Energy Crisis Erodes Europe's Industrial Strength

Europe needs its industrial companies to save energy amid soaring costs and shrinking supplies, and they are delivering demand for natural gas and electricity, both fell in the past quarter.

FREMONT, CA: Due to rising prices and dwindling supplies, Europe's industrial enterprises must conserve energy, and they are succeeding as both natural gas and electricity use declined in the most recent quarter. The decline is caused by industrial companies closing down plants that might never reopen and lowering thermostats.

And while less energy use helps Europe weather the crisis brought on by Russia's conflict in Ukraine and Moscow's supply restrictions, CEOs, economists, and industry groups warn that if high energy costs persist, Europe's industrial base can be seriously harmed. Energy-intensive industries like aluminium, fertilisers, and chemicals run the risk of businesses moving their operations permanently to countries with an abundance of inexpensive energy.

Natural gas in the United States still costs roughly a sixth of what businesses pay in Europe, even after an exception and forecasts for a mild winter contributed to price reductions. Patrick Lammers, a member of the management board of utility E.ON stated that many businesses are just ceasing output. Manufacturing activity in the eurozone fell to its lowest level since May 2020, indicating that a recession was about to hit the continent.

According to the International Energy Agency, the third quarter of 2016 saw a 25 per cent decrease in the demand for industrial gas in Europe. According to analysts, the decline had to be caused by widespread shutdowns because efficiency improvements alone could not generate such savings. An email from a representative for the European Commission stated they are doing everything possible to prevent a decline in industrial activity.

However, experts caution that the industrial sector will be the first to experience cuts in the event of shortages as the temperature drops and people turn up their heating.

For decades, European business has been moving output to regions with less expensive labour and other costs, but some claim the energy crisis is speeding up the exodus.

If energy prices continue to rise to the point where a portion of European industry becomes structurally uncompetitive, manufacturers will close and relocate to the U.S., where inexpensive shale energy is abundant. For instance, over the past year, the output of primary aluminium in the EU was slashed in half, or by 1 million tonnes. All nine of the bloc's zinc smelters have either reduced or discontinued production, according to trade data collated by Reuters, while imports from China, Kazakhstan, Turkey, and Russia have taken their place. Reopening an aluminium smelter may cost up to 400 million euros (USD 394 million) and is improbable given the hazy economic future of Europe.