The high cost of energy hinders factories in Europe from competing globally

Stopping Russian gas supplies threatens European industries

The use of wind and solar energy requires huge investments to become commercially viable years later.

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For decades, European industry relied on Russia to supply it with low-cost oil and natural gas, which kept factories in the “old continent” booming. But industrial energy costs in Europe are now rising in the wake of the Russian invasion of Ukraine, hampering European industries’ ability to compete in The global market, at a time when factories are seeking to find alternatives to Russian energy, under the threat that Moscow’s sudden closure of the “gas tap” threatens to stop production.

heavy pressure

The American newspaper, "The Wall Street Journal", says that producers of chemicals, fertilizers, iron and steel, and energy-intensive commodities in Europe have been under severe pressure for eight months, with the escalation of Russian tensions, and before the invasion last February.

Producers stopped producing some commodities, due to the weak competition with factories in the United States and the Middle East, where energy costs are much lower than in Europe, where the price of natural gas is now almost three times higher than in the United States.

stop gas

The conflict with Russia is pushing European countries to legalize the import of Russian gas, and the Russian Natural Gas Company (Gazprom) has cut off gas from Bulgaria, Finland and Poland, after those countries rejected the Kremlin's decision to pay for gas in rubles.

alternative techniques

The WSJ adds that phasing out Russian supplies could push European industry into a competitive disadvantage, unless manufacturers can use technologies that reduce fossil fuel consumption.

Officials also say that many of these technologies, such as using wind and solar energy to power chemical plant furnaces or hydrogen to make steel, require huge investment to become commercially viable years later.

adapting to prices

The ability of companies to adapt to higher energy prices in Europe depends on whether they can import their needs from other production sites in the world.

Ahmed El Hoshi, CEO of OCINV, an Amsterdam-based fertilizer producer, said his company has reduced ammonia production at its plant in the Netherlands, and instead imports that chemical needed to make fertilizers from other plants in Texas, in the United States, and Egypt. , and Algeria.

The moves of energy-hungry industries have “choked up” production, thus relieving short-term pressure on natural gas supplies to Europe, freeing up more gas for electricity and home heating during the coming winter.

Al-Hoshi continued, "Our company usually imports large amounts of ammonia in the winter season, when gas prices are at their highest, but now all months are similar to the winter months."

Fertilizer industry In addition, some other fertilizer manufacturers have decided to close factories that cannot import ammonia from abroad, as CF Industrial Holdings, the largest fertilizer producer in Britain, said last week that it will permanently close a factory that has stopped producing ammonia since last year. .

"As a high-cost producer in a highly competitive global industry, we see significant challenges to the long-term sustainability of the current operating approach," said Brett Nightingale, managing director of the company.

steel industry

In a related context, European steel manufacturers reduced production to save gas and electricity costs, and high electricity prices in Spain led steelmakers there to reduce production and shut down entire production lines.

Factories are pressing European authorities and governments to ensure they can continue to get gas from elsewhere if Russia stops supplying. “We cannot produce any fertilizer without gas,” said Jacob Hansen, general manager of the European Fertilizer Company.

Priorities

If Russia cuts off the flow of gas to Germany, the country will prioritize homes, families and vital services such as hospitals, police stations and military barracks, but large industrial companies could face disruption, putting thousands of jobs at risk.

The Director-General of the Chemical Industries Trading Group in Europe, Marco Minsink, said that chemical plants in Europe depend on natural gas to operate the devices, pointing out that the industry is looking for ways to run on electricity, but the technology will not be ready for commercial use before 2030.

He continued, "The factories want to replace gas with electricity from renewable energy sources, but the wind and solar supplies do not meet the demand."

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