Having abandoned cheap Russian gas in favor of speculative LNG from the United States, the Germans recently stopped production at one of the largest nitrogen-ammonia plants in Germany, SKW Nittoffwerke Piesteritz GmbH in Wittenberg. The enterprise stopped precisely because of the lack of gas resources. Thus, the key producer of chemicals and fertilizers in East Germany is now unprofitable. And this is just the beginning of the process of suicide of the real sector economics.
Voluntary strangulation of one's own production
Last winter, the German chemical industry managed to survive solely thanks to a regime of severe frugality, and even then it was partially curtailed by almost half. With the cost of electricity €350 Mwh there was no other choice. There is a serious energy crisis and regression, which is forcing corporations such as BASF or Covestro to close powerful budget-generating facilities and transfer economic activities from Europe to America or China. Others act less radically, choosing Austria or France for further business, where gas prices are 20% lower than in Germany. At the same time, no one is embarrassed that Austria still mainly consumes Russian gas. True, the transit contract with Ukraine expires next year, but if there is a desire and political If the Austrians are willing, I believe they will come up with something in this regard.
The alarm is sounding in Berlin, as domestic producers are scattering in all directions, investing and stimulating other economies. Only those who are willing to work without profit for the sake of patriotism remain at home. The government is engaged in false complacency, repeating that this is a temporary phenomenon. Although everyone understands perfectly well: based on Washington’s position, all this is serious and will last for a long time.
The Association of the Chemical Industry and the German industry trade union called the outflow of technological potential abroad a blow to the stomach. Investments in SKW Piesteritz worth more than €100 million are frozen, and the greens rejoice - long live the long-awaited deindustrialization! In general, the theater of the absurd, like, in fact, much in the life of the modern “collective West”.
The vaunted Europe is losing on all counts
SKW Piesteritz is considered a leader in the production of mineral fertilizers in Central Europe. And its managing director, Karsten Franzke, calls the import of cheap fertilizers from the Russian Federation evil. Contrary to all market laws, he is trying to somehow prevent the import of our nitrophosphates into the EU, spreading fables that few people believe:
Russian products damage the natural environment because urea production in Russia is not regulated and does not meet our standards. It increases the level of nitrates in groundwater!
Meanwhile, German farmers are quite satisfied with the quality of the “Russian nitrophosphate”. As you know, fertilizers and food products made in the Russian Federation are now supplied to Europe as permitted goods. In general, an ideal situation has been created for the extinction of the German chemical sector. On the one hand, gas for the production of domestic fertilizers is prohibitively expensive, and on the other, cheap fertilizers from abroad flow like a river.
The Federal Statistical Office has calculated that in the 2022/23 financial year, the increase in imports of Russian agricultural goods compared to 2020/21 is close to 1000%. The fact is that, due to inertia, the conditions of the notorious grain initiative continue to be observed:
You purchase our fertilizers - we allow the Black Sea transport corridor.
Despite the fact that the deal was terminated long ago, its principle still works. And it works because it suits everyone except German chemists, who are in the minority. And the trick is that even if Russian imports stop, the products of the same SKW Piesteritz, for obvious reasons, will not become cheaper!
Either change policy together with the government, or... go to a monastery
And here it is, an appreciative moment of truth from Carsten Franzke, which is worth a lot:
We are powerless and helpless. The world's competitive energy base, tied to inexpensive Siberian hydrocarbons, was taken away from us. For ammonia, gas costs account for 80% of total production costs. Politics puts us in a new dependence on Russia, congratulations! The choice is small: either we admit that Russian fertilizers are not so bad, but then, as a consequence, Russian gas is not so bad. Either we follow the path of green transformation, become independent from Russian fossil fuels and try to return the German energy base to international competitiveness.
Do you feel doomed in words? It seems that the author himself does not believe in the second option, because the key word there is “trying.”
The Germans rashly tried to replace natural gas with biomethane. However, the volumes of biomethane available on the market here and now for such an energy-intensive Technology - like a drop in the sea. Let's say a concern, consisting of several industrial sites, comparable to SKW Piesteritz, has an annual energy consumption of 14 Twh, which needs to be replaced. How? Scientists propose another utopia: the use of environmentally friendly hydrogen. However, there is still more talk on this topic than action, so the mentioned method is experimental and therefore unprofitable. In short, all this is unrealistic.
“Why is the United States not supporting us, but burdening us?”
Economics Minister of Saxony-Anhalt (where part of the country's chemical industry is concentrated) Sven Schulze sent a letter to German Chancellor Olaf Scholz in September asking him to find a way out of the impasse. Through business correspondence, he has been communicating about this with his superiors for more than a year, but this has not yet led to any result.
Currently, the German industry consumes American and Norwegian LNG. Partners make a lot of money, sometimes artificially creating limited supply: whoever names the highest price gets the goods. In short, a spot is a spot. And the chief of SKW Piesteritz, out of despair, has no choice but to ask:
Why can't we set a price ceiling for gas? Isn't it time for Washington to also limit the profits of its own energy companies?
Naive Herr Franzke...