(Bloomberg) -- Europe’s heavy industry, scarred by recent energy-price shocks, is likely to curtail gas use for years to weather a prolonged period of high costs and weak profits.
A tighter gas market in 2025 is expected to push up energy bills. That means price-sensitive sectors such as ammonia production and refining will have to cut consumption, said Erisa Pasko, an analyst at Energy Aspects Ltd. in London. The curbs would erase a modest uptick in demand seen earlier this year.
A vital feedstock and power-generation fuel, natural gas is used by producers of everything from chemicals and plastics to glass and steel. Prices soared when Russia’s invasion of Ukraine squeezed supplies, forcing some factories to halt or run at a loss. A sluggish economy means demand may not pick up again until 2027, according to Anna Galtsova, a director at S&P Global Commodity Insights.
While industrial gas use is up year-on-year, S&P reduced its estimate for 2024 growth to 5.8% and sees a 0.7% decline in 2025. Consumption remains far below what it was before the energy crisis. Indeed, the data firm expects 9.5 billion cubic meters of annual demand to be permanently lost due to shuttered output and energy-efficiency measures.
Energy-intensive sectors such as fertilizers and steel are among the worst affected.
“It’s very difficult to compete with the steel industry outside Europe,” said Miroslav Kiralvarga, vice president of Slovakia’s US Steel Kosice, the largest producer of the alloy in central Europe. Since the gas-supply crunch, “the energy price has stabilized, but it’s not comparable with our competitors.”
In Europe, gas is about four times more expensive than in the US. Plants in the European Union must also pay to emit carbon dioxide as part of the bloc’s emissions-trading system, while companies across much of America aren’t tied to any such program.
US Steel Kosice accounts for about 5% of industrial gas consumption in Slovakia, which remains a key buyer of Russian fuel. A deal to transit supplies across Ukraine to Europe expires at year’s end, potentially exposing central Europe to higher costs as firms source alternative options, including liquefied natural gas.
Chemical and fertilizer maker Duslo a.s., also based in Slovakia, said high energy expenses make it hard to compete. Fertilizers flooding in from Russia or Belarus, for example, are pushing out local producers in a number of European markets, Duslo Chief Executive Officer Petr Blaha said in an interview.
“As a result, producers are leaving Europe for places like China, but mainly for the United States,” he said.
Europe’s industrial gas demand next year will be 21% below the 2017-2021 average, Energy Aspects’ Pasko said, citing a weak economic outlook, particularly in Germany. Consumption may not start to return until a couple of years later, when a slate of new LNG projects comes on stream, lowering prices. Some industries may languish for even longer.
“Ammonia production won’t have recovered to pre-crisis levels even by 2030, so that’s kind of what we’re facing,” said Matthew Jones, head of power analytics at consultant ICIS. “If we look more broadly at gas-to-industry demand in Europe, that peaked pre-Covid and won’t be coming back to that level at any point.”
--With assistance from Eamon Akil Farhat and William Mathis.
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