LONDON (ICIS)--Germany-based chemical producers would be forced to curtail or shut down some production of basic chemicals if the Russia-Ukraine conflict leads to an end of natural gas imports from Russia, an official said on Thursday.
Natural gas is of great importance to Germany’s chemical industry, both as a raw material and for energy, Christiane Kellermann, economist at German chemical producers’ trade group VCI, said in a webinar.
About 55% of Germany’s gas needs are met by Russia.
While about 34% of oil used in Germany comes from Russia, chemical producers have some alternatives to source oil, meaning their oil dependence on Russia is less acute than it is in gas, she said.
The chemical industry accounts for about 15% of Germany’s natural gas consumption.
Chemical producers use about 2.8m tonnes/year of gas as raw material for organic chemistry, and 99.3TWh of gas to generate steam and electricity, accounting for 27% and 73% of their gas use, respectively.
For natural gas as a raw material, producers have no substitute in the short term, Kellermann said.
As such, if the EU sanctioned gas imports from Russia, if Russia stopped exports or pipelines were to be damaged because of the war, production of basic chemicals in Germany would be affected, with some production curtailed or even halted.
This would impact not just the basic chemicals sector, but also downstream producers, along with Germany’s overall manufacturing base, Kellermann said.
About 95% of industrial goods made in Germany require chemical inputs – automotive, computer chips, building materials, consumer electronics, pharmaceuticals, detergents, and many others.
“That is why we currently keep warning about an embargo on [Russian] gas,” she said.
While gas deliveries from Russia continue for the time being, prices have shot up in the wake of the war – from already high levels before the conflict, she said.
Medium-sized (“Mittelstand”) chemical producers see the high gas prices as “partially threatening their existence”, Kellermann added, citing findings from a recent VCI survey of member companies.
Even before the war, high gas and energy prices were a big problem for Germany-based producers, who were struggling to pass them on to customers and would curtail some production, she said.
Now, with the additional price spikes, producers will find it even harder to pass those costs on.
While some may be able to protect themselves through hedging, this option becomes more expensive as the volatilities and uncertainties in markets increase, she said.
VCI’s expectation is that some companies will restrict energy-intensive chemical production in Germany, seeking to shift it to sites outside Europe, insofar as they have that option, she said.
Regarding discussions about a possible of rationing gas, so far there is no decision by government authorities about which sectors of the economy or industries may be allocated supplies, and what volumes, she added.
Given the uncertainties the war added to an already challenging energy pricing and supply-chain environment, VCI is cannot issue a new 2022 production forecast at present, said Kellermann.
VCI’s previous 2022 forecast, from December 2021, was for a 2% production increase, with sales expected to rise by 5% to €231bn.
VCI’s Q4 2021 production, price and sales indicators:
|Change from Q3 2021||Change from Q4 2020|
|Production excluding pharma||0.5%||-0.3%|
Meanwhile, VCI on Thursday called on the EU to postpone flagship chemicals strategy and other legislative proposals, such as the carbon border adjustment mechanism (CBAM), because of the high energy prices and the difficult economic and political situation.
Front page picture: Chemiepark in Marl,
Source: Hans Blossey/imageBROKER/Shutterstock
Additional reporting by Nigel Davis
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