Europe should innovate to save its industrial sector

French President Emmanuel Macron hosted business leaders last week in a bid to keep European industries in Europe as they continue to weigh their options – and surely see that production in the United States and elsewhere would be much more affordable.

European industry is now staring into an abyss of huge energy costs following Russia’s attack on Ukraine, European Union sanctions and subsequent interruption in supplies of natural gas. And even when the Ukraine conflict is resolved, the savvy CEOs of European industrial giants know the potentially fatal problem will remain.

Europe’s paucity of conventional energy resources is structural, not temporary. Even as it imports greater volumes of liquefied natural gas (LNG) from terminals in Texas it is attempting to compete with an America that is increasingly placing its own interests first.

Can European innovation bring renewable energy and production online in time to save its industries? That is very much an open question due to the lead time and R&D needed for development of such a crucial resource as stable and affordable energy.

And as the Third Law of Thermodynamics states, energy is neither created nor destroyed, so getting more of it is constrained by the laws of nature itself. There is no easy fix.

For now, the outlook seems dire.

“It’s not about shutdowns. It’s pricing, it’s cost,” Christian Levin, chief executive officer of Volkswagen’s truck-making unit, told the press. On the spot market Europe is paying up to seven times as much as what natural gas costs in the US.

Germany, Europe’s biggest economy, has traditionally had a comfortable trade surplus, but that is shrinking due to imported energy costs and the shifting of chemical production outside the country. German producer prices jumped by an eye-watering 46 percent last month.

German plastics maker Covestro projects its fuel bill will top 2.2 billion euros this year, nearly four times the cost in 2020. Chemical company BASF, a legendary German industrial giant founded 157 years ago, has announced that it would be permanently reducing its operations in Europe to escape high energy costs. Its main production site in Europe currently uses as much natural gas as the entire country of Switzerland.

And it isn’t just industrial heavyweights. The country’s Mittelstand — small and medium-sized enterprises — are also buckling under the weight of energy prices. Like much of time-honored Europe, the German economy is underpinned by small, family-run businesses. Many Mittelstand companies are now seriously considering moving production abroad, according to a survey commissioned by the Foundation for Family Businesses in Germany and Europe.

Those who cannot afford to pay the monetary and organisational costs to move production to a new region might be forced to shut down.

And what could France’s Macron tell businesses to keep them on board? While urging them to stay the course he is also attempting to intervene in the US. Next month he will hold one-on-one talks with President Joe Biden, then travel to Louisiana, ostensibly to celebrate the state’s French heritage. But the agenda will centre on energy. French oil company Total owns a big LGN terminal in the state on the Gulf of Mexico.

- Jon Van Housen and Mariella Radaelli are international veteran journalists based in Italy