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Energy Prices Trigger Deindustrialization In Germany

German factories are struggling to cope with soaring energy costs, which may prompt many to leave the country for a cheaper location, Bloomberg has reported, citing industry sources.

"Energy inflation is way more dramatic here than elsewhere," Ralf Stoffels, chief executive of BIW Isolierstoffe, a silicon parts supplier to a range of industries. "I fear a gradual deindustrialization of the German economy."

Energy prices in Europe's biggest economy and the EU's powerhouse hit a record earlier this week, with the year-ahead price per MWh reaching 530.50 euro, or $534.45.

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"The longer these price rises go up, the more this will be felt across the economy," Daniel Kral, Oxford Economics senior economist, told Bloomberg. "The magnitude of the increase and magnitude of the crisis isn't comparable to anything in the past few decades."

The struggle is real for all industrial users, and it has become too much for some. For example, two aluminum smelters in Europe have been forced to shut down their operations because of excessive energy prices: one in Slovakia and one in the Netherlands.

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German companies have also been warning that some of them might have to shut down if prices remain high or keep rising. In fact, earlier this year, the country's economy minister himself warned that some industrial gas consumers might become casualties of the energy crisis.

"Companies would have to stop production, lay off their workers, supply chains would collapse, people would go into debt to pay their heating bills, that people would become poorer," Robert Habeck told German media in June in comments on reduced Russian gas flows to Germany.

German utilities have been quick to stock up on LNG to fill storage caverns ahead of winter, but this will not be enough to shield Germany from the energy crunch. It will also have zero effect on price trends as the LNG bill has been much higher than Germany's usual pipeline gas bill.

By Irina Slav for Oilprice.com

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