KotabumiNews - Production activity of a number of European giants has been under pressure for months due to gas shortages ahead of this year's winter.
The price is too high to make the company unable to buy it. "This is not a question of shutting down the operation. The price, the cost is the problem," said Traton SE Chief Executive Officer Christian Levin.
The company is engaged in manufacturing truck units for Volkswagen AG. Companies in Europe have to pay seven times as much as in the US for gas. This shows the crisis of competitiveness in the industry on the continent so that it can harm the economy.
With President Vladimir Putin increasingly aggressive in increasing his attacks on Ukraine, the signal for the return of gas flows to the Blue Continent is getting smaller.
In one of the most obvious signs, the largest economy in the European Union, Germany, posted a declining trade surplus as higher costs of energy imports beat exports of cars and machinery, and chemical companies began shifting production overseas.
Last month, German production prices jumped to a record level of 46 percent. For example, plastic producer Covestro AG is not going to increase its investment in Europe and is starting to target Asia.
Covestro Chief Executive Officer Markus Steilemann said the company could secure energy at a price 20 times cheaper than in Germany and the German spot market.
Germany's biggest automaker, Volkswagen, warned on Thursday that it was considering relocating production facilities outside Germany or in Eastern Europe if energy prices did not slow down.
Chancellor Olaf Scholz will visit companies in the Middle East this week in an effort to reach liquefied natural gas deals with Saudi Arabia and Qatar to replace cuts to gas flows from Russia.
However, negotiations regarding this matter are rather difficult, with gas supplies including Qatar being super careful about prices and contract terms. While discussions in Europe and North America were no less difficult, they underscore the uphill battle that Scholz faces in securing supplies at prices that will keep Germany's economic base competitive.
Covestro estimates fuel costs will peak at 2 billion euros (US$2.2 billion by 2022, nearly four times that of 2020. "At current price levels, Germany's energy-intensive industry is no longer globally competitive," a Covestro spokesman said.
This is because, he said, importing chemical products from the US or China is cheaper than producing them locally. Manufacturers including Volkswagen and BMW AG have been forced to switch from gas to oil or coal to keep operations going. However, some energy-intensive manufacturers, such as metals, paper, and ceramics, cannot do this, so more factories are closing.
Chemical giant BASF SE even prefers to import key ingredients such as ammonia from competitors. Meanwhile, Mercedes-Benz AG has started to ramp up production of key parts for cars in order to secure supplies when it comes to closing factories in Germany.
Christian Seyfert, Managing Director of VIK, a group representing energy-intensive companies, said the spike in energy prices was a burden that could cause irreversible damage to the core of the European economy.
"We strongly advise politicians to take decisive action so that Germany and Europe as a business location are not completely left behind internationally."
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