German steel must prepare for turbulent energy markets

The steel industry will have to face fluctuations, possibly disruptions, to energy costs in the long run, and should bank more on long-term contracts, according to a German energy supplier representative.

“We never had as many inquiries for fill-in supply [of natural gas] as we did in December 2021,” says Steven Schönke of Leipzig- based VNG (VerbundNetzGas) Handel. Speaking last month at the Handelsblatt steel conference, “Zukunft Stahl”, he noted that many distributors of gas miscalculated prices and volumes last year.

This was true especially in the second half of the year, when “TTF” (Title Transfer Facility, a Dutch-based trading point) spot offers spun for a couple of weeks from €100 to €180 ($112-202) per KWh. They evened out in January at around €80, while one year ago they were more around €26, Kallanish heard Schönke say at the conference. Depending on the supplier, spot prices differ by €30-40 per day, “and this bow wave will carry on into the future”, Schönke added.

The supply outlook from Germany’s main international sources is not very comforting, he noted. The Netherlands will reduce output for environmental reasons and Norwegian fields are currently undergoing a larger maintenance period.

Potential worries over Russia arose even before the Ukraine war. The Nord Stream pipeline from Russia to Germany was among the largest pipeline projects for a decade, involving pipemakers like Europipe and OMK. In recent years, however, more German policymakers started questioning the project, causing Russia to forge supply contracts with China and Turkey in the meantime.

Schönke added that Nord Stream 2 is expected to become operational in the fourth quarter; however, that was before the outbreak of war in Ukraine.

Christian Koehl Germany