Russia severed natural gas flow through the Nord Stream 1 pipeline earlier this month, citing mechanical issues as the country continues its invasion of Ukraine. Germany — the continent’s largest economy — relied upon Russian natural gas for 55% of its imports as of last year and has since witnessed wholesale energy prices increase twentyfold.
As a result, the producer price index for industrial products has risen 45.8% year-over-year as of August 2022, according to data from the Federal Statistical Office of Germany, which followed increases of 37.2% in July 2022 and 32.7% in June 2022.
Several firms are therefore pausing production in factories or laying off employees. ArcelorMittal, the world’s second-largest steelmaker, is switching off one of its two furnaces in Bremen, Germany.
“The high costs for gas and electricity are putting a heavy strain on our competitiveness. On top of that, from October onwards, there will be the German government’s planned gas levy, which will further burden us,” ArcelorMittal Germany CEO Reiner Blaschek said in a statement. “With a tenfold increase in gas and electricity prices, which we had to accept within a few months, we are no longer competitive in a market that is 25% supplied by imports. We see an urgent need for political action to get energy prices under control immediately.”
The phenomenon has extended to other nations as well. French glass manufacturer Duralex announced that it would close down furnaces beginning in November for at least four months. “Producing glasses at today’s energy prices would generate unsustainable losses,” Duralex President José Luis Llacuna explained in a statement. “Limiting our energy consumption in the coming period, therefore, allows us to preserve Duralex’s business and employment.”
As companies contend with rising prices and foresee a drop in consumer demand, industrial production in the eurozone has fallen 2.3%, according to data from the European Union. In response to the crisis, European Commission President Ursula von der Leyen asserted that Russia is responsible for the economic troubles and called for redistributing profits from fossil fuel companies.
“We are proposing a cap on the revenues of companies that produce electricity at a low cost. These companies are making revenues they never accounted for, they never even dreamt of,” von der Leyen said in her most recent state of the union address. “In our social market economy, profits are good. But in these times it is wrong to receive extraordinary record profits benefitting from war and on the back of consumers. In these times, profits must be shared and channeled to those who need it the most.”
Russian shipments recently accounted for 40% of the European natural gas supply last year — a rate that has since dropped to 9%. Though von der Leyen acknowledged last week that low hydropower generation caused by droughts is partially responsible for high energy prices in Europe, she said that “the climate crisis” is the ultimate impetus for the weather conditions and called for the elimination of all fossil fuel dependence.
In a departure from other European leaders, however, British Prime Minister Liz Truss proposed legislation to open the North Sea for oil and gas drilling and construct more nuclear power plants. Other countries, such as Germany and Switzerland, have been slowly shuttering their remaining nuclear facilities in reaction to the 2011 meltdown in Fukushima, Japan.