Natural-Gas Cuts Threaten World's Largest Chemicals Hub

"LUDWIGSHAFEN, Germany -- For years, BASF SE, one of the world's largest chemicals companies, built its business model around cheap and plentiful Russian natural gas, which it uses to generate power and as feedstock for products that make it into toothpaste, medicines and cars.

Today, dwindling Russian gas supplies are proving a threat to the company's vast manufacturing hub here -- the world's largest integrated chemical complex spanning some 200 plants. Earlier this month, Russia started throttling back its supply of gas to Germany and other European countries. In response, company executives are doing what was unthinkable just a few months ago: considering how to potentially shut down the complex if gas supplies fall further.

The threat isn't just to BASF and its 39,000 employees in Germany. Because BASF and other chemicals companies sit at the beginning of most industrial supply chains, their disruption would reverberate well beyond the sector, threatening Europe's economy at a time of high inflation and slowing growth. A throttling of BASF's ammonia output, a key ingredient in fertilizers, could exacerbate the world's growing food crisis, analysts say.

"Stopping production here would be a mammoth task," said Peter Westerheide, BASF's chief economist. "We've never faced such a situation before," he said. "It's difficult to imagine."

Germany's dependence on Russian gas has risen after successive governments moved to close the country's last nuclear-power plants and to phase out coal, leaving only gas and renewable energies as alternatives. Many homes in Germany use gas for heating and the country is home to the biggest manufacturing sector in Europe, a voracious consumer of the fuel.

On Thursday, Berlin triggered the second of a three-step emergency gas plan that, in its last step, could cut off gas supplies to some companies. The move came after Russia reduced deliveries to Germany via the Nord Stream pipeline to 40% of its capacity.

Moscow blamed the shortfall on missing turbine parts because of sanctions.

German officials called it an economic attack. Germany currently receives about 35% of its gas imports from Russia, from around 55% before the sanctions on Russia.

Chemicals companies such as BASF are more vulnerable than other industrial players because natural gas is critical for most of their processes. Some 60% of the gas BASF consumes in Europe is used for power and steam generation. The other 40% is used as a feedstock, or raw material for its products.

At BASF's Ludwigshafen site -- a city within a city with over 60 miles of roads, some eight restaurants and a wine cellar -- natural gas is fed into an intricate system of pipes and spigots to reach plants making ammonia and acetylene, a compound used in plastics and pharmaceuticals. The site is responsible for as much as 4% of German gas demand.

"To put it plainly: There is no short-term solution to replace natural gas from Russia," BASF Chief Executive Martin Brudermuller said in April.

Managers figure that if gas supply stays above 50% of Ludwigshafen's maximum demand, they can continue to operate by reducing the load and using substitutes. If gas supply falls significantly below that over a sustained period, they would have to stop production, the company said. The threat of gas rationing is growing and Russia is likely to continue to curtail gas deliveries, German officials and analysts say.

The site employs around a third of BASF's total workforce. While chemical plants stop production for scheduled and officially required maintenance, an immediate shutdown of the whole complex can lead to critical plant damages and significant safety risks and the company needs time to ensure a safe shutdown of the plants.

With gas now becoming rarer and more expensive, BASF is racing to find alternatives -- and finding that few exist in the short term.

Germany's VCI chemical industry association said the chemicals sector, the country's largest industrial gas consumer, requires around 135 terawatt-hours of gas a year. The industry can save only two to three terawatt-hours by using alternative fuels, VCI said.

Longer term, BASF is working on reducing its dependence on fossil fuels by increasing energy efficiency and switching to renewables in the power supply. Last year, it invested in an offshore wind park and signed long-term supply contracts for green electricity. But while replacing gas-powered electricity is technically possible, the renewables supply isn't yet enough to meet demand, analysts say.

When it comes to feedstock, BASF has pilot projects for chemicals recycling and increasingly uses biofuel feedstocks, including biomethane. However, these approaches won't be able to substitute fossil fuels at large scale soon, analysts say." [1]

1. World News: Natural-Gas Cuts Threaten World's Largest Chemicals Hub
Kantchev, Georgi. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 28 June 2022: A.9.