Some European Factories, Long Dependent on Cheap Russian Energy, Are Shutting Down
https://www.wsj.com/amp/articles/so...-russian-energy-are-shutting-down-11655112927By Matthew Dalton
June 13, 2022 5:35 am ET
For decades, European industry relied on Russia to supply low-cost oil and natural gas that kept the continent’s factories humming.
Now Europe’s industrial energy costs are soaring in the wake of Russia’s war on Ukraine, hobbling manufacturers’ ability to compete in the global marketplace. Factories are scrambling to find alternatives to Russian energy under threat that Moscow could abruptly turn off the gas spigot, bringing production to a halt.
Europe’s producers of chemicals, fertilizer, steel and other energy-intensive goods have come under pressure over the last eight months as tensions with Russia climbed ahead of the February invasion.
Some producers are shutting down in the face of competition from factories in the U.S., the Middle East and other regions where energy costs are much lower than in Europe. Natural-gas prices are now nearly three times higher in Europe than in the U.S.
“Overall, the big concern for Europe is increasing imports and falling exports,” said Marco Mensink, director general of Cefic, Europe’s chemical-industry trade group.
The conflict with Russia has Europe preparing to ration gas if Russian President Vladimir Putin shuts off supplies to the entire region. Russian state-owned natural-gas company Gazprom PJSC has already cut off Bulgaria, Finland and Poland after the countries refused to accede to a Kremlin decree demanding payment for gas in rubles.
Europe’s high energy costs are forecast to drag on the region’s industrial production and overall economic growth this year. Economists at the European Commission, the European Union’s executive arm, expect the German economy to shrink in the second quarter under pressure from high energy prices. Germany, the region’s largest economy, is also the biggest buyer of Russian natural gas.
The phaseout of Russian supplies risks putting European industry at a long-term competitive disadvantage unless manufacturers can deploy technologies that will sharply reduce their fossil-fuel consumption. But many of these technologies, such as using wind and solar energy to power chemical factory furnaces or hydrogen to make steel, are years from becoming commercially viable and will require massive investments, executives say.
Manufacturers depend on natural gas both as a source of energy and a raw material in production. In Europe, natural gas usually sets the price of electricity, hitting factories with a double-whammy if gas prices increase.
Moves by energy-hungry industries to throttle production have relieved short-term pressure on Europe’s natural-gas supplies, freeing up more gas for Europe to generate electricity and heat homes through the next winter, when officials expect gas supplies will be tight.
European steelmakers have been curtailing production since October to save money on gas and electricity. In March, soaring electricity prices in Spain led steelmakers there to lower output or shut down completely.
“This is absolutely crazy,” said Miguel Ferrandis Torres, chief financial officer of Madrid-based Acerinox SA, which shut one of its production lines for three days in March.
If Russia halts the gas flow to Germany, the country would give priority to private households as well as critical services such as hospitals, police stations and military barracks, but large industrial players could face rationing and disruptions, putting thousands of jobs at risk.
