Urea: Where Energy Becomes Food

From Gas to Granule

In most of the world, the chain starts with natural gas.

Hydrogen is produced primarily from natural gas and combined with nitrogen from the air through the Haber–Bosch process to manufacture ammonia. That ammonia is then reacted with carbon dioxide to produce urea. The resulting solution is concentrated before being converted into the prills or granules familiar to fertilizer markets.

Natural Gas → Ammonia → Urea Synthesis → Concentration → Prilling/Granulation → Fertilizer

That upstream relationship is critical because natural gas is not simply an energy source for nitrogen fertilizer plants. It is also a feedstock. According to the World Bank, natural gas can account for 80–90 per cent of ammonia production costs.

A movement in gas markets can consequently become a movement in fertilizer markets remarkably quickly.

There is one major exception to this global model: China. While most major producers manufacture ammonia using natural gas, much of China's urea industry derives hydrogen from coal gasification. That gives China a structurally different cost base and reduces its direct exposure to international natural-gas shocks — and helps explain why China's production decisions can behave differently from those of gas-dependent exporters. This distinction matters because China is not a peripheral participant. It is the world's largest urea producer.

A 200-Million-Tonne Industry

Global urea production was projected by the International Fertilizer Association to reach a record 204.1 million tonnes in 2025, an increase of around 2 per cent. The scale of the market reflects urea's central position within modern agriculture.

China dominates production, while India is another enormous manufacturing centre as well as a major consumer and importer. Russia, the Gulf states, North Africa, Southeast Asia and the United States form other important production clusters.

Yet production and international trade tell two different stories. Large volumes of Chinese and Indian production are consumed domestically. By contrast, gas-rich economies in the Gulf have developed production systems in which exports play a much larger role.

That has created one of the defining characteristics of the global urea market: production is geographically broad, but internationally available supply is considerably more concentrated.

The Geography of Trade

The Gulf illustrates the point. IFA data show that Iran, Qatar, Saudi Arabia, Oman, the UAE and Bahrain together accounted for 34 per cent of global urea trade in 2024. Nearly 18.5 million tonnes of urea were exported through the Strait of Hormuz that year.

The structure of global urea trade is essentially a transfer between production centres with competitive feedstock and agricultural economies with enormous nitrogen requirements. Russia has been one of the largest exporters. The Gulf connects low-cost gas reserves with buyers across South Asia, Latin America and other markets. North African producers supply Europe and international markets, while China alternates between periods of greater and tighter export availability depending partly on domestic conditions and policy.

On the other side of the market sit major agricultural importers. India remains particularly important — its domestic industry produces large quantities of urea, yet the country's agricultural demand is sufficiently large that imports remain necessary. Brazil, the United States, Türkiye, Thailand, Australia and several African markets also depend significantly on internationally traded supply.

When the Energy Shock Reached the Farm

The World Bank's April 2026 Commodity Markets Outlook recorded one of the sharpest recent movements in the fertilizer complex.

Its fertilizer price index increased by more than 12 per cent during the first quarter of 2026. Urea experienced the most dramatic movement: the benchmark averaged $725 per tonne in March, almost 55 per cent higher than February and its highest level since October 2022.

The World Bank now projects average urea prices to rise by nearly 60 per cent in 2026, contributing to a projected 31 per cent increase in fertilizer prices overall.

The mechanism behind the shock demonstrates how unusual urea is as an agricultural input. Pressure on energy infrastructure and Gulf shipping constrained both finished fertilizer exports and the natural gas and LNG required by nitrogen producers elsewhere. The effect travelled outward through the supply chain.

The disruption also exposed the market's dependence on maritime geography. Even after fertilizer vessels began moving again through Hormuz in June, traffic and fertilizer shipments remained below pre-disruption conditions. Urea prices were responding simultaneously to energy, production, logistics and risk.

Trade Policy Becomes Part of the Price

Physical supply is only one variable.

Governments increasingly intervene in fertilizer markets when domestic agricultural security is at stake. Export restrictions, tariffs and domestic supply measures can remove tonnes from the internationally accessible market even when global production itself has not disappeared.

China provides an important example. The World Bank reported in April that concerns over domestic fertilizer prices could result in tighter Chinese exports. Its data showed that fertilizer exports during the first two months of 2024–2026 were roughly one-fifth of the levels recorded over the preceding three-year period. Elsewhere, changing tariffs and trade measures are redirecting established fertilizer flows.

For buyers, this creates an important distinction: global production capacity is not the same thing as globally available supply. A plant may be operating while its output remains directed toward the domestic market. A producer may have export capacity while shipping routes are constrained. A cargo may exist while tariffs alter its commercial destination.

The urea market is therefore shaped by three systems at once: energy economics, agricultural demand and trade policy.

More Than Fertilizer

Agriculture remains overwhelmingly the reason urea matters. But the molecule extends beyond the farm. Industrial-grade urea is used in urea-formaldehyde and melamine resins found in wood products, laminates and other manufactured materials. High-purity urea is also the active material behind diesel exhaust fluids such as AdBlue, where it helps reduce nitrogen-oxide emissions from diesel engines.

Its industrial footprint is significant, but agriculture gives the commodity its strategic weight. Manufactured fertilizers support crops on which roughly half of the world's population depends, according to IFA.

When urea becomes expensive, farmers face a difficult calculation: absorb the higher cost, reduce fertilizer application or shift planting decisions. The effects may not appear immediately — they emerge later through yields, farm margins and ultimately food availability. A natural-gas disruption begins in an energy market. It raises ammonia economics, changes urea production costs, alters fertilizer prices and eventually reaches a farmer deciding how much nitrogen can economically be applied to a crop. By that stage, the original energy shock may be thousands of kilometres away.

The granule may end its journey in the soil. Its economics begin much further upstream.

Key Statistics