Europe’s Fears Over US Energy Gap

Europe's ability to compete against the US as a manufacturing center is being damaged by rising energy costs as North America benefits from cheap natural shale gas, Germany's biggest companies have warned.

Europe’s Fears Over US Energy Gap
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The energy cost advantage for US companies is rising and is expected to persist until at least 2020, according to the BDI, the German industry lobby group.

German industrial companies such as Bayer and BASF are among the those alarmed over the gap.

Some executives fear a growing divide between European and US energy costs could see energy-intensive manufacturers divert investments that might have gone into Europe to the US instead.

Harald Schwager, the member of BASF's executive board responsible for Europe, told the Financial Times: "We Europeans are currently paying up to four or five times more for natural gas than the Americans ... Of course that means increased competition for all the European manufacturing sites."

BASF, the German chemicals company, recently converted its steam-cracker in Texas to run on shale gas and says its production complex in Louisiana – where it is building a formic acid plant – is very competitive.

Marijn Dekkers, the chief executive of Bayer, the German drugs and plastics maker, also told the Financial Times: "Energy costs in Europe and Germany in particular will continue to rise. That will have an effect on the competitiveness of several sectors."

In a report to be published in coming days, the BDI forecast US natural gas prices would remain at 16 euros per ­megawatt hour (MWh) until 2020 — some 40 per cent less than the last peak, around 25 euros in 2008.

In contrast, German gas prices will rise from 48 euros per MWh to 61 euros, an increase of 27 percent by the end of the decade.

Compounding German industry's fears is chancellor Angela Merkel's plan to phase out nuclear power by 2022 and replace it with renewable energy sources, which companies say could drive a bigger transatlantic divergence in electricity prices.

The BDI's projection, put together by BCG, the consultancy, says electricity prices for German industrial users will rise from 90 euros per kWh today to 98 euros or even 110 euros in 2020. US prices are expected to rise only from 48 euros to 54 euros in the same period.

"Europe's politicians should be careful not to make already pricy energy even pricier by levying new taxes or surcharges," Mr. Schwager said in reference to the German renewable-energy surcharge from which big industry is excluded for now.

The BDI blames costly long-term gas contracts and a lack of US gas exports for Europe's energy woes.