European Metals and Industry Besieged // Germany Picks Coal Over Passengers // Venezuela Wants New Concessions for Oil

European Metals and Industry Besieged

The Europe reaper--high energy prices--just raked its scythe over the continent's industrial metals sector.

"Nyrstar will place its Budel zinc smelter in the Netherlands on care and maintenance from the start of September until further notice, while Norsk Hydro will fully power down its Slovalco aluminum smelter in Slovakia by the end of the same month," reports Mining.com.

"Glencore conceded on its results conference call that its zinc smelting business is barely covering its costs and warned that European power prices pose a significant supply risk to the global zinc market," reports Mining.

Budel is the second zinc smelter to close this year. And Slovalco is the fourth smelter to shutter in the last year.

European aluminum smelters are also exposed--their processes demand electrolysis.

The sustained pressure on European manufacturing will inhibit the energy transition--which demands loads of electricity for metals--and wound its ability to supply itself and others with industrial materials.

Looking at the UK, the picture continues to dim.

"Businesses across the UK are braced for an unprecedented energy costs hit this winter. Many deals are due to be renegotiated next month, ahead of a crunch point in October when thousands of companies — large and small — have to switch to new contracts," reports the Financial Times.

Some companies have seen energy costs rise as high as 300%.

“There’s a huge cost shock coming to business — especially those that are rolling off fixed price contracts,” Robert Buckley, head of relationship development at Cornwall Insight, an energy consultancy, told FT. “It’s frightening.”

British heavy industries have warned that they face permanent closure if the energy supply shocks require any curbing of energy usage. Costs in the UK are nearly 60% higher than they are in Europe.

That doesn't even account for the jobs on the line in all of these industries. Europe and the UK are in for a historic economic downturn.

Germany Picks Coal Over Passengers

Russia will halt Nordstream 1 flows to Germany on August 31, pushing Germany into even worse shape for winter.

"The reason for the 3-day suspension of gas flows via the pipeline would be due to maintenance work at the Trent 60 gas compressor station, which would be carried out with Siemens," reports Oilprice.com. Siemens says the turbine needed for maintenance has been ready for weeks and that they're simply waiting for Gazprom to complete the customs paperwork.

Now, to brace for impact, Germany plans to prioritize coal train shipments over passenger trains, in a desperate reversal of policy. Priority generally belongs to passengers, so that switch-up has the potential to create logistical chaos.

"Germany also needs to improve coal transport to move forward with its plans to reopen power plants to boost energy security," reports Bloomberg.

Venezuela Wants New Concessions for Oil

How should Europe replace the hole in their energy supply that their Russian sanctions have created? Two sources: Iran and Venezuela.

But Iran's potential exports westward are gummed up by talks over their nuclear agreement that aren't likely to resolve any time soon.

How fares Caracas? After two years of American sanctions (which sent their production levels into a 38% free fall), Venezuela spun up its shipments with a new deal that lets them swap oil for debt relief. "However," reports Oilprice.com, "the country's government has now suspended those shipments, saying it is no longer interested in oil-for-debt deals and instead wants refined fuels from Italian and Spanish producers in exchange for crude."

What gives?

Venezuela's refineries are hurting after years of low investment and neglected repairs. "Refined fuels would help them to get back on their feet in terms of energy and industry," reports Oilprice. "Some of Venezuela's own heavy oil operations require imported diluents in order to continue."

But the EU isn't interested in changing the original terms of their deal. That leaves the Europeans absent another energy source.

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Conversations Starters

• I have a new long-form piece on the history of the American electric grid out in American Affairs. It moves from the post-war era to the present in order to explain how we arrived at our current age of unreliability. You can read it here.

• Helen Thompson has a sobering op-ed on the nature of the current energy crisis in the Financial Times. Here's her incisive conclusion: "Western governments must either invite economic misery on a scale that would test the fabric of democratic politics in any country, or face the fact that energy supply constrains the means by which Ukraine can be defended."

• "US natural gas working stocks rose by just 18 Bcf during the week ended Aug. 12, well below market expectations, but the build was insufficient to keep the momentum going for US gas futures," reports S&P Global.

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