Everything is connected at the German chemical firm BASF’s Ludwigshafen site, a 10 sq km industrial complex so sprawling that the company runs its own bus network to usher employees from its gates to their workplace.
Byproducts from making ammonia, for example, are funnelled through a 1,771-mile (2,850km) pipeline network from one end of the site to another, where they are recycled to produce fertiliser, disinfectant, diesel exhaust fluid, or carbon dioxide for fizzy drinks.
The so-called verbund (composite) principle has been key to BASF’s 157-year rise from “Baden Aniline and Soda Factory” to the world’s largest chemical manufacturer. Now, as Vladimir Putin has severely restricted energy exports to Europe, that ingenious interconnectivity could be its undoing.
The site in south-west Germany is reliant on gas as a raw material and an energy source, consuming roughly as much each year as the whole of Switzerland, and BASF played an active role in ensuring a large proportion of that gas was cheaply imported from Russia.
Should the German state be forced to ration gas for industrial use this winter, BASF says it can reduce its consumption to a degree, by throttling individual plants or swapping gas for fuel oil at some production stages. It has already lowered its on-site production of ammonia, instead shipping in the chemical from abroad.
However, because the 125 production plants at Ludwigshafen are an interconnected value chain, there a point where a drop of gas supplies would lead to a site-wide shutdown.
“Once we can receive significantly and permanently less than 50% of our maximum requirements, we would need to wind down the entire site,” says Daniela Rechenberger, a company spokesperson. “That is something that has never happened in BASF’s history, and something no one here would want to see happening. But we would have little choice.”
With German gas storage 87% full, there is increasing optimism that rationing can be averted this winter. But even then high gas prices could force companies such as BASF to halt production. With large parts of the verbund site having run around the clock since the 1960s, BASF says it is unclear if production could simply be restarted afterwards or if the drop of pressure would cause some machinery to break.
The consequences of a shutdown at Ludwigshafen would be far-reaching, not just in Europe’s largest economy but the entire continent. Shoppers still associate BASF’s initials with audio and video cassettes, but it sold that business arm in the mid-90s and today its sales are mainly business-to-business; its products more invisible but also more indispensable.
BASF-produced chemicals are used to make anything from toothpaste to vitamins, from building insulation to nappies. It is one of the world’s biggest manufacturers of ibuprofen for painkillers and the automobile industry makes up 80% of its sales, meaning sputtering pipelines in Ludwigshafen would directly impact carmaking regions such as Emilia-Romagna, Catalunya or Hauts-de-France.
One of the few remaining end products still produced at Ludwigshafen is AdBlue, a liquid used to reduce air pollution from diesel engines. It is a legal requirement for heavy goods vehicles, so a shortage could bring lorries to a standstill across Europe.
Under German law, households would be excluded from gas rationing along with other “protected” customers such as care homes or hospitals. The brunt of reductions would have to be made by industry, accountable for about a third of the country’s demand.
The federal network regulator has obliged large industrial consumers to submit their requirements on a centralised database due to go live this autumnto assess where shutdowns would have the most devastating knock-on effects. The chemicals industry is expected to be first in line for exemptions.
The question is, how fair is it for the government to help BASF out of a dilemma it has played a part in bringing about and continues to profit from?
The chemicals firm’s links to the Russian state-owned energy company Gazprom go back to just after German reunification in 1990, when it tried to use newly opened gas avenues from the east to break the monopoly of Germany’s own trader, Ruhrgas. Through its subsidiary Wintershall, it co-financed the construction of Nord Stream 1, the gas pipeline with which the Kremlin has tried to hold the European Union to ransom this year, and Nord Stream 2, which was halted just before the invasion of Ukraine in February.
The collaboration flourished despite growing evidence of Moscow’s aggression: in 2015, a year after Russia’s annexation of Crimea, Wintershall handed over western Europe’s largest gas storage tank in Rehden to Gazprom in exchange for shares in gas fields in western Siberia.
The swap was “politically desired and politically supported” at the time, BASF says, and strategic gas reserves were not deemed a priority by the then-chancellor, Angela Merkel.
But the role BASF has played in bringing about the current energy crisis may not be glossed over so easily in the long term. Its chief executive, Martin Brudermüller, who in April vocally opposed an embargo on Russian gas, came across like “an arsonist who sets fire to the house first and then claims only he is able to extinguish it”, the newspaper Taz’s editor wrote in a recent comment piece.
The chemical firm’s lucrative link-up with Gazprom continues to this day in spite of Russia’s war in Ukraine, which prompted the EU to impose sanctions on several high-profile individuals linked to Gazprom, though not on the company itself. BASF wound up its business activities in Russia and Belarus in July but has carved out exceptions to support food production and retains its share in Wintershall, now known as Wintershall Dea.
The chemical company has raked in large profits in the first half of the year, primarily due to that subsidiary benefiting from high oil and gas prices.
BASF owns two-thirds of Wintershall Dea with the rest held by the Russian-Israeli oligarch Mikhail Fridman, who is subject to EU and UK sanctions. The energy company’s adjusted net income in the first half of this year was €1.3bn (£1.1bn), with its earnings before tax in Russia up five-fold compared with the same period in 2021.
BASF says these profits come from Gazprom-produced gas sold to the Russian market, rather than to the EU.
The company has tried to make up for lost time in recent months, starting to build a solar park in Brandenburg and a large windfarm off the Dutch coast to ensure renewables meet more of its energy needs. But keeping Ludwigshafen’s value chain intact without gas may be an insurmountable challenge.
The site’s indispensable centrepiece are its two steam crackers, in which giant gas-powered ovens “crack” crude oil derivatives into smaller components by rapidly heating them to 840C.
A test site using electricity rather than gas to crack the hydrocarbons was unveiled on BASF’s premises on the Rhine River at the start of September but will not be a fix for the coming winter. “It’s not something you can do in two months,” says Nonnast. “It might be possible in five years, but only because we started looking into it five years ago.”
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