Energy shortage, the weather is “to blame” – the challenge of European enterprises intensifies

Latest News: This year’s summer in Europe has been quite remarkable. Different from the cooler weather in the past, Europe has experienced continuous dry and hot weather this year, which has caused European chemical companies to face huge cost and supply challenges in August. The river water level fell further, affecting the logistics of European chemical companies.

Cost is a concern

The recent surge in electricity prices in France has drawn attention. As the country’s nuclear reactors may suffer from corrosion problems, nuclear power generation has to be reduced, while the temperature of the extracted cooling water has risen, causing electricity prices to soar. French electricity prices have soared from €300/MWh to nearly €900/MWh since July, compared with €100/MWh in August last year. German electricity prices have risen from €300/MWh to nearly €500/MWh since July, compared with €100/MWh in August last year. Clearly, electricity costs for European chemical companies have risen further.

In addition, hot and dry weather in Western and Central Europe has already led to a significant drop in the water level of the Rhine. The Rhine is an important artery for the transportation of fuel, chemicals and coal in Northwest Europe. In Germany, where coal is often transported via the Rhine to power plants to supplement natural gas as a fuel for power generation, the cost of transporting electricity and chemicals in Europe will continue to rise amid further heightened geopolitical uncertainty caused by the Russia-Ukraine conflict. According to reports, freight rates on the Rhine have risen significantly, and goods transported through the Rhine have been significantly smaller. In 2018, low water levels on the Rhine and shipping came to a standstill, leading to a 0.2% drop in the EU’s full-year gross domestic product (GDP), according to a Deutsche Bank research report.

In addition to the water level of the Rhine, the water level and water temperature of the main water transport routes in Europe are also closely monitored. The water level affects the cost and efficiency of water transportation, and the water temperature affects the use of cooling water by chemical companies, and also affects the cost of the company.

Market intelligence agency warns

Although German companies say that the water level of the Rhine has not affected their operations, some market information agencies have reported the impact of the Rhine on the market and issued warnings about the future trend. For example, European butadiene market players have reported logistical difficulties and price increases for butadiene to market information agencies.

S&P Global said European butadiene prices were rising on the back of strong export demand and tight supply. In the week to August 5, the spot price of butadiene in Northwest Europe was 1,600 euros/ton, up 100 euros/ton from the previous week. S&P Global said at least two producers in the European market were experiencing problems with butadiene production. Low water levels on the Rhine could further exacerbate the supply situation for butadiene and other products. A shortage of truck drivers in parts of Europe is also exacerbating logistical problems.

In response to the more impacted olefins market, sources at S&P Global said that the drop in the Rhine has so far had little direct impact on the European ethylene market. But S&P Global still warned that steam crackers upstream of the river may have to reduce load further if feedstock supplies are disrupted, while power shortages caused by hot weather will also reduce plant load. The August ethylene contract price in Europe was EUR 1,425/t on August 1, down EUR 70/t from the July contract price due to weak downstream demand. The ethylene contract price was the lowest since February this year. And S&P Global warned that ethylene prices could rise if businesses reduce loads due to weather.

Chemical companies are responding

Currently, chemical companies in Europe are dealing with additional problems caused by the above problems.

Among them, gas and electricity costs are the most worrying issues at present. The French chemical industry has been affected by high energy prices, but has not been affected by any shortage of natural gas supplies, the French Federation of the Chemical Industry said. French natural gas can still meet demand. However, it is precisely because of the price of natural gas that some chemical plants in France have been forced to stop production this year. The rise in the price of nuclear power has made French chemical companies even worse.

In Germany, the pressure on Rhine transport is already starting to show. Current water levels are comparable to 2018 levels, with the shallowest point at Kaub nearing 50cm. To this end, the chemical companies that were most affected by the falling water level on the Rhine in 2018 have taken steps to avoid the worst. Businesses have commissioned new barges capable of handling low water levels, while increasing rail tanker loading and unloading capacity.

Evonik Industries said it is using additionally rented boats and trucks to meet transportation needs, and there are currently no significant restrictions on the logistics chain and the factory is operating normally. Lanxess said the current Rhine water level in Leverkusen is 102 centimeters and its transport through the Rhine has not been affected. In 2018, the company was able to maintain production operations when water levels at the site dropped to 67cm. BASF said that from 2018 to 2021, they implemented a series of measures upstream of Ludwigshafen, Europe’s largest industrial base, to help the base cope with low water levels. BASF added that production at the Ludwigshafen industrial site is not currently affected by low water levels, but it cannot rule out the possibility of individual plant production cuts in the coming weeks.