Return of Cheaper Gas Hasn’t Solved Europe’s Industrial Crisis

Natural gas prices in Europe have fallen close to levels not seen since Russia’s invasion of Ukraine. That should be a tonic for the continent’s battered manufacturers, but may be coming too late.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Natural gas prices in Europe have fallen close to levels not seen since Russia’s invasion of Ukraine. That should be a tonic for the continent’s battered manufacturers, but may be coming too late.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Years of elevated costs have hollowed out parts of Europe’s industrial core, and even the lowest seasonal gas prices since 2020 aren’t enough to reopen shuttered factories. The continent’s surviving businesses are contending with many new problems that cheaper energy alone can’t solve.“If you have made the decision to move production elsewhere, or move to a lower cost jurisdiction, you’re not automatically gonna move back just because of short-term changes in energy prices,” said Raoul Ruparel, director of Boston Consulting Group’s Centre for Growth. “Particularly when there are wider structural challenges around European competitiveness.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Competition from the US and China has intensified, with President Donald Trump’s new tariffs further blunting Europe’s export edge on goods ranging from Porsche 911s to aluminum. Heavy industries like steel and chemicals, which benefit most from lower energy costs, face global surpluses for their products and the rising cost of emissions regulations at home.Europe still “has a real problem” with investment and innovation, according to JPMorgan Chase & Co.

Chief Executive Jamie Dimon. Moscow’s invasion of Ukraine and the subsequent halt of most Russian pipeline supply to Europe pushed benchmark gas prices up from €20 ($23) a megawatt-hour at the start of 2021 to as high as €345 in 2022. The surge in costs made the region uncompetitive on a global scale, forcing industries to restructure supply chains and adjust operations just to stay in business.In chemicals, top producer BASF SE began in September 2024 to shut some units in Germany, while also boosting investments in China. In July, Dow Inc. announced the closure of three of its most energy-intensive European plants next year. Despite the recent gas price decrease, the company said its structural challenges have either persisted or intensified since.Just last week, Thyssenkrupp Electrical Steel GmbH said it would temporarily shutter two plants in Germany and France, the latter of which will only return at half capacity. The company blamed the move on a flood of imports priced below the European Union’s average production costs. Mass InsolvenciesMany companies found their cost-cutting efforts weren’t enough. In western Europe alone, corporate insolvencies hit a total of 190,449 last year, the highest in over a decade, according to Creditreform, a creditors’ protection association. Energy prices were cited as a key reason for the trend.The loss of so many industrial consumers means Europe’s underlying demand remains weak even with current benchmark gas prices of about €27 a megawatt-hour. Consumption is about 20% lower than pre-war levels, according to RBC Capital Markets. The global competitiveness of some of Europe’s biggest economies, including the UK and Germany, hasn’t fully recovered from the crisis and lags the US and China, according to rankings from the International Institute for Management Development.This is evident in an industrial park an hour east of Munich, home to chemical makers such as Clariant AG and Westlake Vinnolit GmbH. Even after the fall in gas prices, Germany’s chemical plants operated at just 70% capacity so far in 2025, the weakest level in 20 years. Manufacturers are still paying about three times more than their rivals in the US, said Tilo Rosenberger-Süß, a spokesman for the site’s operator InfraServ Gendorf. They also face the extra cost of carbon allowances, which are as much as five times more expensive than in other countries. “It’s not the price trend over time that matters, but rather the comparison with other regions,” Rosenberger-Süß said. “That’s precisely the benchmark for competitiveness.”Increased reliance on overseas imports of liquefied natural gas makes this an intractable problem. LNG accounted for 45% of the the EU’s imports at the start of this year, compared with about 20% before the war. “If Europe’s marginal natural gas supply comes from LNG, such as US LNG, then in most cases European natural gas prices would have to be higher than US natural gas prices” to maintain the flow of imports, said Anthony Yuen, head of energy strategy at Citigroup Inc.That in-built disadvantage affects long-term business decisions. “The energy price differential with the United States and China remains significant and a key factor in investment decisions for companies in Europe,” said Markus Beyrer, director general for BusinessEurope, a trade association representing the continent’s industry.Europe’s energy crisis did accelerate the rise of renewables, providing an alternative to gas-fired power. Combined power generation from wind and solar overtook natural gas in 2022 and exceeded it by almost 50% last year, according to data from the International Energy Agency. That rapid expansion is projected to continue as the region aims for net zero emissions by 2050.Yet there will always be days when the sun doesn’t shine or the wind doesn’t blow, keeping Europe reliant on gas imports — and paying whatever price the global market demands — for many years to come.“Gas prices have come down and that should be positive over time,” Martijn Rats, Morgan Stanley’s global commodities strategist, said at a roundtable in London. “If you are a big gas consuming industry, you might still rather have your plants somewhere else because Europe’s competitiveness hasn’t dramatically improved.”—With assistance from William Wilkes.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.