Europe’s Green Suicide: Heavy Industry Moves Investment Abroad

  • Date: 26/10/14
  • Stanley Reed and Melissa Eddy, The New York Times

“We shift investment money from Europe into the U.S. as a consequence of the less competitive environment in Europe,” Harald Schwager, a senior member of BASF’s executive board, said in an interview.

In the 1860s an entrepreneur named Friedrich Engelhorn started a firm here to produce dyes for Europe’s booming textile industry. Almost 150 years later, that company, Badische Anilin & Soda Fabrik — or BASF — is the world’s largest maker of chemicals.

Despite its growth into a global company, BASF has remained an integral part of the industrial base that has helped Germany grow into Europe’s largest economy. And Ludwigshafen remains the company’s hometown. The BASF site, spread over four square miles along the Rhine River, resembles a small city, with 33,000 employees working in 2,000 buildings, crisscrossed by roads and railways.

Lately, though, BASF has been investing more of its money and management energy outside Germany, especially in the United States. And the company’s reasons for doing that help illustrate why the German industrial economy has been losing momentum — and why Germany risks tipping back into recession.

BASF executives say that German and European Union policies toward industry, particularly when it comes to energy, are forcing big companies to look elsewhere as they seek to expand.

Energy is perhaps BASF’s biggest cost. Tremendous amounts of electricity are required to produce chemical raw materials like ethylene, propylene and butadiene for a range of products like plastics, pharmaceuticals and rubber. And oil or natural gas are the basic feedstocks from which these chemicals are produced.

Especially in Germany, energy prices have jumped as a result of the government’s big push for renewable energy sources — a policy that the government of Chancellor Angela Merkel has labeled the Energiewende, or energy transition.

At the same time, surging production of natural gas from shale rock in the United States is creating cheap and ever more abundant energy, giving American chemical plants and manufacturing sites a new competitive edge over facilities in Europe.

That is a big reason BASF is expanding some of its plants in the United States and looking to build others.

Already, BASF has doubled its annual investment in the United States to about $1 billion a year. With its French partner Total, it recently completed an estimated $400 million expansion and upgrade of their petrochemical plant in Port Arthur, Tex., which employs about 250 people.

As a result of the modifications, the plant’s main production engine, an installation known as a steam cracker — which was first fired up in 2001 and previously used feedstock derived from oil — can now make its chemicals from shale gases, allowing for potentially huge savings.

“We shift investment money from Europe into the U.S. as a consequence of the less competitive environment in Europe,” Harald Schwager, a senior member of BASF’s executive board, said in an interview here.

It is a major strategic shift for the company, which had 74 billion euros, or about $94 billion, in revenue last year.

Over the next five years, BASF plans to pump a quarter of its planned €20 billion in investments into North America. For the first time, the company plans to trim its spending in Germany from its traditional level of at least a third of investment to only a quarter.

BASF is not alone in looking beyond the country’s borders. Since 2011, the chemical industry over all — Germany’s third-largest industrial sector after automobiles and machinery — has not increased production or investment in the country, according to VCI, an industry association.

And nearly a quarter of all companies in heavy industry are considering reducing production in Germany, according to a survey by the German Chambers of Commerce. […]

“The bad thing from a European perspective, not from a company perspective but for the region Europe, is it’s not only BASF,” Mr. Schwager said. “It is many European companies which are energy-intensive. They are finding out that the benefits of shifting investment from Europe to the U.S. are significant.”

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