German chems prepare for higher natural gas costs – bank

MADRID (ICIS)–German chemical companies are preparing for higher natural gas costs after the federal government this week announced an emergency plan given possible lower supplies, investment bank Baader Bank said on Friday.

However, equity analysts at the bank said they are “confident” that the sector will be able to pass the higher costs on to customers.

On Thursday, the German cabinet said it was implementing Phase 2 of its natural gas emergency plan, or “Energiesicherungsgesetz”.

The move came after Russia, Germany’s largest gas supplier, invaded Ukraine on 24 February. Although gas from Russia still flows into Germany, the government plans to put the economy on alert ahead of a possible retaliation by Russia, which could decrease or halt supplies.

“This announcement [on Thursday] would theoretically give the government the possibility to allow respective gas suppliers to immediately increase prices by breaking existing contracts, for example with German chemical companies,” said the analysts.

“However, [Germany’s minister of economy Robert] Habeck decided to keep this law invalid for now.”

In May, Baader Bank said a full embargo on Russian natural gas could cost German chemical companies between €2.6-7.9bn in additional energy costs.

On Friday, it said large petrochemicals and fertilizers producers in Germany such BASF, Evonik, K+S, Covestro and Wacker Chemie are the most exposed to additional gas costs in the short term.

“Evonik told us that the company is already undertaking investments at several plants to make their gas power/steam plants ready for oil or LPG [liquefied petroleum gas] consumption, which would be rather small investments in the range of €500,000-1m per plant,” said the analysts.

“Their gas suppliers would receive approximately 30% of their gas from Russia and as such, if paragraph 24 [mentioned above] of the Energiesicherungsgesetz would become effective and Evonik expects higher prices only for the not otherwise secured supply.”

The same outlook is shared by the analysts at K+S, Wacker Chemie and Clariant, the bank said.

German and chemical stocks in Europe have taken a battering this week because of potential disruptions to gas supplies.