High gas prices are forcing European companies to shift production to the US, writes The Wall Street Journal.
“Faced with sky-high natural gas prices, European steel, fertilizer and other core economic commodities are gradually moving operations to the United States, where they are lured by more stable energy prices and strong government support,” writes the WSJ.
This threatens Europe with a “new era of deindustrialization”, which is especially true for those companies that produce energy-intensive products.
Dutch chemical company OCI NV drastically reduced ammonia production in Europe in September and announced the expansion of a similar plant in Beaumont, Texas. Danish jewelry company Pandora and German car giant Volkswagen have announced expansions in the United States. Elon Musk’s Tesla has halted its plans to manufacture batteries in Germany and is exploring tax breaks under President Biden’s Inflation Reduction Act signed into law in August.
Stefan Borgas, CEO of Austrian refractory company RHI Magnesita, announced an increase in investment in the US. Luxembourg-based ArcelorMittal announced production cuts at two German plants and reported higher-than-expected earnings from an investment in a Texas plant that produces hot-briquetted iron used in steel production.
Svein Tore Holseter, chief executive of Norway’s large fertilizer plant Yara International, says European producers will find it difficult to remain competitive in the absence of lower gas prices and “some industries will irrevocably move their production to other countries”, primarily in the United States.
One of the most affected was the European metallurgy. By mid-September, a total of 15 steel mills in Europe had suspended or plan to suspend production.
ArcelorMittal, the second largest steelmaker in the world, has actually thrown the white flag of capitulation. The company announced that it would close two plants in Hamburg and Bremen due to “unsustainable increases in energy prices.” ArcelorMittal will also shut down Dunkirk’s blast furnaces in France and the company’s Asturias plant in Spain. In Poland, ArcelorMittal plans to shut down one of its two blast furnaces at its Dąbrowa Górnicza steel plant.
According to ArcelorMittal, European metallurgy cannot be competitive at current gas prices.
The head of Germany’s largest steelmaker, the Georgsmarienhütte Unternehmensgruppe (GMH) group of companies, Alexander Becker, admitted in an interview with Spiegel magazine that “even if gas prices freeze,” GMH will go bankrupt next year.
The head of the Association of German Trade Unions, Jasmine Fahimi, warns that due to the sharp rise in gas and electricity prices, a series of bankruptcies will cover the German industry.
Deindustrialization is also underway in the UK. Due to rising energy prices, 60% of British factories may suspend work in the near future, Bloomberg reports.
“According to the Eurometaux European Association of Metals Trade, half of the production of aluminum and zinc in Europe has been stopped,” writes The New York Times, acknowledging that “to some extent, the crisis is a response to European sanctions designed to punish Moscow …”.
“European producers cannot recover from the cessation of Russian gas supplies,” complains The Wall Street Journal. “As European countries seek to stop buying Russian energy, this has already led to a sharp decline in their economies,” reports the Daily Telegraph.
“If the energy cost gap between the US and the rest of the world continues, some manufacturing industries may well move to the US,” says Sylvia Ardaña, head of European economics research at Barclays Bank, signaling that there will be a move to America not only European manufacturers. “American industry will benefit.”
No matter how much gas costs in Europe, prices in the US will always be significantly lower due to a significant increase in LNG production from its own fields. The US is on track to overtake Qatar and Australia as the world’s largest LNG exporter as early as 2022. U.S. LNG exports were boosted by mid-summer as additional capacity came online at Venture Global LNG Inc’s new Calcasieu Pass terminal in Cameron Parish, Louisiana, as well as increased production at a leading U.S. about the exporter Cheniere Energy Inc.
In August, the cost of natural gas in the US was ten times lower than in Europe. With such a gigantic handicap, US LNG companies have set their sights on the European gas market, trying to take advantage of the situation and make the most of it.
And Europe, from which the United States is trying to get rid of Russian energy resources, has become a hostage to the situation. EU countries are forced to pay for LNG to Washington, emptying their budgets and filling the American one. “American businessmen who sell raw materials to Europeans make good money on it,” writes the Swiss newspaper Blick.
As a result of the energy crisis inspired by the United States, Europe will get hooked on American gas, the price of which will be set overseas. And then the European industry will be reset. Those industrialists who survive will move to the United States, and the European Union will fall out of the ranks of America’s economic competitors.
Vladimir Prokhvatilov, FSK
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