Oil and gas
Over the next 10 years, BMI expects Germany to remain the biggest consumer and importer of oil in Western Europe and also anticipates the country becoming the largest importer of natural gas. This is because the country has refrained from an all out hydraulic fracturing ban, but new regulations that are currently being drawn up to govern the process are expected to be restrictive.
When it comes to LNG, the state is providing loan guarantees to boost German companies’ competitiveness in securing it. BMI see this as a direct move to facilitate diversification away from Russian gas. Also when it comes to gas consumption in the country is expected to continue to be put under pressure from a glut of cheap coal and generous subsidies in the renewables sector.
For oil, there is some upside to oil reserves and production from new investments by independents targeting enhanced oil recovery and field redevelopments. Also BMI sees possible oil reserve gains from exploration of the former East Germany and Bavaria, where a lack of investment had stymied production previously.
When it comes to product consumption, due to improving efficiency from automotive manufacturers and a shrinking population, BMI forecast refined products consumption to fall consistently towards 2023. Reduced fuel consumption will also drive down the demand for biofuels. BMI has commented that Germany was once the producer of over 50% of the EU’s biodiesel, but is now producer of approximately 30%.
BMI has said that the volatility seen in the domestic market had a beneficial impact on the German petrochemicals sector in the latter half of last year. However, in the long term BMI believe that the Transatlantic Trade and Investment Partnership (TTIP) will determine the structure of the industry amidst growing fears that German producers will lose out.
The German market represents ¼ of the EU’s chemical sales and will be pivotal to the performance of the regional chemicals market. A slowdown in domestic demand will lead to a reduction in imports and as such, European producers cannot bank on German demand to compensate for weaknesses elsewhere in the EU market.
BMI has commented that the transition towards renewable resources will continue to exert a sizeable cost on energy intensive Germany petrochemicals industries despite recent energy reforms. Attempts to shield the industry from these costs will delay the process of economic rebalancing towards a more consumption based growth model, although German industrial competitiveness will, according to BMI, ultimately suffer from higher energy costs. This added to the advent of TTIP which is likely to force German petrochemicals producers towards greater competition with shale based US rivals. German producers are expected to need to rely on high value added specialisation in order to counter the onslaught of high volume basic chemicals output from the US.
The Ukraine is reported to have plated a part in exacerbating problems in the German economy and creating downside risks for the petrochemicals industry last year. The construction and automotive sectors, which are key drives of German petrochemicals consumption, are set for lacklusture growth this year of no more than approximately 1.5%.
BMI has commented that despite many things, the German market is not without risks. The weak and volatile external demand picture is compounded by a longer term trend of eroding export competitiveness, which is starting to make itself felt in the country’s key industrial sectors. Germany is remaining relatively competitive compared with its eurozone peers, however the economy has lost significant price competitiveness against non-eurozone industrial economies since mid 2012.
Adapted from report briefs by Claira Lloyd