German Industrial Gas: Crisis Averted, For Now

As Europe’s largest industrial economy and, before the Ukraine war, heavily reliant on Russian gas exports, Germany was heavily impacted by the 2022 Russian gas shut-off. Having weathered the winter of 2022-2023 without any supply shortfall, the German gas market outlook for winter 2023/24 is more certain, even as the macro environment has darkened, with GDP in a shallow contraction since Q4/2022. The availability of imported LNG through three new Baltic terminals, high autumn storage levels and the expectation that German industrial demand will be lower than winter 2022/23 means that price risk, rather than supply risk, is uppermost. The Ukraine crisis in 2022 underlined the role that moderately-priced Russian imported gas played in sustaining German industry, despite the growing list of headwinds facing the German economy including less competitive labour, heavy environmental regulation and other governmental red tape.

This paper looks at Germany’s unique position as the continent’s largest gas consumer and its emerging role as an import and transportation hub – both north-south and west-east. German industrial gas demand is also significantly higher as a proportion of total demand at 35% pre-crisis compared to an average 20% in the EU. The paper surveys the mixed impacts that the gas price rally had on German industrials, particularly in chemicals. It explains the different strategies seen among the corporates in this sector. It focuses special attention on BASF as a case study, the largest chemical company in Europe and one that was heavily invested in Russian joint ventures as well as its international portfolio in the US and Asia.

By: Andreas Seeliger