Germany launches secondary 'alert', chemical giants respond
German Deputy Chancellor and Minister of Economics and Climate Protection Habeck announced on the 23rd to activate the second level of the three-level emergency plan for natural gas, the "alert" phase.
The emergency response plan for natural gas shortages in Germany is divided into three levels: early warning, alert and emergency. The German government has launched the first level of "early warning" on March 30.
According to the plan, Germany will enter the highest level of "emergency" when the supply of natural gas is severely disrupted and all market measures are still unable to guarantee gas use. At that time, the government will adopt non-market means, implement a rationing system for gas supply, give priority to ensuring households, hospitals and important institutions, and limit industrial gas use.
The German government's increase in the alert level of natural gas shortages is related to the recent reduction of gas supply by Gazprom "Nord Stream-1" natural gas pipeline to Europe. Reuters reported on the 21st that the gas supply of "Beixi-1" at this stage is only 40% of the previous one.
A reduction in natural gas supply would have a major impact on the German economy. For the German chemical industry, natural gas cannot be replaced as a raw material or energy source in the short term. German industrial companies including BASF are looking for alternatives to keep plants running and try to limit the increase in economic costs.
According to a Reuters report on the 23rd, BASF is developing a contingency plan for its Ludwigshafen base in Germany. The Ludwigshafen site is Germany's largest industrial electricity company, accounting for more than 1% of Germany's total demand.
BASF told Reuters the exact production cuts would depend on the availability of natural gas as well as oil as an alternative. It will have to shut down production if supply falls sharply below 50% for a sustained period of time.
"If it is imminent, we must discuss with the Federal Network Agency which factories we should close," the company said, declining to comment further on its Ludwigshafen contingency plan.
Another chemical company, Lanxess, said management was looking for ways to prevent production shutdowns. One option could be to delay plans to phase out coal-fired power plants still operating at the Leverkusen and Krefeld plants in Germany.
"If our products are priced out of the market, factories will have to be closed and hundreds of jobs will be at risk," Lanxess said.
The German Chemical Industry Association (VCI) said on the 23rd that the reduction of natural gas supply has brought increasing challenges to society and industry. The burden associated with this must be distributed equitably. It is important to have a transparent process in place to distribute the unavoidable burden to all gas consumers as fairly and tolerably as possible.
According to the VCI, Germany's chemical and pharmaceutical industries consume about 15 percent of the country's natural gas, the highest of any industrial sector. Of this, 27% is used as raw material and 73% is used to produce steam and electricity.
Costs soared by 319%, companies lost money, stopped work, went bankrupt
After experiencing a slump in 2020, it has continued to rise in May 2020, and the price once reached $139.13. Today, despite the turmoil of crude oil, the price is still higher than before the epidemic. Since May 2020, the price has risen by 319.33%. It is conceivable that the cost pressure of production enterprises is so great.