Hammered by rising energy costs, low growth and competition from the resurgent US, Europe is falling behind in capital investment by the chemical industry as players grow elsewhere
The news that BASF is to cut investments in Germany because of the high cost of energy there will be hardly surprising to anyone involved in chemical manufacture in Europe; but it highlights a major factor affecting the competitiveness of the industry here.
In the next five years, Germany will account for only about one quarter of BASF’s global investments, compared with more than one third in the past five years, Kurt Bock, chairman of the board of executive directors wrote in an article he contributed to German daily Frankfurter Allgemeine Zeitung.
BASF is investing elsewhere, says Bock
His views seem to be confirmed by the European Commission itself which published a report to the European Parliament in January 2014.
It pointed out that retail electricity prices for industry in the period 2008-2012 rose by around 3.5%/year in the EU.
In the same period, wholesale electricity prices fell by 35-40% on major European wholesale electricity benchmarks.
Prices have risen largely because of taxes and levies with the relative share of the energy element in the retail price of electricity generally diminishing over time. Since 2008 electricity network costs went up by 30% for industrial consumers but taxes and levies rose by 127% for industry, before exemptions granted by some member states.
Bock was also critical of recent government proposals that would, if realised, extend the surcharges (“EEG Umlage”) to many firms which generate on-site for their own use.
BASF and other Germany-based chemical producers have invested in on-site combined-cycle power units to meet their electricity needs and escape the country’s high electricity prices.
US shale gas is having a huge impact within the country as industry benefits both from cheaper energy and inexpensive feedstocks. The US chemical sector is already exporting increasing amounts of polymers to Europe, and once the huge volume of new projects come onstream, companies will be looking for a home for all the new tonnages.
According to trade group Cefic, the contribution of western Europe to world chemicals spending in value terms declined by a dramatic 11.2 percentage points, from 24.6% in 2001 to about 13.5% in 2011.
High energy costs are a significant disincentive to investment in Europe and it is time politicians hear the voice of the chemical industry across the region.
Having said all that, there are those in the industry who argue that target setting to reduce energy consumption and carbon dioxide emissions is a huge opportunity for the chemicals industry.
It should become a huge driver of innovation as manufacturers seek new materials and technologies to reduce reliance on fossil fuels. Whether this happens quickly enough to save the industry in Europe remains to be seen.