| BURGHAUSEN, Germany/GEISMAR, Louisiana, June 2
BURGHAUSEN, Germany/GEISMAR, Louisiana, June 2 (Reuters)
- Nestled in the green hills of southern Germany, chemical giant
Wacker Chemie churns out a wide range of products, from an
ingredient for chewing gum to the polysilicon
crystals in solar cells.
The electricity to produce all that - enough power for more
than 700,000 households annually - has become more costly at
Wacker's main factory in Burghausen. It has played a big part in
pushing up the firm's total energy bill by 70 percent over the
last five years, to nearly half a billion euros.
It's a different story across the Atlantic in the U.S. state
of Louisiana. There, chemicals maker Huntsman Corp pays 22
percent less for its power than it did just seven years ago.
The tale of those numbers underlines a profound shift
underway in two of the world's biggest industrial powers. Thanks
in large part to Germany's decision to phase out nuclear power
and push into green energy, companies there now pay some of the
highest prices in the world for power. On average, German
industrial companies with large power appetites paid about
0.15 euros ($0.21) per kilowatt hour (kWh) of electricity last
year, according to Eurostat, the European Union's statistics
In the United States, electricity prices are falling thanks
to natural gas derived from fracking - the hydraulic fracturing
of rock. Louisiana now boasts industrial electricity prices of
just $0.055 per kWh, according to U.S. Energy Information
Peter Huntsman, chief executive of the family firm,
calls the United States the new global standard for low-cost
manufacturing. Huntsman is spending hundreds of millions of
dollars to expand in the United States, and rapidly closing
plants in Europe. The company estimates that a large, modern
petrochemical plant in the United States is $125 million cheaper
to run per year than in Europe. That sum includes cheaper power,
waste disposal and myriad other factors, and Huntsman said the
contrast is similar for Asian plants.
"It's not a question of whether other countries are
competitive or not," Huntsman, brother of former U.S.
presidential candidate Jon, said in an interview. "They're not."
Power isn't the only reason the United States is becoming so
attractive to manufacturers again. Average labour costs in China
have more than doubled since 2007 to around $2 per hour, while
they've risen less in the United States to around $18 per hour,
with worker productivity far higher in the United States,
according to U.S. government statistics. When you factor in the
cost of shipping goods from Asia, it's little wonder that
America has re-emerged as one of the most competitive places to
That's a dramatic change from just a few years ago, when
Germany was held up as a model of manufacturing prowess. As
recently as 2011, politicians in Washington were openly
discussing how to copy Germany's success.
"We need to be more like Germany," General Electric Chief
Executive Jeffrey Immelt said in an interview that year with
Now things are heading the other way. German Chancellor
Angela Merkel's energy policies - designed to sharply boost the
share of renewables in Germany's energy mix, tackle climate
change and cut Germany's dependency on foreign gas and oil - are
a rising source of concern for the country's industry,
particularly energy-intensive companies like Wacker. According
to Germany's Chamber of Commerce and Industry, half of the
country's industrial companies believe their global
competitiveness is threatened by Germany's energy policy, and
a quarter of them are either shifting production abroad or
considering doing so. The United States is among the top
In March, BMW, the world's largest luxury carmaker, said it
would invest $1 billion to expand its plant in Spartanburg,
South Carolina, making it the German group's biggest production
facility by 2016. In all, German companies invested more than
800 billion euros in U.S. expansions between 2008 and 2012,
according to the most recent Bundesbank statistics. Germany's
Chamber of Commerce and Industry reckons that investments could
reach 200 billion euros in 2014, an all-time high.
"In the energy-intensive sectors, such as chemicals, we are
facing substantial challenges that will prevail for a longer
time," said Carsten Rolle, head of energy and climate policy at
the Federation of German Industries (BDI). "It isn't sudden but
a creeping process with new investment going more often to the
United States and other places abroad, where energy costs are
A BIG BET
Wacker, which had sales of 4.5 billion euros last year, is
one of the German firms making the shift stateside. The company
is investing up to $2.4 billion in a new polysilicon plant in
the U.S. state of Tennessee. With 650 employees and capacity of
at least 20,000 tonnes a year, the plant will boost Wacker's
capacity to make the material by nearly 40 percent. While the
company remains tight-lipped about its exact power costs in
Germany, analysts estimate that it will pay a third less for
electricity in Tennessee than in its main plant in Burghausen.
Wacker still employs about three quarters of its 16,800
workers in Germany, but most of its capital spending has shifted
outside the country. Six years ago, the company spent 84 percent
of its investment budget at home. Last year that dropped to 37
And as energy prices rise, the group is eager to slash costs
to soften the blow.
In Germany, "we're cutting corners wherever possible," said
Christian Essers, in charge of the firm's energy purchases. "But
at some point the steps to improve efficiency are getting
smaller while the effort to take them gets bigger."
At Huntsman, which had 2013 revenues of $11.08
billion, executives have begun paring down European production
of basic chemicals, which typically have small margins. In the
last 18 months it has spent $100 million to close several
plants and cut more than 600 jobs in Europe.
Huntsman plans to close a Belgian plant this year that makes
chemicals used in detergents and soaps, blaming weak profits.
At its Geismar, Louisiana, plant, Huntsman is spending $78
million to boost production capacity of methylene diphenyl
diisocyanate (MDI), a chemical used to make insulations and
other common consumer goods. When the upgrade is finished early
next year, Geismar will be the largest MDI plant in North
That's a far cry from five years ago, when Geismar was the
most expensive MDI plant in Huntsman's portfolio, more expensive
than peers in the Netherlands and China. At times Huntsman was
running the Geismar plant far below its capacity because of the
Cheap natural gas has changed all that.
"This facility can export product around the world to the
backyard of our competitors and still the product would be
cheaper, even with shipping," said Huntsman.
At Port Neches, Texas, Huntsman is investing $125 million on
an expansion that, when finished in 2015, will make it the
world's second-largest producer of ethylene oxide, a chemical
crucial in the production of carpet, clothing, soap and scores
of other consumer goods.
"We're putting a big bet on the table, and in my opinion
this company has yet to take full advantage of the North
American shale story," Huntsman told employees at its Geismar
site during a town hall meeting in April.
Fracking has allowed the global energy industry to access
vast new energy supplies. The process involves injecting sand,
water and chemicals at high pressures deep underground to break
apart shale rock, allowing oil and natural gas to escape. It
first became popular in the United States six years ago and has
produced a glut of natural gas in the country, pushing down
domestic prices for the fuel by about 61 percent in that
timeframe. That's made it more appealing to use in electricity
generation. Now roughly a third of U.S. power plants employ it.
Natural gas is also a key ingredient used to make chemicals,
akin to flour in a bakery. Automobile tyres, for instance, are
made using styrene, a chemical which is derived from natural
Cheap, plentiful natural gas has helped boost
manufacturing's contribution to U.S. Gross Domestic Product by
15 percent since 2008, when fracking started to become popular.
Natural gas made a $2.08 trillion contribution to the U.S.
manufacturing sector last year alone.
Natural gas also helps plants power themselves through a
process known as cogeneration, the use of excess heat to
Huntsman's Port Neches plant, for instance, produces all of
its electricity through cogeneration. Most new European plants,
by contrast, don't use cogeneration due to regulations and a
lack of cheap natural gas to power generators, analysts say.
Huntsman pays about 80 percent more for electricity in
Germany than on the U.S. Gulf Coast, executives said.
"Germany is going to see the (negative) effect of its energy
policy three to five years down the road," Huntsman said,
explaining that companies will gradually begin to move
operations out due to high power prices. "You won't see this
hurt the job market right away."
Germany's high energy costs are rooted in aggressive new
energy standards which began during the last decade and
are designed to generate up to 60 percent of the nation's
electricity from wind turbines, solar panels and other renewable
sources by 2035, up from 27 percent now.
The goal is to make Europe's largest economy a leader
in tackling climate change, and to prove to other nations that a
radical overhaul of power markets can happen without too much
The accident at Japan's Fukushima nuclear plant in 2011
emboldened Berlin in its goals, leading Chancellor Merkel to
accelerate a phase-out of nuclear power. Before Fukushima,
nuclear supplied about a quarter of Germany's power; by 2022 it
will supply none.
This transformation, dubbed the "Energiewende" or energy
shift, has made Germany among the most expensive places in the
world to purchase electricity. The massive rise is not only due
to the payments made for solar power, but all other renewable
energy sources, most notably offshore and onshore wind parks,
biogas and geothermal plants. Costs are also ballooning due to
the country's power taxes, which account for 14 percent of the
Some politicians have begun to worry about the increase.
Economy Minister Sigmar Gabriel warned in January that the power
price imbalance could cause a "dramatic de-industrialisation" in
the country. Officials in his ministry say no issue worries him
more than Germany's creeping loss of competitiveness.
"There is this great confidence that Germany is the bulwark
of a sick Europe, but now its industry is concerned about
maintaining that strength," said Daniel Yergin, vice chairman of
consultancy IHS and author of an influential history of the oil
"Germany faces a double whammy of rising energy costs in
Germany and falling energy costs in the United States," he said.
Fracking has been controversial around the world due to the
mixture of chemicals and sand injected deep in the earth. It has
been blamed in parts of the United States for water
contamination, earthquakes and methane leaks, though direct
correlations have been hard to establish. Given these concerns,
it has received a cool reception in Europe.
Germany has not tapped its shale gas reserves, deterred by
its powerful renewable energy lobby, which has warned of the
environmental risks linked to fracking.
Generally speaking, power costs are less important than
labour in industry. But Wacker's plant in Burghausen, on
Germany's border with Austria, shows what's at stake.
Founded a hundred years ago, the plant is now one of
Germany's biggest industrial hubs, employing about 10,000
staff across an area equal to some 460 soccer fields.
Each day, about 250 trucks and 100 train wagons transport
goods to and from the plant, where workers turn methanol,
silicon, ethylene and rock salt into more than 3,000 different
At Burghausen, Wacker makes polysilicon, one of its most
important products and one whose manufacturing process is
particularly energy-intensive. At one of the plant's
high-security production sites, several cylinder-shaped ovens
quietly hum. A lava-like glow emanates from the small windows.
Temperatures of more than 1,000 degrees Celsius (1,832 degrees
Fahrenheit) are needed over long periods of time to make
polysilicon hyper-pure, as clients demand for solar cells.
Wacker Chemie's bigger rival BASF has found an alternative
way to protect itself from rising power prices. BASF SE, the
world's largest chemical company, generates much of its power in
Germany via cogeneration, but it gets the natural gas needed for
the plants from its own natural gas division in the North
Sea. That gives it a cost advantage.
The company, however, remains the exception, and the burden
for Germany's industrial base will get bigger as more and more
renewables come online.
For Wacker, it's an ironic twist of fate. It was a small
hydro-plant that helped it expand production in Burghausen after
World War One. A hundred years on, green energy sources are
forcing the group to look abroad when it thinks about the
"It's the law of a free economy to start curbing production
where costs are higher," Essers said.
(Edited by Simon Robinson, Noah Barkin and Sara Ledwith)