The catastrophic deindustrialization of the European Union has begun
Source: (
https://bit.ly/3zWtsP5)
The ongoing and debilitating energy crisis affecting the European
Union (EU) is causing many of the bloc's largest industries to cut
back production, increasing the chances of the continent
deindustrializing itself.
The energy crisis is forcing many of the continent's largest and most
energy-intensive businesses to curb their energy usage. As a result
of these energy caps, many corporations are shutting down factories,
downsizing workplaces or relocating outside of the continent where
energy is plentiful and EU regulations on energy usage can't reach
them. One of the continent's biggest losses is German conglomerate
BASF, the largest manufacturer of chemicals in the world. In response
to the energy crisis, rather than cut back on its production, the
company said it would instead permanently downsize its workforce
in its home country and expand in China.
"The European chemical market has been growing only weakly for
about a decade [and] the significant increase in natural gas and
power prices over the course of this year is putting pressure on
chemical value chains," said BASF Chief Executive Officer Martin
Brudermueller.
Many other industries are either idling their production capacity or
curbing quotas due to higher energy costs.
"A tenth of Europe's crude steel production capacity has already been
idled, according to estimates from Jefferies. All zinc smelters have
curbed production, and some have shut down. Half of the primary
aluminum production has shut down as well," noted Irina Slav, writing
for OilPrice.com. "And in fertilizers, 70 percent of factories have
been idled because of the energy shortage. Chemical plants are also
curbing their activities, ferroalloy furnaces are going cold and
plastics and ceramics manufacturing is shrinking as well."
The United States is also receiving more European companies
relocating to countries with wider availability of energy. Energy
issues, along with an unfriendly investment environment and the
desire to increase production, are making many manufacturers
choose America.
In 2021, Russian natural gas flows into the EU was responsible for
meeting about a third of the bloc's gas demand. By the end of 2022,
Russian energy flows into the EU will fall by roughly 80 billion
cubic meters of natural gas, or around 20 percent of overall demand.
More imports of liquefied natural gas from the U.S. and increased
natural gas production from Norway will help offset the shortfall,
but not enough. If Europe wants to stabilize its prices, it will have
to reduce demand for natural gas by roughly 10 percent.
According to Anne-Sophie Corbeau, global deliveries scholar at
Columbia Universitys Center on Global Energy Policy, Europe can
make it through this winter if it is "not too cold." But to deal with
the next winter, it will have to ramp up its natural gas imports
exponentially.
Norwegian state-owned energy company Equinor has already ramped
up the country's gas production by 10 percent this year. But Eirik
Waerness, Equinor senior vice president and chief economist, warned
that the country does not have the capacity to raise output further.
Other major projects to help supply the EU with more gas aren't
scheduled to enter production until 2025 at the earliest. These
include a major investment in Qatar's North Field East project and
the creation of U.S. liquefied natural gas export terminals.
Furthermore, Europe may need to reduce energy demand more than
currently anticipated as the continent is also bracing for sharp
declines in energy generation from renewable energy sources like
nuclear and hydropower.
"One thing has become crystal clear: Reduced energy consumption
in Europe's industrial sectors is really no cause for celebration,"
wrote Slav. "If anything, it is a cause for concern and urgent action
on the part of decision-makers."
