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September 16, 2022

CO2 price hikes hit UK brewers following ammonia plant closure

The CO2 surcharge has soared in the last month.

By James Beeson

UK brewers are facing mass increases in the price of CO2 following the closure of the country’s largest ammonia plant last month, leading to fears of a production standstill this winter.

Following the temporary closure of CF Industries’ Billingham plant – which produces around a third of the UK’s CO2 – UK brewers have been hit with huge hikes in the Energy & Environment Surcharge they pay on their CO2 purchases.

Invoices from BOC, an industrial gas supplier that previously bought from CF Industries to supply the brewing industry, seen by Just Drinks show the CO2 surcharge has increased from GBP225 (US$259) per tonne to GBP1,540 (US$1770) per tonne in the space of just over a month, a hike of more than 580%.

Emma McClarkin, chief executive of The British Beer and Pub Association warned the surge in the price of CO2 had the potential to cause beer shortages this Christmas.

“There is currently extreme volatility in the supply of CO2 to brewers and pubs, causing increasing uncertainty for their businesses,” she said. “Some brewers have reported week-on-week price increases of more than 400%, a cost they simply can’t pass onto customers.

“Without a reliable, sustained supply of CO2 to our industry, there will be a real, genuine threat of beer shortages from our great British brewers.”

The price spike is particularly troubling for smaller brewers, which do not have the technology to capture sufficient CO2 emissions from their own production, and so have little choice but to absorb or pass on the increased cost.

Andy Parker, founder of Berkshire’s Elusive Brewing, told Just Drinks the increase was equivalent to a cost of GBP1 on every keg his brewery produces.

“If you multiply that out across the course of a year that’s equivalent to around GBP4,000-5,000,” he said. “Plus you’ve got the cost of our energy usage on top, which has tripled since May. We’ve already implemented price increases of around 10% this year, so we’ve got no choice but to swallow that at the moment.”

“The real fear is a lack of supply, as happened earlier this year where we were ordering CO2 and it just wasn’t turning up. We ran out entirely and that obviously impacts on production. Even if prices increase further, we can always keep producing and either reduce our margin or try to pass that cost on, so long as the supply is maintained.”

During last year’s CO2 shortage in the UK, the Government provided short-term funding to help CF Industries meet rising costs, but there is no indication it is considering doing so again this winter.

The Government has said it is confident CO2 supplies will last the busy Christmas period but admitted further action is needed to improve long-term supply for manufacturing industries that use the gas.

A spokesperson said: “We are aware that CF Fertilisers has taken the decision to temporarily halt ammonia production Billingham but we are confident CO2 stocks are secure for the coming winter

“While the market’s resilience has improved in the past 12 months with additional imports, further production from existing domestic sources and better stockpiles, the Government is continuing to examine options for to improve this over the longer term.

“It is still essential that the industry acts in the interests of the public and business to do everything it can to meet demand.”

More broadly, UK brewers are also awaiting clarity on the support that will be on offer to help them meet rising energy costs. The Government is yet to unveil the full details of a package it says will be equivalent to that on offer for consumers, with reports suggesting the support may not be available until November.

An update on the scheme is due next week.

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