by Clara Denina and Sarah Mcfarlane
reporting by Kate Abnett in Brussels, Christoph Steitz in Frankfurt,
Josephine Mason, Mark
John, Richa Naidu and Pratima Desai in London,
Michael Shields in
Zurich and Angeliki Koutantou in Athens.
November 02, 2022
A worker walks at the Yara ammonia plant
Porsgrunn, Norway August 9, 2017.
taken August 9, 2017.
REUTERS/Lefteris Karagiannopoulos/File Photo
A general view of the German chemical company,
Schwarzheide GmbH in Schwarzheide, Germany,
December 10, 2019.
LONDON, Nov 2
Europe needs its
industrial companies to save energy amid soaring costs and shrinking
supplies, and they are delivering - demand for natural gas and
electricity both fell in the past quarter.
It is far too early to rejoice, though.
The drop is not just
because industrial companies are turning down thermostats, they are
also shutting down plants that may never reopen.
And while lower energy use helps Europe weather the crisis sparked
by Russia's war in Ukraine and Moscow's supply cuts, executives,
economists and industry groups warn its industrial base may end up
severely weakened if high energy costs persist.
Energy-intensive industries, such as aluminium,
fertilizers, and chemicals are at risk of companies
permanently shifting production to locations where cheap energy
abounds, such as the United States.
Even as an unusually warm October and projections
of a mild winter helped
drive prices lower, natural gas in the United States still costs
about a fifth what companies pay in Europe.
"A lot of companies are just quitting
production," Patrick Lammers, management board member at
utility E.ON (EONGn.DE)
told a conference in London last month.
"They actually demand destruct."
manufacturing activity this month hit its weakest level since
May 2020, signaling Europe was heading for a recession.
The International Energy Agency estimates
European industrial gas demand fell by 25% in the third quarter from
a year earlier.
Analysts say widespread shutdowns had to be
behind the drop because efficiency gains alone would not produce
"We are doing all we can to prevent a
reduction in industrial activity," an European Commission
spokesperson said in an email.
survey released on Wednesday showed companies in Europe's
industrial powerhouse Germany were already scaling back because of
More than one business in four in the chemicals
sector and 16% in the auto sector said they were being forced to cut
production, a survey of 24,000 businesses by the German chambers
of commerce and industry (DIHK) showed.
Moreover 17% of auto sector companies said they
were planning to move some production abroad.
"The effects are clearly visible:
energy-intensive producers of intermediate goods in particular
are cutting back on production," said DIHK Managing Director
Martin Wansleben, referring to critical semi-finished
products, such as chemicals and metals.
European industry has been shifting production to
locations with cheaper labor and lower other costs for decades, but
the energy crisis is accelerating the exodus, analysts said.
"If the energy prices stay so elevated that
part of European industry becomes structurally uncompetitive,
factories will shut down and move to the U.S. where there is an
cheap shale energy," said Daniel Kral, senior
economist at Oxford Economics.
For example, EU primary aluminium output was
halved, cut by 1 million tonnes, over the past year.
Trade figures compiled by Reuters show all nine
zinc smelters in the bloc have either cut or stopped production,
which was replaced by imports from,
China, Kazakhstan, Turkey, and Russia...
Reopening an aluminium smelter costs up to 400
million Euros ($394 million) and is unlikely given Europe's
uncertain economic outlook, Chris Heron at industry
association Eurometaux said.
"Historically, when these temporary closures
happen, permanent closures come as a consequence," he added.
Western efforts to secure supplies not just for
energy but also for key minerals used in electric vehicles and
renewable infrastructure are also at risk from high energy prices.
Brussels is expected to propose new legislation
early next year - the
European Critical Raw Materials Act
- to build up reserves of minerals indispensable in the transition
to green economy, such as lithium, bauxite, nickel, and rare earths.
But without more renewable power and lower costs,
companies are unlikely to invest in Europe, Emanuele Manigrassi,
climate and energy senior manager at
European Aluminium, warned.
Examples of industrial erosion are piling up...
Europe became a net importer of chemicals for
the first time ever this year, according to Cefic, the
European Chemical Industry Council.
More than half of European ammonia
production, a key ingredient in fertilizers, has shut, and has
been replaced by imports, according to the International
Norwegian fertilizer maker Yara (YAR.OL)
is utilizing around two-thirds of its European ammonia
"We are watching the situation in the gas
market closely and are making contingency plans," CEO
Svein Tore Holsether told Reuters via email.
Last week, the world's largest chemical group
questioned whether there was a business case for new plants
The company has also warned it would have to
shut production at its main Ludwigshafen site - Germany's
single-biggest industrial power consumer - if gas supplies fall
below half of its needs.
Some firms, including German viscose fibre
maker Kelheim Fibres which supplies Procter & Gamble
are looking to
other energy sources.
This year, the German company has cut output
twice at its factory in Bavaria.
"From Jan. 1, we will be able to switch
to oil," company executive Wolfgang Ott said, as the
company seeks government help to cushion energy costs.
It is even pondering a 2 megawatt solar
In Greece, Selected Textiles, a small
cotton yarn producer, has cut output as orders mainly from
northern Europe have fallen.
At its plant in Farsala, central Greece, CEO
Apostolos Dontas estimated production would fall 30% this
"We see our clients (...) are seriously
concerned whether there will be an equivalent consumption of
finished products in Europe and whether northern European
manufacturers themselves will have access to natural gas,"
he told Reuters.
Tata Chemicals (TTCH.NS),
which usually operates on a five-year plan, is now working on a
quarterly basis, its Europe managing director Martin Ashcroft
"If this is a structural change and gas
prices stay high for three or four years, the real risk is
industry investment will be directed elsewhere to places
with lower energy prices," Ashcroft added.