Germany Inc faces competitive setback on stratospheric gas price
Moscow's invasion of Ukraine has exposed just how much Germany's industrial backbone relies on Russian gas, hitting Europe's top economy where it hurts most and threatening its ability to compete as alternative supplies won't come cheap and fast.
While supply chain disruptions have been one of the more immediate consequences for German industry, nowhere is the impact of the war more visible than on the gas market, where prices have risen more than five-fold on concerns about oversupply.
That is putting immense pressure on Germany's "Mittelstand" belt of small and mid-sized firms, ranging from steelmakers to chemicals producers, that are seen as the foundation of the country's economy and account for more than half of all jobs.
Kelheim Fibres, one of the world's biggest makers of viscose fibres, is a case in point.
“We are suffering from the very large increase in gas prices and the daily threats that gas could maybe no longer be delivered,” Kelheim Fibres Managing Director Craig Barker told Reuters on Wednesday (March 30).
“Without gas,” Barker added, “we have to shut the plant down. That’s clear.”
The employer of 600, whose fibres end up in everything from tea bags, textiles and banknotes to wipes and tampons, expects its gas bill alone to increase more than five-fold this year to 100 million euros ($110 million).
That eats up more than half of the up to 180 million euros in annual sales it gets from its customers, including global heavyweights Procter & Gamble and Kimberly-Clark.
According to another member of the firm's management team, if the situation does not change soon Kelheim would have no choice but to ask clients to accept longer production breaks as the first line of defence.
Kelheim Fibres entirely depends on gas for its energy-intense production because it operates a gas-fired power plant onsite and cannot use other, cheaper sources, leaving it with no alternative but to pay up.
Claudia Kemfert, the head of the DIW economic institute’s energy department, said Germany could turn to other countries “should less gas arrive here.”
“The best way is to do everything to get away from natural gas, assist the industry and save energy,” Kemfert told Reuters.
In Frankfurt, shoppers at an outdoor fruit and vegetable market had mixed reactions to a possible disruption of Russian gas supplies.
One expressed concern while another said of rapidly rising prices: “when you think of what is necessary to put this aggressor in his place, then it’s something I believe we can live with” in reference to Russian President Vladimir Putin.