Industrial gas demand is returning in Europe, but manufacturing firms are increasingly seeking to diversify their gas procurement strategies, industry executives at the Flame conference in Amsterdam said.
Those industries that can switch fuels in their production processes are increasingly looking to diversifying their energy supply to reduce their dependence on a single commodity, industrial gases firm Linde's director of global commercialisation, Joachim von Scheele, told Argus on the sidelines of the conference. Fuel switching between natural gas, LPG, power or hydrogen allows companies to respond better to price incentives and such flexibility creates agility, von Scheele said.
Additionally, some companies are looking into a more complex "pot" of gas supply contracts to adapt to a scenario of higher price volatility by alternating between spot purchases and forward contracts, von Scheele said.
The chemical sector in particular has developed more sophisticated hedging strategies since the crisis and is less dependent on the spot market now, German utility Uniper's chief analyst, Gregor Pett, said. And with gas prices locked in far in advance, chemical firms might commit to European production again, he added.
Pett was optimistic about the future prospects for European gas-intensive manufacturing. "We expect demand to return," although the crisis is not over and the gas market remains fragile, Pett said. Old purchasing patterns do not tell the full picture of how chemical companies might behave moving forward, he added.
But a weak economic environment in Europe and elsewhere will also weigh on demand for manufacturing products and the gas used to produce them, industry experts agreed.
And European production has been displaced in some sectors by foreign competition since the gas price crisis. "We are flooded by Russian imports of fertilisers, especially urea" which are supplying European demand, Fertilizers Europe director-general Antoine Hoxha, said. The introduction of the Carbon Border Adjustment Mechanism, which taxes carbon emissions on goods produced outside of the EU, could help level the playing field for EU industry and enable it to recover some of the lost market share, he said.
