Although the news from Europe recently focused on the Ukraine-Russia war, the energy crisis and its reflections on industrial production are closely followed across the continent.
In order for EU countries to maintain their competitive position in the industry on a global scale, the issue of uninterrupted, competitive conditions and long-term energy supply constitutes the carrier column of the process. However, a holistic development plan "based on abundance and prosperity" established by continental Europe after World War II seems to be seriously disrupted in the coming period. Moreover, this time, the USA is not behind continental Europe to support it, but is right against it as a rival in industrial production.
The reasons such as the energy crisis that emerged after the Ukraine war, the rapid increase in energy costs for the European industry, the uncertainties in energy prices, and the decision to exit nuclear in many countries are the common point of the evaluations made on the subject. However, the issue is too complex to go through only a few elements.
In addition, possible developments, especially the US-EU competition, geopolitical fragilities, the course of the global economy and how all these factors will affect Türkiye are very critical. Here we talked with Energy Specialist Kutalmış Ersoy, who follows all these processes closely.
Ersoy says that due to the energy crisis faced after the Ukraine war, the EU focuses on steps such as reducing its energy demand, diversifying its supply and investing in renewable energy sources, especially in addition to fossil fuels.
He shares the information that the EU's energy demand has decreased the most on the industrial side. He says that the production of sectors such as chemistry, automotive, steel and cement, which perform energy-intensive production and are in the recovery phase after Kovid19, have dropped seriously in the last year.
Ersoy opens a critical parenthesis here and notes that energy-intensive sectors such as the chemical industry, metal production and processing, petrochemicals, glass, ceramics, paper and cardboard production constitute one of the cornerstones of the economy as an intermediate goods producer.
Naturally, the changes in these sectors weaken the basis of the industry. This cycle produces negative consequences such as business closures, rising unemployment rates and rising inflation. "In this context, the economic dimension of the energy crisis is seen more clearly in EU countries such as Germany, France and Italy, where energy-intensive sectors are concentrated," says Kutalmış Ersoy.
The data we have shows that things are not so bright for Germany, the locomotive of the EU... Due to increasing energy costs, there was a contraction of over 10 percent in energy-intensive production sectors in the country. There was zero growth in the country's gross domestic product in the second quarter of 2023 compared to the previous quarter.
Ersoy interprets these contractions caused by the increase in energy costs as "very serious alarm bells" for the German economy. After saying, "These sectors produce high levels of added value, provide serious employment in the country and supply many sub-sectors," he continues:
"Sectors such as chemistry, glass and steel are more damaged by the increase in energy costs than other sectors. However, since these sectors are at the beginning of the production chain, the decrease in production creates a chain effect. The goods produced by the chemical, pharmaceutical, glass, metal and paper sectors and not exported an average of 87 percent is used as intermediate goods in other sectors in Germany.
BASF chemical company, one of the mainstays of the German industry that has been operating for 157 years, had to pay an additional energy cost reaching 3.2 billion euros in 2022 and suffered a net loss of 627 million euros. BASF, a leader in the field of chemicals on a global scale, reviewed its company strategy and decided to shift its production facilities from Germany to other countries.
BASF also aims not only to reduce production costs with new LNG agreements, but also to move its production bases from Germany to more advantageous regions in terms of energy costs. In this context, BASF announced that it would close an ammonia plant and two plastic-chemical factories in Germany and lay off 2,600 people. He also stated that he will shift some of his production out of Germany.
As a result, high energy costs put a huge strain on profitability and competitiveness in Europe. After the events, it was seen that Europe's energy security is in a very fragile structure and this affects all balances. It is also likely that the green energy transition will fail to address these uncertainties in the short or medium term. The EU, which wants to dress the wound by reducing its energy consumption, has to grapple with the chronic structural problems in the back."
In light of these developments, it's worth considering what they mean for Ankara. The focus in Ankara has been on advancing energy transformation with a keen emphasis on achieving a healthy balance between job creation and economic growth. Türkiye has taken steps to ensure energy supply security, such as the establishment of Energy Markets Management Inc. in 2015, aimed at fostering competitive conditions not only in electricity but also in natural gas markets.
Moreover, Ankara is working toward enhancing energy price security through its Energy Exchange (EPİAŞ) and has set targets to further strengthen this aspect. This approach is expected to facilitate the deployment of additional domestic and renewable energy sources in the future, contributing greater added value to the Turkish economy.
In conclusion, this holistic energy management strategy has the potential to position Turkey favorably in terms of industrial production competitiveness compared to the EU. Given Türkiye's current economic conditions, achieving this advantage could be a valuable long-term gain for Ankara.
