German gas surcharge could cost chemical industry more than €3 billion a year

In response to the impact of continued price spikes, Germany has announced the introduction of a natural gas surcharge as of October. The move will cost the German chemical and pharmaceutical industry more than 3 billion euros a year, pushing many producers to the brink of collapse.

On August 15, local time, Germany announced that a natural gas surcharge will be introduced in October at the rate of 2.419 cents per kilowatt hour, and can be adjusted every three months.

The German Chemical Industry Association (VCI) said on the same day that it is estimated that the introduction of the gas surcharge will cost the country's chemical and pharmaceutical industries more than 3 billion euros a year.

VCI Director General Wolfgang Gross-Entrup said that while the chemical industry recognizes the need for the tax, it is concerned about its impact.

"One thing is clear: Of all the models discussed, a tax is the best (option) from an economic point of view. But there are side effects to doing the right thing: it's an extremely bitter pill to swallow for our already hard-hit energy-intensive industry." Entrump said.

VCI warns that many companies are on the verge of collapse due to high gas and electricity prices and the multiple burdens of expensive raw material costs.

Entrup stressed, "We must not undermine the economic performance of companies. Companies that have been particularly affected need relief now."

VCI is in "deep dialogue" with the federal government about such relief through a tax that must be paid by natural gas consumers beginning Oct. 1, 2022, and continuing through April 1, 2024.

VCI advocates keeping the gas surcharge as low as possible through state subsidies. In addition, the levy should be extended for as long as possible to avoid overburdening industry and consumers in the short term.

According to VCI, the chemical industry accounts for approximately 15% of Germany's natural gas consumption, using approximately 2.8 million tons of natural gas per year as a chemical feedstock and 99.3 TWh of natural gas for steam and electricity production, accounting for 27% and 73% of the industry's natural gas use, respectively.

It is understood that as Germany's natural gas supply faces a crisis, suppliers have to buy gas from elsewhere at higher prices to make up for the shortfall in supply, and a surcharge would cover about 90% of the difference, by which consequences such as supplier bankruptcy could be avoided.

The German Energy Intensive Industries Association issued a statement on the 15th that six major energy-intensive industries such as steel, chemicals and paper companies must cope with a total of about 5.3 billion euros in new energy costs each year. On average, each job will add nearly 6,300 euros of additional burden.

Previously, these industry companies have added billions of euros of additional costs compared to the same period last year.