And there goes the economy.
From the Wall Street Journal's Heard on the Street column, August 19:
The chemical giant’s German operations use a lot of gas, and dwindling supplies could make for a very costly couple of years
This column is part of the sixth annual Heard on the Street stock-picking contest.
Chemical giant BASF is at the sharp end of Europe’s energy crisis.
Based in Ludwigshafen, Germany, the world’s second-largest chemical producer by sales has contingency plans to deal with the possibility of gas rationing, but cuts would still hit it hard. Its broad product range—including plastics, fuels, lubricants, paints, battery materials, catalysts and nutrition products—also makes BASF an economic bellwether at a time when the outlook is bleak, particularly in its core European market. BASF SE (BAS-DE)
• Recommendation: Sell• Price: €43.44Making chemicals is energy intensive: The sector is Germany’s biggest industrial gas consumer, using about 135 terawatt hours of the fuel annually both as a feedstock and to generate power and steam. BASF itself used 48 terawatt hours of gas in Europe last year, mostly in Ludwigshafen. The region accounted for 40% of the company’s revenues last year.
Gas is in short supply in Europe. There are efforts to find alternatives—restarting coal-fired plants and delaying the closure of nuclear ones—but Germany in particular could run short this winter, particularly if the temperature drops or Moscow reduces gas flows further. Even if the country’s two floating liquefied natural gas terminals come online in the coming months as planned, the global LNG spot market remains tight.
The winter starting in 2023 will likely be even worse. Next spring’s starting gas inventories are expected to be much lower than they were this past spring, which followed a mild winter. LNG for refilling next summer also will likely be more expensive than it has been lately, after Covid-related lockdowns reduced Chinese fuel demand....
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