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High Energy Costs Have Put German Industry at a Disadvantage

Germany’s industry is unlikely to fully recover from the energy price shock and return to the competitiveness from before the Russian invasion of Ukraine, the chief executive of Germany’s top utility, RWE, told the Financial Times on Wednesday.

“The German industry has a disadvantage,” RWE’s chief executive officer Markus Krebber told FT, noting that Germany is now seeing structurally higher energy prices as it depends on LNG imports.

Despite reducing significantly its dependence on Russian gas, Europe remains exposed to natural gas supply and price shocks as it lacks any buffers in the system, Krebber told FT at the end of last year.

Thanks to two consecutive milder winters, natural gas prices in Europe remain well below the highest prices on record from August 2022, but they are still structurally higher than before the war in Ukraine.

Germany, Europe’s largest economy, will have to contend with structurally higher natural gas prices and demand destruction in energy-intensive industries, Krebber said in comments to FT this week.

“You’re going to see a bit of recovery, but I think we’re going to see a significant structural demand destruction in the energy-intensive industries,” RWE’s top executive noted.

Germany slashed its natural gas imports by 32.6% in 2023, as consumption also dropped. Last year, gas consumption dropped by 5% compared to 2022, while compared to the average consumption in the period 2018 to 2021, gas demand in Europe’s biggest economy fell by 17.5% last year, according to data from the country’s energy regulator Bundesnetzagentur.

Germany expects natural gas prices to remain high until at least 2027, the government said in a report last summer. 

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Also last summer, INES, the group of German gas storage operators, said that Germany would continue to be at risk of natural gas shortages until the 2026/2027 winter season unless it takes measures to add LNG terminals, additional gas storage capacity, or pipelines. 

By Charles Kennedy for Oilprice.com

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  • Mamdouh Salameh on April 10 2024 said:
    The anaemic growth of the EU economies particularly its largest economy Germany is of its own making. The EU foolishly wanted to accelerate energy transition from fossil fuels to renewables but in so doing it plunged itself in the worst energy crisis since the 1973 Arab oil embargo. Energy prices shot up crippling the EU economy at least 14 months before the Ukraine conflict erupted.

    Then came the Ukraine conflict in which the EU was pressured by the United States to impose sanctions against Russia and ban Russian oil and gas exports forcing the it to replace the cheap and plentiful Russian piped gas with the far more expensive US LNG which has become a huge financial burden on Germany and the whole EU. The proof is that the EU economy grew by 0.6% in 2023 and is projected to grow by 0.8% in 2024.

    And as if this isn't enough, many major German companies located to the United States seeking lower energy prices and also encouraged by the US Inflation Reduction Act (IRA) benefiting from lower taxes.

    And with oil, LNG, gas and coal prices starting to to surge, Germany's economy and the EU will virtually stagnate for the foreseeable future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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