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The crisis brought the world giant to its knees

The energy crisis that broke out with the Ukraine war will cause Germany, which is the dynamo of the European economy, to completely renew its business model.

Manufacturing activity cannot be larger and more concentrated than the world chemical giant BASF’s headquarters in Ludwigshafen.

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The small town size of BASF headquarters is the world’s largest integrated chemistry complex with one of the largest wastewater treatment plants in Europe, its own hospital and fire department.

Natural gas is the lifeblood of Ludwigshafen. Substance passing through dense network of pipes, fuel for power plants, raw material for chemical processes. And the Russia-Ukraine War disabled its main supplier.

BASF responded to rising natural gas prices by first shutting down the ammonia plant and reducing the operating speed of the acetylene plant, disrupting the production of two chemical building blocks used to make a number of different products vital to modern industrial value chains.

 

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Germany must renew its broken business model

Because the price of natural gas at the expense of fire has created a situation where it is cheaper for Germany to import ammonia from overseas than to produce it themselves.

BASF is not alone in the energy crisis. Since the summer, companies all over Germany have been struggling to adapt to the near disappearance of Russian gas. They dimmed the lights, switched to oil, and cut production as a last resort. Some are even considering moving their operations to countries where energy is cheaper.

The cheap energy dependent model is not sustainable

This raises deep concerns about the future of German industry and the sustainability of the country’s business model based on cheap energy, which has long been guaranteed by an abundant supply of Russian gas.

Constanze Stelzenmüller, Director of the Brookings Institute Center for the US and Europe, told the Financial Times that Germany is an example of a western state that has made a “strategic bet” on globalization and interdependence and is now suffering the consequences.

Despite having the largest chemical industry in Europe by far, Germany is almost entirely dependent on imported energy and raw materials. BASF, Europe’s largest consumer of industrial gas, has for decades sourced most of these imports from Russia.

Now the cost of this addiction is increasing day by day. German chemical giant BASF announced that it had to pay 2.2 billion euros more for gas between January and September compared to the same period in 2021.

This is why BASF recorded a loss of 130 million euros on its business in Germany in the third quarter. It now plans to cut costs by 1 billion euros over the next two years, in part in response to rising energy prices.

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