Germany sees no “light at the end of the tunnel” after energy shock

German industry became wealthy, partly thanks to its close energy trade relationship with Russia. But the situation has changed rapidly since Russia launched its “special military operation” in Ukraine more than two years ago and the supply of cheap gas from Moscow to Berlin was disrupted shortly thereafter.

Prior to the conflict, Germany imported 55% of its gas supply from Russia. Moscow was also Berlin's main source of oil and coal imports.

Since then, the Western European nation has largely freed itself from its dependence on Russian gas. Germany cut its gas imports by 32.6% in 2023, primarily due to supply cuts from Russia, according to Germany's energy regulator.

Now, the head of one of Germany's largest renewable energy companies is expressing concern that the industry, considered the backbone of the country's economy, is being "disadvantaged" by fluctuating gas prices.

Although gas prices in Europe have fallen significantly, by 90% from their 2022 peak, they are still nearly two-thirds higher than in 2019, according to a report by commodity pricing agency Argus. After turning away from Russian gas, Europe's leading economy is now relying on imports of more expensive liquefied natural gas (LNG). The impact on German industry is already evident and likely to be long-lasting.

Markus Krebber, CEO of renewable energy company RWE, recently stated that the German industry is unlikely to recover to pre-conflict levels.

"You're going to see a bit of a recovery, but I think we're going to see a significant structural decline in demand in energy-intensive sectors," Krebber told the Financial Times last week.

Markus Krebber, CEO of the German renewable energy company RWE. Photo: Yahoo!Finance

Analysts have painted a less optimistic picture for Europe's largest economy. Recently, five leading German economic research institutes cut their growth forecasts, stating that Germany's gross domestic product (GDP) will only grow by 0.1% this year due to falling exports.

Berlin asserts that it is investing in transforming its economy, positioning it to gain significant competitive advantages in the future in a carbon-neutral world .

But Germany's industrial stagnation has become a politically sensitive topic, with the country's influential industrial lobby, the BDI, criticizing the "dogmatic" green policies that are impacting manufacturers.

Samantha Dart, head of gas research at Goldman Sachs, sees European industrial capacity as unlikely to recover to pre-conflict levels. She believes more stable gas prices and improved economic conditions will boost some demand, but a return to pre-crisis levels is a far greater challenge.

Simultaneously, manufacturers are increasingly shifting their operations to the US. Analysis by FDI Markets shows that German companies nearly tripled their investments in the US in 2023 to $15.7 billion.

The decline of German industry led to a capital outflow to the US, and President Joe Biden's Inflation Reduction Act (IRA), which provided substantial subsidies to startups, was a powerful catalyst.

Major German automakers like Volkswagen and Mercedes-Benz have strengthened their commitment to the US. Meanwhile, RWE announced a new US subsidiary called RWE Clean Energy, following the completion of its acquisition of Con Edison Clean Energy. The German company has invested $15 billion in its US business.

“In the U.S., you have a coherent and comprehensive policy to encourage manufacturing to come to the country,” Krebber, CEO of RWE, told the Financial Times. “Europe has the same intention but hasn’t yet found the right way to do it . ”

Minh Duc (According to Financial Times, Fortune)

Source: https://www.nguoiduatin.vn/duc-chua-thay-anh-sang-cuoi-duong-ham-sau-cu-soc-nang-luong-a659131.html