vision of
a World Competitive European Gas Market”
III. SPECIFIC COMMENTARY ON THE GREEN PAPER: THE
TOP SIX PRIORITIES

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THE EUROPEAN FERTILIZER INDUSTRY’S RESPONSE
TO THE GREEN PAPER ON ENERGY
STRATEGIC COMMENTARY
As the largest single sectoral user of natural gas in the EU’s manufacturing sector,
the European fertilizer industry applauds the EU institutions’ top priority
commitment to establish a truly world competitive EU single energy and gas
markets.
To achieve this, the vision and practice required must be aimed at a fully integrated
pan-European, and even inter-continental, transparent, free and fair marketplace.
The full weight of the EU’s legal trade and competition powers as well as the EU’s
considerable economic consumer leverage must be fully engaged against unfair and
illegal pricing practices.
Energy intensive industries in Europe – especially those such as the nitrogen
fertilizer industry which use hydrocarbons such as gas as a raw material – must
have fair and free market economy conditions prevailing in the EU Internal Market
and the world market.
An international level-playing field – not only an EU level playing field - for gas and
energy must be an imperative. If the international competition field cannot be
levelled then EU trade policy must accordingly take strong and steadfast corrective
actions at its borders. No solution at the source of the problems must mean
solutions at the EU borders.
Immediate Community actions should include the following:-
• New physical supply sources must be facilitated by new infrastructure, new
commercial entrants and faster official project approvals by all types of
authority (competition, environment, local, regional). Thus can the physical
supply–side to Europe be better accelerated. In short, demand should not be
allowed to outstrip supply.

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• Diversification of source supplies is increasingly important. There are
proven political and economic risks associated with the EU’s external energy
/ gas supplies. It is essential that new pipeline and LNG projects allow the EU to
access new sources in the Caspian Sea and Africa. In particular, new LNG
infrastructure in Italy, Spain, Poland, the Baltics and the UK are or will prove to
assist diversification and additional competitive supply.
• The firm establishment of a free and fair competition in the Internal Market.
Enforcement agencies – competition and regulatory - must act decisively to
counter all constraints on supply. Presently, EFMA does not support a European
regulatory body. Existing institutions and their powers simply must be fully
employed within Member States and across borders.
• Equally, EU merger & acquisition, anti-trust and state aid rules must be
applied vigorously in the aim of always promoting pro-competitive
conditions for energy supply. In particular, the “Take It or Lose It” principle
must apply in practice. Here both EU and Member State authorities can
contribute to decisive action.
• Constraints on external supply to the EU must be addressed. Free
competition amongst external suppliers is key. EU Trade and competition
legal powers must be employed to correct the potential rise of a producer /
supplier gas cartel copying OPEC. The recent alliance arrangements announced
between Gazprom and Sonatrach are of great concern.
• Equal and non-discriminatory access to pipeline transportation in Russia
and EU should also be secured. Gazprom’s wish to move into ownership and
direct supply of gas to European markets must be reciprocated by European and
other operators access to and even ownership of pipelines in Russia. Reciprocity
is essential.
• Energy intensive industries must be defended from the “effects” of anti-
competitive gas/energy pricing behaviour. The EU’s nitrogen fertilizer
industry is under constant threat from dumped product benefiting from grossly
artificial state fixed prices in the Former Soviet Union, especially Russia.
• Russia’s monopoly gas company, Gazprom, continues to sell gas to domestic
manufacturing industry at prices which do not cover the costs of production
and delivery. EU anti-dumping measures have proven to be the only practical
effective EU counter to this practice.
• It is very timely given the growing unfair and unjustifiable difference
between market prices for gas in the OECD with the state fixed gas prices in
producer / supplier countries, that the European Commission actually
strengthens is trade defence instruments. We request that the current

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“reflection process” take full account of the injurious impact of state fixed and
dual-pricing of gas, feedstocks and energy supplies.
• Similar gas and hydrocarbon practices such as artificial state fixing and
dual-pricing also prevail in other Former Soviet Union countries, North
Africa and the Middle East. Whenever such energy or feedstock pricing
actually injures EU manufacturing abilities and goods and employment, the EU
must employ strong and effective trade defence instruments.
• On the demand side and the use of gas as a raw material, the EU fertilizer
industry has an exemplary record of energy and feedstock efficiency. In fact
the EU industry remains the most efficient user in the world. Europe’s BAT and
BATNEEC approach to environmental and energy management is a model that
many other regions of the world – especially near neighbours in the Former
Soviet Union and Mediterranean can benefit from. EU fertilizer industry must not
be placed under further constraints about energy consumption and taxation. The
promotion of household consumers’ energy efficiency efforts must be further
encouraged.
II. General Contribution on Gas to the Green Paper.
As a contribution to the vital dialogue and decisions to be taken by EU institutions
in the coming months, EFMA has produced a major publication entitled “The
European Fertilizer Industry’s Vision of A World Competitive European Gas
Market”. This we consider is a key part of our contribution to the Green Paper
discussions and the Competition Directorate General’s Gas Sector Study.
See copy enclosed as Annex I.

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III. Specific Commentary of Key Points arising from the Green Paper
1. COMPETITIVENESS AND THE INTERNAL ENERGY MARKET.
EFMA advocates the following course of action in order to assist the restoration
of full competitiveness.
• EU and Member State encouragement of new infrastructure using legitimate
private and government financial instruments, e.g. feasibility study work,
concessionary credits; political risk re-insurance, government guarantees on large
scale projects within WTO/OECD/EU laws and practices.
• Fast – tract implementation of the Gas Sector study preliminary findings.
The supply constraints to the market by the existing national incumbents in the
EU is clear. The “long-term relationships” between the incumbents and the
producer/suppliers must be liberalised and opened to new entrants by “gas
release” mechanisms. Market forces and true market prices must be allowed to
prevail. Otherwise the only feasible alternative is government arbitration of
prices taking full account of consumer interests. Oligopolistic or national
monopoly dominance cannot be allowed to continue.
• Further unbundling which promises real competition in the market should
be promoted. If this cannot be done using existing competition law and energy
gas regulation – which EFMA prefers – then consideration will need to be given
to further EU legislation, e.g. a 3rd
Gas Directive.
• Direct Access to producer / suppliers or new suppliers: new entrants and / or
direct access to major producer / suppliers must be facilitated. Members States
and EU must help the setting of these new relationships. Thus more competition
promises improved competitiveness.
• Intensification of sub-regional co-operation: EFMA applauds the development
of sub-regional consultations amongst national regulators, suppliers and
consumers. However, the process must be faster and there must be a facility for
addressing fast solutions to problems including those immediately arising in the
coming winter 2006/07
• Officials in every relevant function, e.g. environment, land planning,
competition, regulation must be encouraged by EU and national government to
treat new supply arrangements of top priority importance.
• Transparency in the Internal Market must be promoted. EFMA advocates
the creation of EU bureau or Member State statistical bureaux to report on
production, imports, storage and hub contract activity.

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2. DIVERSIFICATION OF THE ENERGY MIX
It is vital that the EU as an integrated economic bloc and Member States have a
profound understanding of the supply/demand balance in Europe. It is also
critical to have an understanding of the world supply/demand balance and develop
long-term and short-term contingencies to handle undersupply.
Diversification of Source supplies is imperative. The EU is surrounded by a “sea
of gas”. This is especially true when LNG supplies from the Middle East and sub-
Saharan Africa are added to the pipeline gas from Norway, Algeria, Libya and
Russia. Reliable supplies from all available regions which can competitively supply
Europe must be encouraged.
Development of new pipelines from the Caspian Sea, North Sea and North Africa
merit political and financial support.
3. SOLIDARITY
EFMA advocates the following in order to promote security of supply under
normal or difficult conditions:-
Local / regional infrastructure requires development especially as this can have
relatively quick competitive and security benefits. A truly interconnected Single
Market requires development of cross-border infrastructure complimented by simple
easy regulation.
Two-way – multiple interconnectivity would certainly enhance solidarity and
security. EASEE gas quality and other criteria must truly promote cross –border
movements; and the Madrid dialogue process and paperwork needs to be simplified
especially for interested parties not directly involved in the “inside discussions”.
Model energy hubs in regions of the EU has the potential to create more transparent
and free market scenes. Damaging price spirals and peaks will be more readily
identifiable for corrective market actions. Gas supply should be able to move to
remove damaging price peaks.
Certain regions of Europe do merit LNG terminals for reasons of security, e.g.
France, so far, suffers from limited capacities; the Baltic States and Poland rely too
heavily on Russian pipeline gas.
Significant expansion in storage facilities is required. The storage would improve
security and it would also improve liquidity.
Supply at the last resort in times of crisis. Each EU Member State or sub-regional
group should develop contingencies for emergency supplies.

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Russia’s stoppage of supply to Belarus in year 2004 and to the Ukraine in year 2006
both had significant supply impacts on the Baltics, Poland and even Western
European consumers.
4. SUSTAINABLE DEVELOPMENT.
EFMA and its members are committed members of the chemical industry’s
Responsible Care programme. Indeed, a specific fertilizer industry Product
Stewardship programme is employed to promote best practice and care for
fertilizer products throughout the whole life cycle of the product.
The European fertilizer industry has already an outstanding record for
improved energy efficiency. This has been achieved by self-help means such as full
implementation of Combined Heat and Power (CHP) technologies; plant re-vamping
directly accounting for energy and feedstock efficiencies; and the application of
continuous improvement management systems including the shared use of EU/EFMA
fertilizer industry agreed BAT/BREF standards and documents.
It is now well recognised by many Member States and the European Commission that
the EU fertilizer industry generally has – by its own collective and individual
company voluntary efforts – significantly contributed to the reduction in energy and
feedstock use. Indeed the world class assets of the European industry represent the
world’s most energy efficient nitrogen fertilizer manufacturers.
Contemporary available assessment from independent expert fertilizer engineering
source identifies the average energy efficiencies of other major competitor regions as
considerably lower than Europe’s. For example, in Russia – a major world exporter
of nitrogen fertilizers – the average FSU ammonia plant is at 40 mmBtu/tonne NH3; a
typical USA plant is at 36 mmBtu/t NH3; while the European best (all) average is
(34mmBtu/t NH3). The European performance represents the best regional
performance in the world.
The drive for energy efficiency has meant good business and good environmental
performance sense. This voluntary self-help model has been promoted by EFMA
internationally through the International Fertilizer Association and through other
fellow national representative bodies. We remain confident that this model – as
opposed to regulatory controls or fiscal advantages – is the best route forward for all
the world’s industries, not only the fertilizer industry’s energy efficiency
programmes.
Fertilizer industries in Europe and the world – and indeed all industries - should adopt
voluntary self-help energy efficiency programmes using the BAT/BREF models and
documentation available from the EU industry experience.

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5. INNOVATION AND TECHNOLOGY.
As explained above best available fertilizer technology and supporting chemistry is
readily available to all interested parties. International technology transfer is highly
prevailant within the EU and world scenes.
Continuous improvements with regard to the energy efficiency and environmental
impact are possible in Europe, but the most profound advances are likely to come
from the employment of existing technology and chemistry in China, India and the
Former Soviet Union.
The EU fertilizer industry as a science based industry welcomes all R&D efforts in
the fields of fertilizer technology and agricultural science and best practice.
6. EXTERNAL POLICY
EU leadership on INTERNATIONAL AGREEMENT and action to promote the
free and fair pricing of gas and energy is now imperative. The recent
announcement of a gas alliance between Gapzrom and Sonatrach is of great concern.
The EU must make every effort to counter a gas cartel copying OPEC behaviour.
Unfair gas pricing policies and practices such as state fixed pricing and dual-pricing
are longstanding and defining characteristics of many key gas suppliers to Europe.
Russia is the most classic example. Russia with its catastrophic collapse in fertilizer
demand also conducts the most harmful dumping campaigns on its manufactured
goods, in particular nitrogen fertilizers.
The EU’s nitrogen fertilizer industry is under constant threat from dumped product
benefiting from grossly artificially low state fixed prices in the Former Soviet Union.
Russia is the classic and leading case.
Over recent years, the European fertilizer industry has been forced to use anti-
dumping actions as a short-term correction to artificially low state fixed pricing and
dual-pricing practices.
As the price difference between gas prices in market economies and with state fixed
prices has grown over recent years, it is timely that the EU’s trade defence
instruments require strengthening and steadfast employment. Here EFMA calls upon
the Commission with its unique powers on trade defence to use the current
“Mandelson reflection process” to strengthen the EU’s defence against unfair energy
and feedstock pricing.

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The ultimate correction, to a significant degree, involves the prevalence of non-
discriminatory market prices built on true market structures in all countries – whether
it is a producer and/or consumer country.
The EU must also show leadership in the promotion of better
transit/transportation terms and conditions from producer/supplier sources and
transit countries. In particular, the EU should enhance the authority of Energy
Charter and the application of free and fair trading practices therein. Russia must be
persuaded to finally sign up to the Transit Protocol.
Longer-term, an international level playing field for gas/energy supply could lead to
the development within the WTO of ‘Trade Related Rules-for-Energy-Supply
(TRES)’.
EU Bi-lateral leverages must also be forcibly applied. The recent announcement
of potential EU-Russia and EU-Ukraine Free Trade Areas including energy chapters
should be taken as an opportunity to secure a pan-European regulatory and physical
infrastructure. This should allow for security of supply and demand; and
predictability and transparency of energy trade backed by market economy
instruments and energy exchanges.
Equal and non-discriminatory access to pipeline transportation in Russia and
EU should also be secured Gazprom’s wish to move into ownership and direct
supply of gas to European markets must be reciprocated by European and other
operators access to and even ownership of pipelines in Russia. Reciprocity is es-
sential.
CONCLUSION
The European nitrogen fertilizer industry is the single largest consumer of gas in
Europe. This is due to the fact that natural gas represents between 40 to 70% of the
cost of production of a finished nitrogen fertilizer product.
The difference between gas and energy prices payable by the EU industry compared
with its near neighbour competitors has become unacceptable. This is especially
true when neighbours such as Russia and North Africa price the gas at premium
levels for exports to Europe and at the same time price the gas at artificially state
fixed below costs for their local industries.
It is imperative that the European Union and the Commission apply all its legal and
consumer powers to promote competitive supplies of gas to European industry.
Fast and definite regulatory reforms combined with new infrastructure must
promote a world competitive Internal Market. Continued efforts must be made to
promote free and fair supplies of energy from producer / suppliers predisposed
toward dual-pricing, carteling and monopolistic pricing of exports sales. If solution

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cannot be found at the source of these problems, i.e. producer / suppliers then the
Community should legitimately apply the appropriate trade defence measures.
There is real urgency now for energy intensive industries in Europe to have
competitive energy and feedstock supplies restored to world competitive levels.
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