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Russia Gas Crisis Threatens German logistics Sector

July 29, 2022
in Trading
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Russia Gas Crisis Threatens German logistics Sector
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The prospect of a reduction, or even termination, of gas supplies from Russia is concerning the German industry. At the beginning of this month the German government issued a warning that there was a possibility that the country could face serious shortages of gas over the coming winter. If this happens large areas of the German economy would not merely face higher costs but may become non-viable, something that would have an enormous impact on logistics in Germany and neighboring economies.

The chemical sector is particularly dependent on Russian gas. BASF is the largest of Germany’s chemical producers and was heavily involved in the Nord Stream 2 gas pipeline project. What is often not understood is that gas moved by pipeline from Russia was very cheap and this low-priced raw material underpinned BASF’s German operations.

BASF headquarters and leading production location is at Ludwigshafen in the Rhineland-Palatinate. It is one of the largest centers in Europe for rail and barge transport. It is also a leading customer for both road freight and warehousing services. Reports are suggesting that BASF is drawing-up plans to close parts of the Ludwigshafen site, although shutting the whole complex is viewed as an extreme option that would only happen if there was a serious shortage of gas in Germany.

If production were even to be reduced substantially it would have an enormous effect on rail freight companies, the intermodal sector, barge operators on the Rhine but also some contract logistics providers, especially medium-sized companies in western Germany. The impact on road freight would not be as great, but it would still affect the market.

The effect may not simply be one of a reduction in logistics activity. Rather there is likely to be a shift in supply chain patterns. The past several decades have seen the growth of chemical production to coastal sites and an increase in the ability of both up and down-stream products to be moved by ship. Antwerp is the largest production location in Europe and it may look to increase its share of production, although a large part of its gas is also sourced in Russia. However, it is likely that additional chemical products could be sourced from either Saudi Arabia or the US, especially Texas. This would require a very large increase in activity of marine chemical logistics, both in terms of bulk chemical tankers, tank containers but also chemical terminals and their landside transport. Essentially a large part of the chemical logistics network in Europe would have to be restructured.

As is so often the case in crisis, some logistics providers will suffer but others will benefit.

Credit: Source link

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