November 28, 2012 7:08 pm

Groups fear US rivals’ cheaper gas boost

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Nomac Drilling Corp. floorman Matthew Brown, right, steadies a section of drill pipe as floorman Richard Lane cleans the connection during natural gas drilling operations for Chesapeake Energy Corp. in Bradford County, Pennsylvania, U.S., on Tuesday, April 6, 2010. Companies are spending billions to dislodge natural gas from a band of shale-sedimentary rock called the Marcellus shale that underlies Pennsylvania, West Virginia and New York©Bloomberg

Concerns among European companies over the rising gap with US rivals in their cost of energy is mounting with two leading business groups raising alarm over the issue.

The European Union’s focus on pushing up use of renewable energy has led to sharp increases in energy costs in Europe, according to a “manufacturing manifesto” drawn up by Orgalime and Ceemet, two Brussels-based trade associations that represent 200,000 companies across the continent.

In contrast, the US has benefited from growing availability of cheap shale gas, leading to European manufacturers having to pay substantially more for electricity and gas suppliers than their North American rivals.

Wolfgang Eder, chief executive of Voestalpine, a large Austrian steelmaker, said the growing gap in energy costs between the US and Europe was “dangerous for all industries based in the European Union, because energy costs do not only influence energy intensive industries . . . but also the entire industrial value chain”.

Siemens, the German industrial group, said it was “keeping a close eye” on rising energy prices in Europe and that public agencies and regulators had to make sure the impact of the changes on industrial competitiveness was “limited”.

Russel Mills, global director for energy and climate change policy at Dow Chemical, a large US manufacturer with many plants in Europe, said the availability of shale-based hydrocarbon supplies in the US was a “game changer”.

According to the manifesto by Orgalime and Ceemet, the imbalance in energy costs is harming the chances of growth by a large range of engineering companies in fields from medical instruments to car parts, while also damaging prospects in key supply businesses such as chemicals and steel manufacturing.

“The EU should . . . pay particular attention not to damage European manufacturing by unnecessarily driving up energy prices for little or no environmental benefit.

“The [EU’s] energy and climate change policies need to be realigned with economic reality,” the manifesto states.

Adrian Harris, director general of Orgalime, said that while the costs of buying energy were commonly only 2-5 per cent of annual sales for many engineering companies, rising prices were having an impact by reducing investments by suppliers of materials such as plastics or metals that needed a large amount of energy for their production. At the same time, the costs of these materials were rising.

Due partly to the impact of the EU’s carbon reduction strategies and the availability of new supplies of gas in the US, many European manufacturers have recently been paying “nearly twice as much for electricity and nearly three times as much for gas as their US counterparts”, says the Orgalime/Ceemet manifesto.

Much of electricity production in the US comes from power generators fed by natural gas.

Francisco Caballero Sanz, chief economist at the European Commission’s enterprise and industry division, said that while he understood the concerns of manufacturing companies, energy costs “were not a decisive factor” affecting growth for many businesses in this sector.

Also the fact that energy costs were high could help engineering groups devise new energy-saving products that could help other industrial concerns to expand, he said.

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