Is permanent deindustrialisation of Europe still a tail risk?
European chemicals behemoth BASF is one of Germany’s largest consumers of natural gas and has been particularly hard hit by the surge in energy prices following Russia’s invasion of Ukraine.
In September 2022 the company announced that it was going to introduce a €500 million annual cost saving program in response to the energy crisis. BASF CEO Dr Martin Brudermüller confirming that BASF would downsize in Europe “as quickly as possible, and also permanently”.
It goes beyond simple cost cutting. Crucially, BASF wants to reorientate its business towards other parts of the world, places where energy is more competitive, permitting processes are less onerous and the market for chemicals is growing fast. Here is how Brudermüller summed up BASF’s position: “Europe’s competitiveness is increasingly suffering from overregulation, slow and bureaucratic permitting processes, and in particular, high costs for most production input factors,”
Half of the cost savings are to be incurred at BASF’s Ludwigshafen Verbund site, located 100km south of Frankfurt. A highly optimised agglomeration of chemical facilities, held together by nearly 2,850km of pipes, Ludwigshafen is the world’s largest integrated chemical complex. Energy intensive industries have spent decades and billions of Euros building this network, largely on the basis that cheap Russian natural gas would continue to flow indefinitely.