From Shropshire to Hamburg, depleting reserves and spiralling costs are spawning a continent-wide energy crisis
Bridgnorth Aluminium has faced down Brexit, Covid and repeated energy shocks in recent years. But this winter is bringing extra “stress and pressure”, says its head of sales, Adrian Musgrave.
Musgrave’s company makes rolled aluminium, used in packaging, construction and the manufacture of items such as cars and batteries. Like many stretched industrial businesses across Europe, Bridgnorth Aluminium faces a looming threat of soaring energy bills, which Musgrave describes as “just worry upon worry”.
The cost of natural gas has doubled in the past two months, caused by renewed fighting between the US and Iran, reaching a three-year high in the UK and the EU this week. More price rises are likely in the colder months.
Bridgnorth Aluminium, which employs 370 people at its plant in Shropshire in the UK’s industrial heartland, is already feeling the effects. Its combined gas and electricity bill is about £1.1m per month, 18% of its total costs, and rising.
Its biggest contracts include a safety net – once gas prices cross a certain point, customers pay the difference. That threshold was crossed last month – but the question of whether clients will come back concerns Musgrave. “They have to pay because it’s in the contract, but they will obviously not like it,” he says. “When it comes up for renewal it will become an issue.”
Musgrave says the company is not in a place where it would need to make layoffs or temporary shutdowns this winter. Others may not be so lucky – one forecast, by the Item Club, predicted earlier this year that Britain will lose 163,000 jobs in 2026 because of the war, concentrated in manufacturing-heavy regions such as south Wales and the Humber region.
Bridgnorth Aluminium is considering taking a longer Christmas break, or doing planned maintenance – originally scheduled for April – earlier than expected in January, so the factory runs less during times of high prices. “And then the employees are obviously aware,” he says, “so then people begin to worry.”
Gas spikes and shortages
The conflict has disrupted global energy supplies since Iran started attacking ships in the Gulf and choked off access through the strait of Hormuz, the narrow waterway through which a fifth of the world’s oil and gas passes.
British wholesale gas prices climbed to 205p per therm this week, the highest point since Russia’s invasion of Ukraine in 2022 and up 101% from 102p in June. That is compared with 78p per therm at the end of February. The UK imports about 70% of its gas, leaving it especially vulnerable to price swings.
A shortage of stored gas reserves compounds the issue. Europe is heading into winter with gas stores at their lowest level in over a decade, after the Hormuz disruption stopped countries topping up their reserves through the summer, when prices are normally lower. Storage is now about 67% full, against a seasonal average closer to 80%.
Germany, which holds the largest storage capacity in Europe, is only about half full, and is on course to miss its official 70% storage target this year. The Netherlands is expected to miss its 80% target too.
As one of Europe’s biggest gas consumers, the UK may be especially exposed, with some of the lowest levels of domestic storage capacity and relying instead on pipeline imports from Europe and tankers from the US and Middle East. Chris O’Shea, the chief executive of British Gas owner Centrica, said last month that Britain had “almost no gas in storage” for the coming winter.
Strife in the Mittelstand
Alexander Julius, managing partner of Macrometal Handelsgesellschaft, a steel distributor in Hamburg, says it is competing “against producers in regions where energy costs are often significantly lower and where governments provide direct or indirect industrial support”.
For industries like his, part of Germany’s Mittelstand of medium-sized enterprises, he says energy is not just another item on the cost lines, but “a fundamental production input”. But instead of getting support they are being “hammered by green taxes while energy rises rocket”.
Julius, who is also the president of trade body Eurometal, says companies will go to the wall and work will move to China or India unless something is done to reduce energy costs. Eurometal has warned that manufacturing job losses across Europe could reach 300,000 by the end of the year, driven partly by Chinese competition and compounded by energy costs.
Axel Eggert, director general of the European steel body Eurofer, adds that the high prices “will inevitably lead to production disruptions. Such additional costs cannot simply be absorbed by energy-intensive industries exposed to international competition.
“The longer the crisis lasts, the greater the risk that temporary production cuts become structural, with consequences for investment, employment and, ultimately, the viability of industrial plants in Europe.”
The car industry in Germany has also called for urgent action from Berlin and Brussels, saying “the high energy prices are among the biggest competitive disadvantages of Germany as a business location”, with electricity prices in some cases three times higher than the US.
“Germany, just like the EU, urgently needs a jointly supported energy strategy with low electricity prices and future-proof grid infrastructure,” said a spokesperson for the trade association, the VDA. Building new industries will become “a decisive factor in determining” inward foreign investment in future, they added.
‘It just keeps coming’
The exposure is especially bad for the chemicals sector, where companies rely on gas to power their plants but also as feedstock – the raw material that many products are made from – meaning every spike in prices hits them twice.
Francesco Buzzella, president of Italy’s chemicals trade body Federchimica, says it remains the “primary factor undermining the competitiveness of chemical companies” in the country. Energy now accounts for 18% of the value of everything Italy’s chemical industry produces, up from 14% in 2021 – and could reach 23% if gas and oil prices do not fall. This week oil hit $107 a barrel as the US and Iran continue to trade blows.
Production output in the UK has fallen by 60% since 2021, according to the Chemicals Industry Association, with at least 25 sites closing.
Peter Huntsman, chief executive of the chemicals group Huntsman Corporation, told the Guardian in March that continued high prices could force the closure of the company’s last remaining UK plant, at Wilton on Teesside.
Back in Shropshire, meanwhile, Musgrave says Bridgnorth Aluminium’s owner, the Belgian industrial group Viohalco, wants to invest further in the company’s operations, but the numbers are getting harder to justify.
“They would like to make some significant investments – the UK market for aluminium is quite big, and we would like to be able to sell more at home,” he says.
But energy and other pressures make it “a difficult picture for shareholders to get their head around … The business conditions for investment are really challenging, and changing quite rapidly.
“I’ve been in this business just over 20 years. For the first 10, the macro environment was always pretty stable. But then we had Brexit, which changed things; the energy crisis with Ukraine; Covid; and now this.
“You just think you’re going to get a year where maybe it won’t be too much change,” he adds. “But it just keeps coming.”
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