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Volkswagen Warns: High Gas Prices Could Impact Car Production

Germany's Volkswagen AG warned on Thursday that global auto production will be at risk in 2023 if Russia fails to resume deliveries of natural gas through Nord Stream 1. 

As long as Germany continues to fill its natural gas storage over the coming 5-6 months, Reuters cited a Volkswagen executive as saying on Thursday, the auto giant will be able to maintain production levels. 

However, the executive warned that by next year, with natural gas prices continuing upwards and supply still at risk over Nord Stream, production will be in question. 

The unnamed Volkswagen executive supported Goldman Sachs’ forecast of natural gas shortages beginning in June 2023 if Gazprom fails to resume flows through Nord Stream 1. 

Reuters also cited Volkswagen executive Michael Heinemann as saying that the auto giant would comply with the German government in reducing its natural gas intake by over 20%. 

On Thursday, front-month Dutch gas futures were trading below $200/MWh, hitting a nearly two-month low. The reduction in prices reflects Europe’s efforts at filling natural gas storage, which are now nearly full. This has served to offset the impact of uncertainty over Russian supplies for the time being. 

Further out, however, uncertainty is leading European companies to move operations to the United States for lower energy prices. According to the Wall Street Journal, European steelmakers are cutting production at home to shift to U.S. expansion, while Tesla is also pressing pause on its battery cell manufacturing plans in Germany. 

Volkswagen executives told Reuters that energy-intensive businesses in Europe would not be able to withstand the high energy prices for an extended period of time, and this could wreak havoc with an already-strained supply chain. 

In the United States, natural gas futures dropped some 4% on Thursday amid record output and a bigger-than-expected storage build reported by the Energy Information Agency (EIA). 

By Charles Kennedy for Oilprice.com

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