Dusseldorf, Frankfurt In view of the reduced gas flows from Russia, large parts of German industry are preparing to shut down their production in an orderly manner should the supply situation deteriorate significantly. Large consumers from the chemical, metal and building materials industries are already examining how a reduction in the delivery quantity would affect their own value chain, as a survey by the Handelsblatt shows.
For example, the world’s largest chemical group, BASF, expects to be able to continue operating the production network at its Ludwigshafen headquarters with reduced load if the gas volume supplied is up to 50 percent below the maximum energy requirement. “If the supply were to drop significantly and permanently below 50 percent, we would have to shut down the production site in compliance with the necessary safety standards,” says the group.
The decisive factor is then how long a delivery stop would last and how quickly alternative solutions can be found.
The situation is similar at the largest German steel manufacturer Thyssen-Krupp. “We are preparing for an interruption or a restriction in natural gas supply in various scenarios,” the company explains. However, a minimum reference is essential. Here, too, 50 percent is considered the critical threshold below which steel production would probably have to be stopped.
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The supply is currently stable. However, if that changes, industry would be the first to be affected. According to the federal government’s emergency plan, industry, which accounts for around 36 percent of total consumption, would be on its own in the event of a shortage. On the other hand, private households, public institutions and the healthcare industry, which consume around 48 percent of the total requirement, are considered to be protected.
The consumer goods manufacturer Henkel is considering temporarily reintroducing more home offices if gas becomes scarce. “We could then lower the temperature in the offices significantly, while our employees could heat at home to the normal extent,” said CEO Carsten Knobel of the “Rheinische Post”.
Many companies are looking forward to July 11 with anticipation. On this day, the Baltic Sea gas pipeline Nord Stream 1 is scheduled to be shut down for maintenance work. Both the federal government and experts fear that the Russian government could use this as an opportunity to further reduce deliveries. Economics Minister Robert Habeck (Greens) said on Thursday that there was a “blockade overall”.
The Russian state-owned company Gazprom had previously reduced deliveries to 40 percent and blamed sanctions that prevented the delivery of a required gas turbine.
Symrise keeps oil boilers in reserve
While the German gas storage facilities had filled up again a little since May, fears are now growing again that Moscow could now finally shut off the gas tap. Those who can are therefore switching to alternative energy sources such as coal or oil – such as the fragrance and aroma manufacturer Symrise, which only switched its production from oil to gas a few years ago.
Sustainability chief Bernhard Kott therefore gives the all-clear: “Fortunately, we didn’t dismantle the old boilers for oil,” the manager told the Handelsblatt. Shortly after the outbreak of the Russian war of aggression in Ukraine, the Dax group had taken various emergency measures, such as cleaning the boiler. If no more gas comes from Russia, Symrise could quickly switch to oil in large parts of the main plant in Holzminden, Lower Saxony.
However, such examples are the exception. In the chemical and metal industries in particular, the switch is much more difficult. In chemical production, for example, three quarters of the natural gas is used to generate energy. When it comes to self-sufficiency, the industry relies primarily on gas-powered power plants with combined heat and power generation, from which process heat is also obtained. According to industry experts, the majority of these power plants can hardly be converted to oil.
By far the largest user of gas in the chemical industry is BASF, the industry leader with an annual natural gas requirement of around 37 terawatt hours in Ludwigshafen. The huge chemical plant generates around 30 percent of the group’s global production and added value.
According to the company, there are currently no gas-related shutdowns or throttling at any European location. However, should there be a complete failure, a so-called special alarm plan takes effect, with which the group wants to react to pressure fluctuations.
BASF could compensate for failures with the Antwerp plant
Neither BASF nor other chemical companies have announced any details about the planned adjustments in the event of cuts above the 50 percent limit. According to the group, the load reduction of individual systems results from the quantity of natural gas actually available, from the supply of the substitute fuel oil and many other influencing factors.
Industry experts assume that BASF would initially shut down its two largest gas consumers, the plants for ammonia and acetylene. The corresponding production volumes could be replaced by supplies from the Antwerp plant and possibly also from the USA.
If there is a complete failure of the gas, a so-called special alarm plan takes effect.
(Photo: dpa)
Markus Mayer, chemical expert at Baader Bank, therefore assumes that Ludwigshafen would be relatively well supplied with raw materials for downstream chemical production even if gas were allocated by the state as part of the emergency plan.
>> Read also: Industry sees little savings potential for gas
The BASF plant in Antwerp would be much less affected, since only a small part of Belgium’s gas supply comes from Russia. The location, Mayer estimates, should therefore be at least partially able to compensate for production cuts in Ludwigshafen.
The remaining quarter of natural gas consumption in the chemical industry is used as a raw material in production. There is greater flexibility here, for example through production cutbacks or the shutdown of factories in individual areas. The expected price increases could also have a certain steering effect. At BASF, for example, it is said that in the event of massively rising costs, a decision will be made as to which adjustments need to be made in the value-added chains, depending on the situation.
SMEs fear price explosion
However, SMEs are also very concerned that gas suppliers could soon be allowed to terminate existing contracts in order to adjust prices if bottlenecks worsen. Paragraph 24 of the recently amended Energy Security Act provides for a corresponding regulation. It regulates that gas importers can pass on higher procurement costs to their customers in the event of a so-called gas shortage.
The instrument provided for in the second stage of the federal government’s gas emergency plan is not yet being used. But gas suppliers are already groaning under rising purchasing costs because the cutbacks imposed by Russia are noticeably reducing supply. The largest German gas importer, Uniper, asked the federal government for financial help on Thursday because the company had to replace the recently lost quantities with expensive gas from the spot market without being able to pass on the costs.
>> Read also: Germany’s largest gas importer asks for state aid – Uniper shares collapse
For the industry, the expected price adjustments mean that planning security is largely gone. Clemens Schmees, managing director of the stainless steel foundry of the same name in Langenfeld, complains that the company’s previous precautions are now “waste” after the second stage of the gas emergency plan was announced last week: In May he had an extra expensive three- Annual contract concluded to ensure long-term supply.
Now it could happen that the contract is canceled again – or, even worse, the foundry no longer receives gas at all. In this case, production could not be maintained. The company is examining a switch to oil where possible. However, the CO2 balance of oil is worse than that of natural gas.
This is also pointed out by Symrise manager Kott, who describes the makeshift switch to oil as an “ecological and technological step backwards”. “But at least we can keep production going.”
However, should the third stage of the gas emergency plan actually be called and industrial customers be cut off from the supply, switching to oil would often not help either. Foundry entrepreneur Schmees fears that the chemical auxiliaries required for his production, such as resins, hardeners and binders for the manufacture of the casting molds, will then no longer be supplied.
Company in talks with Federal Network Agency
As early as May, the Federal Network Agency began collecting data from large-scale consumers in order to be able to make better decisions about shutdowns in an emergency. Paul Niederstein, Managing Director of the Coatinc Company galvanizing plant, has long been in contact with the authority, which acts as a load distributor in the event of a shortage and decides on the supply to the industry.
Niederstein explained his emergency plan to the authorities: After that, his company would need about a week to empty the 16 boilers in Germany. That corresponds to between 6,000 and 7,000 tons of liquid zinc at a temperature of around 450 degrees, which would have to be pumped out and then stored cold. This is the only way for the boilers to survive a gas stop and then be heated again.
Like foundry boss Schmees, Niederstein is currently more concerned about the rising prices: If the gas suppliers were to terminate the existing contracts by the end of the year, his galvanizing shops would have to pay about three times as much as before. “Of course that would be fatal,” says the entrepreneur.
He has already had to increase the prices for his customers by well over 20 percent on average. “Then it would be 30 percent and we wouldn’t earn anything from it, I can prove that,” says Schmees.
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