[Image above] Ceramic tiles produced by Spanish tile contractor Gayafores. European ceramic companies are employing various measures to handle the surge in natural gas prices. Credit: Gayafores, YouTube
I don’t drive nearly as much as I did before the pandemic now that I work from home. But even I have noticed the rise in gasoline prices as demand increases more quickly than production rates.
While much focus in the United States is on the price of gas you put in cars, much of Europe focuses on a different type of gas—the natural gas used for heating and industrial processes.
Similar to the car fuel situation, increasing demand and restricted supply of natural gas is contributing to skyrocketing prices. However, this simplification masks the confluence of factors behind the current circumstances.
“Following a colder-than-average 2020-21 winter, gas storage facilities in Europe have not been able to replenish their stocks to sufficient levels ahead of the start of the new winter season. …. Gazprom, which remains the single largest supplier to the European market, has met contractual delivery obligations but has not been able to deliver additional volume to its customers. Compounding the issue, weak wind output and low hydro storage levels due to drought conditions during the summer means that demand for natural gas for power generation is unusually strong,” a CME Group article explains.
In addition, domestic production of natural gas in Europe is in long-term decline, making European markets more vulnerable to issues in other regions than countries like the U.S., for example, which have a large domestic supply.
Russia in particular comes up frequently when discussing European natural gas prices. Gazprom, the natural gas supplier mentioned in the CME Group article, is a Russian majority state-owned company. Some European politicians feel the Russian government is purposefully keeping Gazprom from supplying additional gas, a claim that Russia denies. Learn more about the situation in the video below.
One thing that is certain, though, is that industry is feeling the effects of the price surge, including Europe’s ceramics industry.
“Continental Europe’s $35 billion ceramics industry thought the worst was over when sales jumped more than 10% in the first half of the year and order books began to fill up after the damage inflicted by the pandemic. But surging gas prices have caught out companies in an energy-intensive business, leaving them to choose between passing on higher costs to customers and scaling back or halting production. And all at a time when many feel energy transition costs are already hurting them,” begins a Reuters article.
The article takes an in-depth look at how Europe’s ceramics industry is handling the current price surge. Italy is a primary focus because the country, along with Spain, dominates Europe’s ceramics trade.
In the past six years, Italy invested more than 2 billion euros ($2.3 billion) in new materials and technologies to help it compete with cheaper production from China, India, and Turkey. Yet even as demand returns in the ceramic tile business, the rise in orders “cannot keep pace with the impact of energy costs,” the Reuters article says.
Ceramic companies are employing various measures to handle the price surge, including introducing energy surcharges, temporarily cutting production, and even considering investment in factories outside of Europe.
While the European Union is investing strongly in renewable energy sources and plans to introduce measures targeting transport and industry—where use of emissions-free energy sources is lagging—those efforts cannot help in the current situation.
“We have no alternative source of energy. We have to buy gas,” says Jose Luis Lanuza, chief executive of Spain’s Keraben Group, in the Reuters article.