The European Union (EU) introduced a tax on Russian fertilizer this summer, fearing that large import volumes would crowd out domestic production. Since the imposition of the tax, urea imports have fallen sharply. The question now is what this means for European fertilizer producers and future gas demand.
An EU levy on Russian fertilizer, combined with the full implementation of the Carbon Border Adjustment Mechanism (CBAM) starting next year, could significantly boost ammonia and urea production in Europe. The big question, however, is how increased fertilizer production will impact gas demand. According to an analysis by market research firm ICIS, the chemical sector could reach a tipping point this winter, which could impact gas consumption.
European production gets space due to EU levy pressure
The EU measure consists of a 6,5% levy, supplemented by a fixed levy of €40 per tonne for nitrogen fertilizer and €45 per tonne for phosphate fertilizer. These levies will gradually increase to a maximum of €430 per tonne in 2028. At the same time, the CBAM will apply to carbon-intensive imports from non-EU countries starting next year, further supporting European producers.
Since the imposition of the tariff, urea imports from Russia have fallen by about two-thirds, to just over 100.000 tons in July and August 2025, compared to record imports in June of this year. The tariff does not apply to ammonia, which is the raw material for urea, phosphates, and nitrate fertilizers. Importers had hedged their bets on Russian products, which explains the July decline. The policy allows European producers to scale up production. Factories in Romania and Lithuania have resumed or expanded production, particularly as European gas prices fall.
It is expected that local producers in the Netherlands, Germany, and other EU countries will be able to utilize their capacity, thanks in part to the CBAM. Since 2022, Russian fertilizer has flooded the European market, driven by high production costs following the energy crisis. In 2024, for example, Russia supplied 30% of European urea and nitrogen fertilizer imports (4,4 million tons, €1,5 billion), an increase compared to 2023. Russian imports were cheaper than production in Europe, where gas prices were high.
What does this mean for the farmer?
For the fertilizer market, this means that Europe will once again become more dependent on domestic production, with a price level closer to the European cost price. Cheaper Russian fertilizer will largely disappear, meaning the average price in Europe will likely be somewhat higher. Availability thus seems assured, but at a higher price, something farmers will notice when purchasing in the coming seasons.
Impact on gas demand
Fertilizer production is gas-intensive. The decline in gas-intensive production following the 2022 energy crisis resulted in significantly lower gas demand from the chemical sector, more than 20% below the long-term average. By October 2025, European production will be operating at 75% to 80% of capacity, but the sector still faces high gas and electricity costs and overcapacity from China. The recovery in production could boost gas demand slightly, especially as Europe prepares for increased LNG imports. Market agency ICIS expects industrial gas demand in Western and Central Europe to recover slightly by around 1% this winter (2025/26), but will still be slightly below the five-year average.
The chemical sector is still structurally below its 2022 level, with basic chemical production reaching only 70% of that level in the second quarter of 2025. However, ICIS predicts that the sector will reach a turning point this winter, from a 1% contraction in 2025 to a 1% growth in 2026. This recovery is crucial for the expected slight increase in gas demand in 2026.
The EU tax is likely to divert Russian exports through other markets, such as the US, India, China, and Brazil. Russia has the infrastructure for this. The Russian TOAZ terminal can export up to 5 million tons of ammonia and urea per year. Russian exports to India rose by 20% in early 2025, accounting for 33% of India's total imports.
New tariffs and import thresholds
The EU tariffs include an additional levy on nitrogen and phosphate fertilizers on top of existing rates of 6,5%. From 2026 to 2028, the rates will increase to €315 to €430 per tonne. Furthermore, the highest levy will be applied immediately if cumulative imports exceed certain thresholds: 2,7 million tonnes in 2025/26, 1,8 million tonnes in 2026/27, and 0,9 million tonnes in 2027/28.