European Energy Supply Is Tight

Since the outbreak of the Russia-Ukraine conflict, with the escalation of sanctions against Russia by many European and American countries, Russia, which has abundant oil and gas production, once again took out the killer of energy to fight back. On March 31, local time, Putin signed a presidential decree to force "non-friendly countries and regions" to Russia to pay for Russian gas in rubles. The G7 member countries have now clearly expressed their rejection of Russia's request.

Europe is highly dependent on Russian energy

European energy consumption is dominated by crude oil and natural gas, and is highly dependent on imports. About 20% of the total crude oil consumption is produced in Russia, and about 35% of the total natural gas consumption is produced in Russia.

Under the influence of geopolitics, the shortage of energy supply in Europe has led to a sharp rise in local natural gas and crude oil prices, which has impacted the cost and production stability of European chemical companies.

Europe is an important chemical production place in the world and plays an important role in the global chemical supply system.

Crude oil and natural gas are the main raw materials and energy sources for chemical production in Europe. With the current high crude oil and natural gas prices, the production cost of chemical products in Europe is expected to increase significantly.

In addition, if there is a serious shortage of energy supply in Europe, it will affect the continuity of the production of chemical plants, resulting in the suspension of some European production capacity, which is expected to form a global supply and demand gap.

The recent surge in energy prices has greatly increased the production costs of many European companies, which not only reduced profits, but also suppressed the production boom. Some companies were forced to reduce or even stop production.

European chemical industry faces shock

Chemical leaders such as BASF, INEOS, and PPG have all expressed their positions recently, saying that geopolitical conflicts have had a more serious impact.

BASF: There is no substitute for natural gas as a raw material or energy source (in Germany), a shortage of natural gas will result in it not having enough energy for chemical production processes and a lack of key raw materials for manufacturing products. Reducing the supply of natural gas to the Ludwigshafen site in Germany to less than half of current demand would result in the complete cessation of operations at the world's largest integrated chemical production site.

PPG Industries: PPG immediately decided not to sell to Russian state-owned entities, recent regulations and parties within the scope of the aviation market. Measures have also been taken to close various other operations in Russia, with the exception of the supply of coatings to customers who supply the people of the country with packaging containing essential food and beverage products.

AkzoNobel: Four of its factories in Russia are expected to close within a few months due to economic sanctions and a shortage of raw materials. This is either because the raw materials are no longer available or where key customers may not be able to pay, and the company's supply chain in Russia is being affected by the war in Ukraine and sanctions imposed on Russia by Western countries.

Jotun: Due to the ongoing conflict between Russia and Ukraine and the imposed sanctions, Jotun has decided to suspend its operations in Russia until further notice.

Bayer: Has significantly reduced its activities in Russia, has suspended capital expenditures and advertising, but will continue to provide medicines to civilians and distribute seeds and crop protection products. Stopping these activities would have a huge impact on patients and disrupt the food system even more severely.

Ineos Group Ineos: Ineos owns ethane contracts shipped from North America for its operations in Europe and Asia, and also operates around 10% of natural gas supplies in the North Sea itself. The problem is not security of supply, but prices, which are ridiculously high in terms of gas prices for European operations.

As a major global chemical producer, my country still relies on exports for 52% of key basic chemical materials. If the Russian-Ukrainian crisis leads to an increase in the production cost of chemical products in Europe and a partial interruption of production, it will be difficult for my country's chemical products to survive alone.