Lambert here: The article does make some assumptions about the relative autonomy of European governments who are America’s “allies.” Who’s to say whether this “exodus” is unintended?
By Irina Slav, a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. Originally published at Oilprice.com.
- Very high energy costs are forcing European companies to cheaper places like the U.S.
- The Inflation Reduction Act could benefit chemicals, batteries and clean energy industries.
- Industries such as manufacturing and fertilizer production are especially vulnerable to high energy prices.
Soaring energy costs in Europe are shutting down businesses and threatening a bloc-wide recession. Yet not everyone accepts this fate. Some companies are moving to cheaper locations: the U.S.Steel giant ArcelorMittal earlier this month that it would slash by half production at a steel mill in Germany and a unit at another plant, also in Germany. The company said it had based the decision on high gas prices.
Separately, ArcelorMittal more recently warned it expected its steel output for the fourth quarter of the year to be 1.5 million tons lower than it was in the final quarter of 2023, again citing excessive prices along with slumping demand.
At the same time, ArcelorMittal earlier this year announced it had plans to expand a Texas operation, describing the state as a “region that offers highly competitive energy and, ultimately, competitive hydrogen.” It is just one of the Europe-based companies that are beginning to see the benefits of growing in the United States, according to a report by the Wall Street Journal’s David Uberti.
Uberti cites industry executives as saying that it has not exactly been a difficult decision to make. Basically, according to the report, it comes to a simple dilemma between folding in the face of exorbitant energy bills and moving to a much cheaper energy environment, complete with fresh incentives for certain industries.
Chemicals, batteries, green energy—these are all areas set to benefit substantially from the Inflation Reduction Act passed last month. No wonder, then, that companies active in these areas see it as a good idea to either move or expand in the United States.
Meanwhile, in Europe, more and more companies are switching into survival mode. That’s because, for a lot of them, the time is coming to renew their electricity supply contracts with utilities. Thanks to energy inflation, these are set to be much higher than the contracts for the current year, with front-year prices reaching over $1,000 in France and Germany.
The New York Times’ Liz Alderman wrote in a recent story that energy-intensive industries such as manufacturing and fertilizer production were especially vulnerable precisely because of their higher energy needs. She cited the case of a glass-making major, Arc International, which is also shutting down production units to cope with higher energy costs.
The European Commission has promised to help by capping the revenues of electricity generators that use a primary source of energy other than gas, and taxing the “excessive” profits of oil, gas, and coal companies. According to the EC, raking in cash under the current circumstances was wrong, even though profits in themselves were something good.
Plans are to collect some 140 billion euros—almost equal to the same sum in dollars—to distribute among households and struggling businesses. Critics, however, note that this will not be enough to save companies from going under. European Aluminium, the industry association, even said energy costs could result in the breakdown of the aluminum industry in Europe.
“I think we’ll muddle through two winters,” the chief executive of refractory products maker RHI Magnesita told the Wall Street Journal. However, if gas doesn’t get cheaper, Stefan Borgas said, “companies will start to look elsewhere.”
It looks like businesses packing and leaving for cheaper jurisdictions is yet another unintended consequence of the policies favored by European governments, especially in the energy department. It is also one more risk for the survival of the bloc as a competitive industrialized formation in the future. And this risk presents one more conundrum for governments and the administration in Brussels to solve in short order.
33 comments
Comments are closed.
The silence from the European industry leaders is deafening. I wonder why.
This point was already discussed three months ago.
I can think of two entities that benefit from this unintended effect.
The US and the ‘religious’ greenies. So much so that its almost as if its intended.
In my opinon, Hanlon’s Razor: the outcomes of incompetence (and hubris) looks no different than malice.
Otherwise the US, Biden admin., and US bureaucracy/neo-cons are simultaneously masters of 4-D “great game” strategy in de-industrializing the EU while failures at dealing with China, Taliban, Russia, and Iran.
They have invested since 1980s in brainwashing European population and especially in growing and promoting the present crop of EU leadership. Such a strategy did not work in Russia or China. Indian PMC seems though enamoured of the US model…
Habeck must be happy seeing how Europe is getting greener by the day.
It’s just the German Greens applying “nudge” theory.
Habeck won’t be happy until Germany looks green like this-
https://www.istockphoto.com/photos/overgrown-city
> Who’s to say whether this “exodus” is unintended?
Repopulate American industry with Euro expat corporations? Plausible, tho optimistic.
Hudson: If you say corporate, most people at least think of corporations that manufacture things. They may be monopolies, but they still manufacture. But the neoliberalism means the financial corporations. And I want to focus really on the fact that, where the financial line, which America has been following since the 1980s, the Reagan and Thatcher line, has been not an industrial corporate line.
But if dedollarization has undercut the currency of the dollar, then perhaps the financial line has peaked in its ability to concentrate wealth.
Do the tangible assets of the Eastern bloc mean that the hemispheric Eagle, with its wings in Oz and Albion, must needs re-industrialize? This is consistent with the Fed crushing wages to pave the way. And it is optimistic to think that someone has a master plan that doesn’t involve various depopulation catastrophes.
As already suggested months ago in this forum, large corporations do not have any qualms about relocating — and this is exactly what they are now undertaking. Small firms, on the other hand, cannot move away and are truly screwed.
So, the working class Germans lose their jobs and freeze and go hungry and it’s all Russia’s fault. There are several ingredients in that not unlike pre WW2 Germany. And many of the Germans seem to believe all the its Russia’s fault narrative.
For many decades or longer, the fear of Stratfor and other NGO types, that Russia and Germany would form an economic pact is the worst outcome for the US and UK as this union would be a powerhouse combining German know-how with Russian natural resources.
The current US plan is to deindustrialize Germany rendering it uncompetitive via destroying manufacturing.
Sounds more like German industry is just being moved to places where labor is cheap and worker benefits are zero to non-existent.
Instead of worrying about Europe, I’d be worried about living in a country about to be a bigger sweatshop.
They truly lack imagination. What is to say that Russia can industrialize and become an industrial powerhouse itself. In this scenario, with Germany too subservient to US, the Russians might consider as a positive thing the de-industrialization of Europe…
I just wonder whether, whenever the fury of the Ukraine war has abated, some European industrial firms will not attempt to relocate to Russia itself — after all, that’s where energy and raw materials are plentiful and cheap, and there is a skilled workforce to boot.
Yes, industrial capacity was the hallmark of the Donbas region. I’m sure it could easily be rebuilt.
Lots of panic promoting headlines in financial rags today. It’s like they want the Fed to cut interest rates to Zero on Tuesday and announce another $3 trillion QE asset buying binge on Wednesday. Sad part is, that wouldn’t surprise in the least. It’s Wall Street & the wealthy we’re talking about here, people. It’s an EMERGENCY!
But you need to keep in mind this from May 2022, still germane:
https://www.nakedcapitalism.com/2022/05/how-the-options-tail-has-come-to-wag-the-market-dog.html/
And the Fed has been quite clear they want to see a rise in unemployment before they think about changing their tune.
More evidence that renewable electricity can be stored as a fuel.
The myth that “renewables can’t supply base load” takes another big hit.
There is an industrial process that stores excess electricity from renewables in the form of a fuel (like hydrogen). That fuel stockpile can be converted – on-demand – to electricity in those moments when the renewables’ production falls short of demand.
When I first mentioned this fact I think some of you thought it was science fiction.
I also suggested that co-locating the electricity-to-fuel facilities near high-heat-input industries would be a good idea, because the heat byproduct of the electricity-fuel-electricity facility could be used by some types of industrial processes. Like steel-making.
Do you still think that’s fantasy?
OK. here’s a quote, taken from the article above about new investment plans of a world-wide steel-manufacturer:
You are probably aware that Texas has more wind power than any other state. The Arcelor-Mittal executive specifically mentioned “hydrogen”. Now why would he do that? I think it’s time to connect the dots.
This electriciity-to-fuel-to-electricity option is going to happen.
Ironically, it’s likely to use a lot of German technology, since Siemens is a leader in electricity-to-hydrogen processing.
I keep wondering how long it’s going to take before the German public realizes that they don’t have to give away their economy to the U.S.
They could just use their existing tools and skills to support their own economy, and then they can tell the U.S. and Russia to collectively stuff it.
And right about the same time, the U.S. public could tell the NeoCons et. al. to also stuff it.
If we invest the resources – money and attention – that we are currently frittering away on Global Domination By Crazy People … if we invested that in ourselves and our economy, we’d be way better off.
Would you rather have a safe, comfortable, secure future, or would you rather have a nuclear war in order to satiate the egos and delusions of crazy people?
Are you wondering what the fuel cell component would look like, and if it’s truly available commercially?
Here’s a link to a hydrogen fuel cell system that’s designed to provide backup power to electrical substations when there’s a grid brown- or black-out.
Or maybe it provides backup power when the wind’s not blowing and / or the sun’s not shining.
Look at how small the actual fuel cell is. It’s tiny. No moving parts.
The next biggest component is the electrical conditioning unit that converts the fuel cell’s DC output to AC. No moving parts.
The biggest component is the hydrogen fuel tank. No moving parts.
Note the heat dissipation unit. That’s where the fuel cell’s heat by-product is collected, and that’s the point we grab that heat and route it into high-heat-input industrial processes.
Next step: scale up.
Key takeaway: it’s here. It’ll work. One great big bad problem, almost solved.
Investors and Gov’t Econ Policy-makers: Let’s build a pilot plant.
Europe is experiencing the greatest drought in the past 500 years…
I think hydrogen comes from water… Hmm, what to do what to do…?!
Or maybe I spoke to soon and there are industrial processes that have H as by product, outside water hydrolysis
But then is the problem of first mover, you do need that energy spark and latent power of fossil fuels…
Kouros:
Great question. Fortunately, there’s a decent answer:
You start with a tank of water. H2O.
To get hydrogen, you use renewable electricity to split the water, and store the oxygen and hydrogen separately.
When you burn (oxidize) the hydrogen in a fuel cell, you combine the hydrogen with oxygen to get electricity, heat, and water.
It’s a closed-loop cycle.
A one-time allocation of a few tens of thousands of gallons of water would probably be sufficient to equip a decent sized plant. A big swimming pool.
Clean. Simple. Almost no moving parts.
And if you have an industrial process handy that needs heat to operate, it’s almost entirely efficient. All the energy you invest into it gets used at least once, maybe several times if you’re clever about how you stack the downstream heat-using industrial processes.
Assume:
– the laws of thermodynamics in the real world work a little different…, i.e. this marvelous cycle works in a perfectly closed system, no losses of heat/energy with the exterior/environment, and what’s a plus, all the energy expanded on a phase transition can later be recouped on the reverse phase transition (zero losses of heat)
– hydrogen has an amazing energy density, akin to uranium (hey, both are on the periodic table, who’s to say it ain’t so…)
There you have it: a perpetual motion machine
Good luck with that!
One can electrolyze seawater. The water doesn’t have to be fresh.
Yes, there is already substantial investment in Europe in hydrogen plants, using surplus energy from the grid – mostly night time wind. Hydrogen has a variety of industrial uses – including in steel manufacture, so it can make sense to locate these facilities in existing industrial areas. Its a sensible option that allows for greater renewable use without additional grid investment being required.
Thanks, PK.
If you happen to notice any addn’l movement / announcements / investment in that renewable elec 2 fuel 2 elec cycle, esp. as integrated into heat-intensive industrial processes, would you point it out to the commentariat?
Much appreciated.
BTW, one thing I really, really like about this cycle is that it works @ tiny scale. An acquaintance has one, runs his Bentley with it. Yup, his Bentley.
This is on my bucket list. I’m gonna have one of these before I duff out.
It’ll go into the greenhouse. I don’t have no stinkin’ Bentley.
Hydrogen gas is an input into the steelmaking process for chemical, not energetic, purposes. Normally it’s created catalytically from natural gas, at expected expense.
Hunkerdown:
First, thanks for the link. That was quite helpful.
What I learned is that in addition to using hydrogen as heat source, it can be used to remove the oxygen from iron ore (which is mainly iron oxide), leaving (more) pure iron. Instead of using carbon to strip the oxygen off the iron oxide molecule (creating CO2), hydrogen does the job, creating H2O.
Pretty neat.
As I mentioned earlier, I am expecting most of the hydrogen to be used for heating.
If the fuel cost for wind power is zero, it’s going to be tough to compete with hydrogen as a heat source. The heat from the electricity-to-hydrogen-fuel process can be used to heat up the feed-stock some of the way, and the burning the hydrogen gets it the rest of the way to smelting or extrusion or hot-rolling temps.
Even cheap natural gas may not be competitive with renewable-produced hydrogen, and the days of cheap natural gas may be over for a while. For those (many) countries that don’t have large supplies of natural gas available, it’s going to be very attractive to use hydrogen from renewable sources to make steel, or cement, or glass, or petrochems.
I’m expecting the economics of steel smelting and forming (extrusions, rolling, etc.) to change a lot due to wind-power-to-fuel processes.
It was never a matter of whether or not renewable electricity could be stored.
It was always a matter of, is the cost competitive with other alternatives such as hydroelectricity, nuclear, and natural gas?
Perhaps it is because I have worked in manufacturing – electricity costs are scrutinized very closely because they are so large a percentage of total costs. This is especially true in metal and chemical industries.
If storing renewables ends up costing a lot of money (Ex: electrolysis of hydrogen), then companies will move. For some industries, it’s so important that they would rather choose a place with high labour costs rather than high energy costs because energy is such a large percentage of total costs.
It really depends on how much the whole system costs. You’re talking about a system where:
1. The hydrogen comes from renewables that use electrolysis to split water (natural gas is not competitive for EU anymore – they burned bridges with Russia, so hydrogen gas from natural gas is not an option)
2. Then the cost of either compressing or liquifying the hydrogen gas
3. Then there’s the cost of storage until needed (Ex: solar at night)
4. Then the cost burning the hydrogen gas – either through fuel cells or combustion and whatever losses there are there
This whole thing has to cost competitively for European industry to not face the kind of losses the US Midwest faced after NAFTA and bringing China into the WTO.
Keep in mind, they are competing against the Chinese which will have cheap Russian gas and the US, which has its own gas reserves.
This is, of course, simply the latest stage in the de-industrialisation of Europe that has been going on for decades now, initially in Britain, and then elsewhere as European economies were progressively fincialised. And of course the same MBAs didn’t care where energy came from as long as it was cheap, and the supply of energy, previously a responsibility of government, was itself increasingly hived off to financial institutions.
It’s always been a source of amazement to me how very highly-paid and allegedly qualified people at the head of these organisations are actually very stupid, and behave very stupidly in search of the short-term maximisation of profits. It would almost be a comfort to think that people like Hudson are right, and that there is some diabolical financial octopus brain behind all this. But that would require a better class of PMC than we have now, or probably ever will have.
I think a lot of this is related to the MBA-ization of organisations. I’ve not seen any figures on this, but I would guess that if you compared todays CEO’s and senior managers of major companies to those of 25 or 50 years ago, you’d see far fewer individuals who either worked their way up from the shop floor, or who went into management via the engineering/science/logistics side of the business. It would once have been unthinkable for a company like Boeing to have a non-aero engineer at its helm.
The MBA gives a route for so-called ‘professional’ managers, and also gives an ‘in’ for those on the legal/marketing/HR side of an organisational to take full control. This can have its merits, up to the point where something happens and it becomes vital that the CEO actually understands the nuts and bolts of how their products get made.
Trump talked about MAGA and Biden makes it to happen. LOL