Germany's industrial gas demand has ticked higher since late summer according to Argus analysis, hinting at the beginnings of a reversal of the downward trend that began in late 2021.
Industrial gas demand has increased year on year each month since July, according to Argus estimates (see year-on-year, longer-term graphs). That said, while industrial gas use has held above the 12-month rolling average since then, it has remained below any corresponding month in 2018-21 (see longer-term graph).
German industrial gas demand is difficult to measure using public data as market area manager THE does not publish gas consumption by industry alone. Instead, demand is aggregated into RLM and SLP points — RLM points mostly connect industrial customers, including gas-fired power plants, to the grid, while SLP points are metered on a daily basis and are mostly for supply to households and small businesses.
But using electricity generation data published by EU power system operators' association Entso-E and an estimate for efficiency rates based on monthly fuel use data published by German statistics office Destatis, Argus estimates that industrial consumption has accounted for almost 80pc of RLM demand since 2018 (see RLM demand graph).
The uptick in industrial gas use so far this winter may be partly attributable to changes in heating patterns. Industrial gas demand has seasonal variations because some of the gas metered at RLM points is used for space heating by industrial consumers. And temperature-adjusted demand from households and small businesses has increased so far this winter from a year earlier, although it has remained well below the 2018-21 range, according to regulator Bnetza.
But given that industrial gas use already increased in late summer when heating demand was minimal, changes in heating patterns only provide a partial explanation.
Energy-intensive industries in crisis
Germany's industrial production declined in 2022 as wholesale gas prices soared and Europe's economies shrank.
The decline was steepest in sectors with high energy and especially gas use, such as chemicals. Germany's industrial gas demand fell by 17.3pc in 2022, largely driven by a 20pc drop in the chemicals segment (see sector graph).
And energy-intensive industrial output has stayed weak even as gas prices have dropped from their all-time highs in mid-2022. Output in energy-intensive industries, especially chemicals, has fallen consistently since early 2022, according to Destatis data (see indexes graph).
Several factors have caused the decline in industrial gas demand. Firms curtailed or halted production from gas-intensive plants when gas prices spiked and operating margins shrank. And operators switched away from gas as a feedstock to alternative fuels such as LPG where possible. Some of these decisions are reversible, and the recent uptick in industrial gas use at least partly reflects the ramp-up of plants and a switch back to gas from alternative fuels in response to lower gas prices.
Other causes will result in a more sustained drop in demand, such as a push towards greater energy efficiency and decarbonisation. And industry associations have long warned that a longer ailment of industrial competitiveness in Germany could lead to an industrial exodus to countries with lower gas prices.
Chemicals producer BASF has the highest industrial gas demand in Germany — Ludwigshafen, the firm's headquarters and main production site, was responsible for 8pc of German industrial energy demand and 13pc of total declared industrial gas use in 2021, according to the latest available Destatis data. Chief executive Martin Brudermueller in October attributed declining EU chemical production to high gas prices.
BASF announced in February that it would cut its gas use permanently by 13pc by closing some of its most gas-intensive fertiliser plants in Ludwigshafen by 2026, parts of which are already shut down. BASF also announced that the firm would start the testing phase for two of its eFurnaces in 2024, which could cut gas use from steam crackers in the medium term.
Signs pointing up?
But the German economy ministry has stressed repeatedly that statistics point towards "a bottom forming, which makes a stabilisation of the industrial economy seem possible".
Confirming this view, the business climate index published by research institute IFO increased for the second month in a row in November.
And the German government budget for 2024 retains a commitment to an electricity tax reduction for industry, the governing coalition's compromise instead of a subsidised electricity price that industry associations had called for. At the same time, the budget adhered to earlier funding commitments for decarbonisation of industry, which might weigh on gas demand in the longer term.
