Ludwigshafen, a German city across the river Rhine from Mannheim, was founded in 1844. With a population of less than 200,000, it is home to the largest chemical plant in the world. The facility is owned by German multinational company BASF (founded in 1864), the largest chemical producer in the world.
BASF was started in Mannheim as a dye factory, but the city fathers were afraid of air pollution and moved the plant to the other side of the river. A few blocks down the road from the 10 square kilometers BASF Ludwigshafen is the company’s corporate restaurant. Built in 1900, it has 100 private dining rooms as well as six ballroom venues. Reservations are mandatory.
There is also the company’s wine cellar, a four-story building constructed after the restaurant was built, holding some one million bottles of wine. The opulent décor, innumerable staff, superb cuisine, and size are reminders of an era when monuments to corporate power were critical investments in company prestige. Google’s office “ball pit” and adult-size swings are no comparison.
The 2,000 buildings and 200 production plants are connected by 2,850 kilometers of pipelines, 106-km of roads, and 230-km of rail track. The Ludwigshafen site is roughly a third of the company’s total global production and revenues of over $80 billion. Over 8.5 million metric tons of 8,000 different products from industrial petrochemicals to “care chemicals” used in cosmetics are made there every year. Further, all these serve as the starting material for countless global supply chains.
The Wall Street Journal wrote last week how sanctions on Russia are beginning to backfire in ways Western leaders were unable to figure out in advance. The West forced Russia to default on its debt repayments as it will not let Russia buy dollars/euros to pay on the loans and then refused to allow lenders to accept rubles. If you don’t repay your personal loan, who loses? You or the bank?
The experts like Nasir Aminu, Senior Lecturer in Economics and Finance, Cardiff Metropolitan University, say, “The most worrying consequence of debt default for Russia will be the loss of access to global investors through the international capital markets. The default will tint Russia’s reputation.”
External debt in Russia decreased to $453 billion in March. Spain’s total external debt is $2.6 trillion. Austria owes $646 billion. There may be a reason why Putin does not look worried.
However, BASF executives are worried. For decades, the company’s business model centered on less expensive and readily available Russian natural gas to generate its power and for feedstock for its products. As the sanctions game ramps up, a reduction in its gas supplies from Russia are a major threat. Company executives are doing what was unimaginable a few months ago. They are considering how to potentially shut down the complex if Russian natural gas supplies are reduced further.
June 29: “The EU is committed to reducing gas imports from Russia by two-thirds within a year. Germany recently had to limit gas use in electricity production and appeal to citizens to conserve.” July 5: “Russia is poised to temporarily shut down the Nord Stream 1 pipeline—the European Union’s biggest gas import infrastructure—for annual maintenance.”
German leaders mocked Trump’s warning in 2018 that they were becoming too dependent on Russian gas and oil. They replied that gas only makes up less than 20 percent of Germany’s energy mix for power production. What they chose to ignore, BASF must deal with and that is methane (natural gas) has the most embedded energy and is the crucial feedstock.
Energy runs the factory, but methane is the raw material for production of goods. Ethane is isolated from natural gas (methane). Its chief use is as feedstock for ethylene production. Ethylene is made into Polyethylene and the world uses one metric ton of Polyethylene per person per year.
Chemical products from BASF are Germany’s third largest export. July 4: “Germany posts first monthly trade deficit in 30 years as exports fell 0.5 percent from April, while imports rose 2.7 percent.”
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