OVERNIGHT OPINIONS: A Domino Is About to Fall... Are You Ready?

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Is a famine coming? It might be and it all has to do with BASF. It is the world's largest chemical company - pulling in nearly $86 billion last year - that’s more than $30 billion more than the second place company, DOW, based in the United States. So, BASF is big.. But what’s the big deal? Well, it’s also old, very old.
Its located in Germany. Founded in 1865, a U.S. branch opened a few years later.
Today, it employs nearly 122,000 employees globally - with 50,000 in Germany alone. Their business is divided into six segments: Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care and Agricultural Solutions.
BASF has previously indicated that things aren’t looking so good in Germany - and overall Europe. According to the Wall Street Journal, BASF might have to close their plant (Ludwigshafen) in Germany. The reason: a shortage of cheap and abundant gas from Russia. BASF relied on Russian natural gas to power their products and their plants.
The Senior economist at BASF, Peter Westerheide, said:
"Cutting down production at this site will be a huge task. We've never seen situations like this before. It's hard to imagine."
The company has estimated that if it can still get more than 50% of the maximum value of gas, operations should continue as usual. However, once it drops below that threshold, a shutdown is inevitable.
It looks like we are quickly approaching that point, if not already. Now is the time to tell the story of the gas shortages affecting the European Union - particularly how this affects Germany .
The shortage of natural gas has been looming over the EU ever since the Russian invasion of Ukraine. From cutting deliveries to shutting down for maintenance. Equipment trouble in August has since left the Nord Stream 1 pipeline offline.
Things got really bad this summer. Prices peaked at more than 340 euros per megawatt hour. In fact, in just one week, Nord Stream 1 cut inventories by 60%. All this action caused Germany to activate the second phase of their three-stage gas emergency program. The next step would require the rationing of the supplies to industry. At the time, German economy minister Robert Habeck said, ”gas is from now on in short supply in Germany. Even if you don’t feel it yet: We are in a gas crisis.”
In September, the amount of gas pumping into Europe from Russia was down more than 80% in just the previous year. Even though prices have since dipped back down to 108.5 euros per megawatt hour, and inventories are fairly full, experts are warning to not get too comfortable.
The crisis is far from over. Before the whole Ukraine conflict, the EU was getting nearly 40% of its natural gas from Russia. Now it’s getting less than 10%.
Henning Gloystein, director for energy at consultancy firm Eurasia Group, says:
“..the current glut shouldn’t be seen as a signal though that the upcoming winter might not see energy shortages. Given there’s virtually no Russian gas available in Europe, supply is tight. Once it gets cold, inventories will draw down. If there’s a late winter cold snap when stocks have been reduced, things could get pretty tight in early 2023, meaning possible price spikes and potential energy shortages; it's therefore still very important for industry and households to try to reduce consumption.”
And future imports seem unlikely, after both NordStream 1 & 2 were hit with explosions in late September.
The point? The world is a giant game of dominos. Europe's gas woes will not only make everyone cold - it will cause the largest chemical factory, bASF, to shut down a large part of its operations. These will cause shortages of a lot of products. A lot.
According to the Guardian, “the consequences of a shutdown at Ludwigshafen would be far-reaching, not just in Europe’s largest economy but the entire continent.”
They go on to explain BASF’s major global impact, saying their, “chemicals are used to make anything from toothpaste to vitamins, from building insulation to nappies. It is one of the world’s biggest manufacturers of ibuprofen for painkillers, and its single largest customer industry is the automobile industry.”
At that same Ludwigshafen plant, the company also makes something called AdBlue- a liquid required for heavy goods vehicles to reduce air pollution.
According to Marketplace.com, German Lawmaker Hans-Josef Fell has previously noted that BASF “makes the building blocks for a vast quantity and range of products for the global market.”
See the domino effect?
The Russian-Ukraine conflict created a natural gas crisis which is putting the world’s largest chemical company in risk of shutting down divisions, which would cause product shortages. And finally, one of these shortages could bring European trucking to a halt.
According to German law, households, care homes, and hospitals would be spared any drawbacks or cutdowns. Instead, cuts would strike industry which makes up about nearly a third of Germany’s demand.
In just the last 18 months, there has been an eight-fold increase in the European benchmark for natural gas prices.
It was estimated that the EU would need to reduce natural gas use by 13% this winter to compensate for the lack of Russian gas. This effort would need to come from consumer behavior, primarily.
And well, all this volatility was too much for BASF to want to wait out. This past week the company announced that gas prices and regulation was getting a little bit too severe. BASF was forced to downsize and cut costs, “as quickly as possible and also permanently”. Chief executive Martin Brudermüller went on to say that the move is to “safeguard our medium and long-term competitiveness in Germany and Europe” Just a few weeks before this announcement, they pledged to cut costs in non-production areas as well as R&D.
It’s not just tinfoil hat wearers that see this as a problem. Brudermüller himself, at BASF, sounded the alarm some time ago that Russian gas embargo would cause Germany into its biggest crisis since World War 2.
The mainstream media isn’t reporting on this. No. They’re too worked up over Kanye West’s rants and Elon Musk taking over Twitter. Gas shortages in Europe that could shutter the world’s largest chemical plant? A plant that makes chemicals needed for fertilizer? Just in case you’re wondering, we’re already facing massive droughts and harvest shortfalls globally. Fertilizer is already in short supply. So this isn’t a hiccup in a well-functioning system… it’s a major threat to an already, highly vulnerable supply chain. But who cares? Nancy Pelosi’s husband was having a hammer fight in his underwear with an intruder.
REFERENCES:
https://www.statista.com/statistics/272704/top-10-chemical-companies-worldwide-based-on-revenue/
https://www.basf.com/za/en/who-we-are/sites-and-companies/germany/150_years.html
https://www.rt.com/business/557936-germany-basf-russia-gas/
https://www.cnbc.com/2022/10/28/energy-crisis-europe-gas-prices-drop-but-could-rise-in-coming-months.html
https://www.bbc.com/news/world-europe-60131520
https://edition.cnn.com/2022/03/30/business/germany-russia-gas-warning/index.html
https://www.cnbc.com/2022/10/28/energy-crisis-europe-gas-prices-drop-but-could-rise-in-coming-months.html
https://www.bbc.com/news/world-europe-60131520
https://oilprice.com/Latest-Energy-News/World-News/Russias-Gas-Exports-To-Europe-Drop-By-82-In-A-Year.html
https://www.theguardian.com/business/2022/sep/15/gas-rationing-germany-basf-plant-europe-crisis
https://www.marketplace.org/2022/10/04/basf-natural-gas-rationing/
https://www.ft.com/content/f6d2fe70-16fb-4d81-a26a-3afb93e0bf57
https://www.businessinsider.com/fertilizer-shortage-is-at-the-heart-of-pending-food-crisis-2022-8