Frankfurt Against the background of an impending embargo on Russian gas supplies, the chemical group BASF is working intensively on reducing its gas requirements and accelerating the switch to renewable energy sources. In the short term, however, he sees no possibility of completely replacing a supply of Russian gas with alternative sources of supply or savings. This was confirmed by company boss Martin Brudermüller at the virtual general meeting of the chemical company.
All possibilities will be exhausted to reduce dependence on Russian gas at the Ludwigshafen site as quickly as possible. However, there is no short-term solution to replacing natural gas from Russia. “You can’t do all of this at the push of a button. If natural gas supplies from Russia stopped overnight, this would lead to irreversible economic damage. In extreme cases, we would have to stop production in Ludwigshafen,” says Brudermüller.
In the past few weeks, the BASF boss had already warned of the considerable risks associated with a boycott of gas supplies from Russia and thus supports the German government’s previous policy, which has spoken out against a natural gas embargo.
BASF is the largest industrial gas consumer in Germany. Although the company does not purchase any gas or oil directly from Russia, it does purchase it indirectly via Western European suppliers. Technically, the network in Ludwigshafen could just about be operated with half the gas. To do this, however, a number of systems would have to be shut down, says Brudermüller.
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In line with the general gas supply in Germany, a good 50 percent of the BASF main plant in Ludwigshafen is supplied with Russian gas. Throughout Europe, 30 to 40 percent of BASF’s gas needs are covered by supplies from Russia. Around 60 percent of the gas consumption is used for energy supply, around 40 percent goes as a raw material in chemical production, for example for the production of ammonia, acetylene and hydrogen. While gas can be partially substituted in energy production, this is hardly possible when it comes to the use of raw materials.
BASF CEO Brudermüller: “Europe is in a very difficult situation”
According to the BASF boss, the current constellation and the high differences in gas prices have a significant impact on the regional competitiveness of the chemical industry. Europe is in a very difficult situation because the LNG structure is not sufficient. This gives locations in the USA, for example, a competitive advantage. That should be cause for concern.”
A balanced distribution of business activities is therefore more important than ever for BASF. The previous share of European business of 40 percent is ultimately too high. One must therefore accelerate the expansion in other regions.
With regard to the oil and gas producer Wintershall Dea, in which BASF still holds almost 73 percent of the capital, Brudermüller confirmed the plan to list the company on the stock exchange. Due to the fact that Wintershall Dea operates production plants in Russia, an IPO is currently difficult, the BASF boss admitted.
Despite the many imponderables, the BASF boss confirmed the annual goals of the Ludwigshafen company.
(Photo: imago images/sepp spiegl)
In connection with the Nord Stream 2 gas pipeline, among other things, Wintershall wrote off EUR 1.5 billion in the first quarter. The company has also announced that it will no longer start any new projects in Russia, but intends to continue the existing projects and production. The main concern is the participation in two Siberian gas fields, which together represent more than 60 percent of the reserves of the energy company.
BASF CFO Hans-Ulrich Engel defended the continuation of the projects. With the production in Siberia, one follows the primacy of politics and makes a contribution to securing the German and European gas supply, according to Engel. According to Engels, the Russian activities of Wintershall Dea still represent a book value of around 2.6 billion euros in the BASF balance sheet. Overall, after the most recent value corrections, the stake in Wintershall Dea should still be on BASF’s books at almost nine billion euros.
BASF: outlook confirmed
As far as the business outlook for the current financial year is concerned, the Ludwigshafen-based group is sticking to its previous forecast for 2022, despite the economic consequences of the war in Ukraine and the considerable uncertainties with regard to gas supply, energy prices and economic development. It assumes a decline in sales from the most recent 78 billion euros to 74 to 77 billion euros and an adjusted operating profit (EBIT) of between 6.6 and 7.2 billion euros (compared to 7.8 billion euros in the previous year).
Thanks to higher prices, BASF was able to increase sales in the first quarter by 19 percent to 23.1 billion euros and adjusted earnings by 21 percent to 2.8 billion euros. The bottom line, however, fell by around 29 percent to 1.2 billion euros.
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Operationally, the Basic Chemicals and Plastics divisions in particular developed very strongly. In the specialty chemicals business, the Group posted mostly moderate increases in earnings. Brudermüller pointed to continued high demand, which also promises strong business for the coming month.
Overall, however, a reliable assessment of the further course is currently not possible. “It cannot be ruled out that the very high energy and raw material prices, especially in Europe, will adversely affect the growth of the global economy, industry and chemical production. It is also unclear how the pandemic and with it the economy in China will develop,” he said.
According to CFO Engel, the planned discontinuation of the chemical businesses in Russia and Belarus will only have a minor impact on the performance of the entire group. In Russia and Belarus, BASF recently achieved one percent of sales and an operating profit in the double-digit million range. The activities are in the books of the group with a low three-digit million amount.
Green electricity share is to increase significantly
In his further remarks at the Annual General Meeting, the CEO of BASF, Brudermüller, highlighted the group’s initiatives to reduce CO2 emissions. In this regard, BASF sees itself as a pioneer in the industry. Among other things, the group relies heavily on commitments in the production of electricity from renewable sources.
As part of this strategy, the Group participated in several wind energy projects, most recently with a 25 percent stake in a wind farm that Vattenfall is building off the Dutch North Sea coast. This currently largest offshore wind farm in the world is scheduled to go online in 2023 and supply half of the electricity generated to BASF. In addition, BASF has also concluded supply agreements with energy companies such as Engie and Ørsted in order to secure green electricity in the long term.
In China, the new large plant in Zahnjiang is to be completely supplied with green electricity by 2025. According to Brudermüller, BASF wants to increase the share of renewable energies in the power supply across the group from the current 16 percent to 60 percent by 2030. The group intends to reduce its CO2 emissions by 25 percent by then.
More: The Russia mortgage of the chemical company BASF.