Oxford – German Industrial Gas, Nov 2023

The report discusses the impact of the 2022 Russian gas shut-off on Germany, as it is Europe's largest industrial economy. Despite facing a shallow contraction in GDP since Q4/2022, Germany's gas market outlook for winter 2023/24 looks more certain. This is due to factors such as the availability of imported liquefied natural gas (LNG) through three new terminals, high autumn storage levels, and an expectation of lower industrial gas demand compared to the previous winter. While the macro environment has darkened, with a slow economy, the main concern now is price risk rather than supply risk. A long, colder-than-normal winter poses immediate price risk, but the supply of Russian gas is no longer in doubt as it was last year. Despite higher gas prices in 2022, most German industrial gas users were able to survive the crisis due to demand side regulation and alternative supply options. The events of 2022 highlighted the importance of moderately priced Russian imported gas in sustaining German industry. This is significant considering the challenges faced by German industries, such as less competitive labor, heavy environmental regulations, and governmental red tape. The gas crisis also accelerated the shift of some German industries to move operations outside the country. The paper focuses on Germany's position as the largest gas consumer on the continent and its role as an import and transportation hub. It also explores the impact of the gas price rally on German industries, particularly in the chemicals sector. The paper pays special attention to BASF as a case study, as it is the largest chemical company in Europe and heavily invested in Russian joint ventures, as well as its international portfolio in the USA and Asia.