Is it the end of the road in industry for EU countries?

Although the news from Europe recently focused on the Ukraine-Russia war, the energy crisis and its reflections on industrial production are closely followed across the continent.

In order for EU countries to maintain their competitive position in the industry on a global scale, the issue of uninterrupted, competitive conditions and long-term energy supply constitutes the carrier column of the process. However, a holistic development plan ‘based on abundance and prosperity’ established by continental Europe after World War II seems to be seriously disrupted in the coming period. Moreover, this time the USA is not behind it to support continental Europe, but is against it as a competitor in industrial production.

The reasons such as the energy crisis that emerged after the Ukraine war, the rapid increase in energy costs for the European industry, the uncertainties in energy prices, and the decision to exit nuclear in many countries are the common point of the evaluations made on the subject. However, the issue is too complex to go through only a few elements…

In addition, possible developments, especially the US-EU competition, geopolitical fragilities, the course of the global economy and how all these factors will affect Turkey are very critical. Here we talked with Energy Specialist Kutalmış Ersoy, who follows all these processes closely.

Record decline in industrial production

Ersoy says that due to the energy crisis faced after the Ukraine war, the EU focuses on steps such as reducing energy demand, diversifying its supply, and investing in renewable energy sources, especially in fossil fuels.

He shares the information that the EU’s energy demand has decreased the most on the industrial side. He says that the production of sectors such as chemistry, automotive, steel and cement, which are in the recovery phase after Kovid-19, which produce energy-intensive production, have dropped seriously in the last year.

It creates a chain negative effect

Ersoy opens a critical parenthesis here and states that energy-intensive sectors such as the chemical industry, metal production and processing, petrochemicals, glass, ceramics, paper and cardboard production constitute one of the cornerstones of the economy as an intermediate goods producer.

As a matter of fact, the changes in these sectors weaken the foundation of the industry. This cycle has negative consequences such as closure of businesses, rising unemployment rates and rising inflation. “In this context, the economic dimension of the energy crisis is more evident in EU countries such as Germany, France and Italy, where energy-intensive sectors are concentrated,” says Kutalmış Ersoy.

Will the EU fall if Germany stumbles?

The data we have shows that things are not so bright for Germany, the locomotive of the EU… Due to the rising energy costs, there was a shrinkage of more than 10 percent in the energy-intensive production sectors in the country. There was zero growth in the country’s gross domestic product in the second quarter of 2023 compared to the previous quarter.

Ersoy interprets these contractions due to the increase in energy costs as “very serious alarm bells” for the German economy. He continues after saying, “These sectors produce high added value, provide significant employment in the country and supply many sub-sectors”:

“Sectors such as chemistry, glass and steel suffer more from the increase in energy costs than other sectors. However, since these sectors are at the beginning of the production chain, the decrease in production has a knock-on effect. an average of 87 percent is used as intermediate goods in other sectors in Germany.

BASF chemical company, one of the mainstays of the German industry operating for 157 years, had to pay an additional energy cost of 3.2 billion euros in 2022 and suffered a net loss of 627 million euros. BASF, the leader in the field of chemistry on a global scale, has reviewed its company strategy and decided to shift its production facilities from Germany to other countries.

BASF also aims not only to reduce production costs with new LNG agreements, but also to move its production bases from Germany to more advantageous regions in terms of energy costs. In this context, BASF announced that it will close an ammonia plant and two plastics-chemical plants in Germany and lay off 2,600 people. He also stated that he will shift some of his production out of Germany.

As a result, high energy costs put a huge strain on profitability and competitiveness in Europe. After the events, it was seen that Europe’s energy security is in a very fragile structure and this affects all balances. It is also likely that the green energy transition will fail to address these uncertainties in the short or medium term. The EU, which wants to dress the wound by reducing its energy consumption, has to grapple with the chronic structural problems in the back.”

Can Türkiye open a new path?

At this point, we are also wondering what the events experienced mean for Ankara…

He points out that Ankara is advancing its energy transformation by focusing on establishing a healthy balance between job creation and economic growth, and said: “Following a successful strategy in ensuring energy supply security, Turkey has been established in 2015 to ensure competitive conditions in natural gas as well as electricity. S. (EPİAŞ) based targets can also strengthen energy price security. This perspective will allow additional domestic and renewable energy resources to be commissioned in the upcoming period to provide more added value for our economy. This holistic energy management will take us to the point where we can make industrial production under more competitive conditions compared to the EU, which can turn into a very valuable long-term gain for Ankara, considering Turkey’s current economic conditions.”