Energy prices: production in Europe is too expensive for chemical company BASF

The German chemical giant BASF does not rule out relocating certain “particularly energy-intensive” productions, considering it difficult for the European chemical industry to be competitive in the context of soaring gas prices, its CEO said on Thursday.

“The question arises as to whether commodities, in particular, can still be produced competitively in Europe and Germany in the long term,” explained Martin Brudermüller in an interview with the business daily Handelsblatt.

While BASF has already announced this fall a savings plan of 1 billion euros for 2023 and 2024, this will not be enough and “adjustments are also needed in production,” he added.

“We will announce our plans in the first quarter,” he continued, noting that the focus was on “particularly energy-intensive products” such as ammonia, for which energy accounts for about 80% of manufacturing costs.

As Germany’s largest consumer of gas with 47 terawatt hours consumed annually, BASF saw its bill triple in Europe in the first nine months of the year compared with 2021. It is even nine times higher than in 2020, according to Brudermüller.

BASF has been able to reduce its consumption at the margin by improving energy efficiency, and by replacing gas with oil-based energy sources. “But unfortunately, most of the savings come from production shutdowns.

While gas prices, which are currently falling, will stabilize, “we believe that in the long term they will be about three times higher in Europe than in the U.S., if only because of the higher costs of LNG” (liquefied natural gas) which replaces imports from Russia.

Martin Brudermüller had already caused a stir at the end of October by announcing that the group was going to “permanently” reduce the size of its operations in Europe, while the group wants to strengthen its position in China, where it is making significant investments.

“In the third quarter, the European chemicals market fell by 6%,” adds the CEO, who sees this as the acceleration of a loss of competitiveness that has been underway for a decade.

He also questions “the excessive regulation” of the European Union’s Green Pact, the roadmap for EU countries to achieve climate neutrality by 2050.

BASF produces a wide range of chemicals for the automotive, agricultural, construction, plastics, paint and dye industries. The huge complex in Ludwigshafen alone, its historic location in western Germany, employs around 39,000 people.