European gas prices are now about 10 times higher than their average level over the past decade, driven by fears that Russia could further restrict or even stop gas supplies in retaliation for military assistance to Ukraine. At the beginning of the Ukraine war, the Russian state gas monopoly Gazprom stopped natural gas exports to Bulgaria, Finland, Poland, Denmark and the Netherlands over non-payment in roubles.

The current energy crisis in Europe poses two major risks to the glass industry, commented Bertrand Cazes, Secretary General of Glass Alliance Europe and Glass for Europe. “First, there is a risk that gas shortage leads to interruptions in gas supplies to glass factories, which would cause irreversible damage to installations. This risk exists, but it can be mitigated by convincing authorities that gas factories need continuous energy supplies. We have convinced EU authorities of the need to prioritise glass production. The same must be done across [European] countries,” said Mr Cazes.

The second risk is that skyrocketing natural gas prices would make the European glass companies less profitable and less competitive on the global market, according to Mr Cazes.

Dependence on Russian gas varies across Europe. In 2021, Bosnia and Herzegovina, Moldova and North Macedonia got 100% of their natural gas supplies from Russia, Eurostat estimated. Almost all countries in Eastern Europe traditionally relied on Russian imports, as in 2021, Latvia sourced 92% of its natural gas supplies in Russia; Serbia 89%; Bulgaria 79%; Slovakia 68%; Hungary 61%; Slovenia 60%; and Poland 50%.

The difference is drastic if compared to Western Europe, where fears over the availability of natural gas are also being voiced. In this part of the region, Germany has the highest dependence on Russian natural gas imports at around 50%, followed by Italy with 38%, France with 15% and Belgium with 14%, Eurostat reported.

Glass industry consumption

The European glass sector consumes roughly 4.5 billion cubic metres of gas per year, approximately 70–80% of the sector’s total energy consumption. The total gas consumption of the glass sector represents 1.1% of all gas consumed in the European Union. This figure does not fluctuate greatly from year to year, as glass furnaces continue using gas even when a slight downturn in activity is observed, except when furnaces are completely stopped at the end of their service lives, according to Glass for Europe.

So far, there is no information that the energy crisis has impacted the [glass] output in any of the Eastern European countries.

“The industry is trying to produce [glass] in the required quantities to meet demand,” noted Véronique Favry, Coordinator of Glass Alliance Europe. “On that basis, one can presume that the overall utilisation rate in the sector is high, which means anything above 85%. No production curtailment has been announced in the glass sector,” she added.

Bracing for the worst

The current crisis has been building up for a while. In September 2021 – five months before Russia’s invasion of Ukraine – the International Energy Agency (IEA) pointed out that Russia was preventing a significant amount of gas from reaching Europe. The IEA raised the alarm further in January, with Executive Director Fatih Birol highlighting how Russia was creating “artificial tightness” in markets and driving up prices at exactly the same time as tensions were rising over Ukraine.

In response to the Russian gas blackmail, the European Commission has adopted plans to gradually end Europe’s dependence on Russian fossil fuel, completely abandoning Russian natural gas imports by 2027. These plans involve expanding natural gas supplies from alternative sources, switching to LNG and renewables, and a set of other measures. The biggest question, however, is how Europe plans to cope in the immediate future and to go through the next winter in the current predicament while alternative supply schemes are still being established.

IEA warned European authorities not to rule out the possibility of a complete cut-off of Russian gas supplies. The analysts estimated that gas rationing is the only meaningful solution to avoid blackouts and production disruptions.

The ‘Save Gas for a Safe Winter’ plan that European authorities announced in July of 2022 set a target for the 27 member states to reduce their gas demand by 15% between August 2022 and March next year. That reduction is based on countries’ average gas consumption during the same months over the previous five years. The plan is focused on curtailing demand by businesses and in public buildings, rather than private homes. However, there are no guarantees it will work if the flow of Russian natural gas stops completely.

“Glass companies across Europe are extremely concerned that their industrial assets may be completely lost in the coming months if gas supplies are not guaranteed to the industry,” stated Véronique Favry. “Beneath industrial assets, it is the survival of some glass manufacturers and their suppliers that is endangered with repercussions in the downstream processing activities."

“This concern is above and beyond concerns of energy prices, even if current prices remain a major challenge for the whole industry,” Ms Favry added. “The glass sector is therefore in need of its continuous and constant gas supply requirement-reality being recognised in both EU and national prioritisation plans for gas deliveries.”

Glass industry groups in several countries warned about irreversible plant damage in the event of a Russian gas supply stoppage. For instance, in a recent statement, the German Association of the Glass Industry reported that it would take a month to restore operations if damage is sustained. The German glass companies estimated they needed around 70% of the gas quantities used in normal operation to function without impairment. This figure is likely to be similar across other EU member states.

Biting prices

However, even if Europe manages to subvert the gas shortage, the record-breaking prices promise to hurt glass factories.

“Ten-fold increases in energy prices are bound to have massive impacts on production costs,” forecast Bertrand Cazes. “Beneath production costs, it is the competitive position of Europe’s glass makers that is endangered when competitors from other parts of the world, such as China, South-East Asia, the Middle East or even Algeria are still enjoying affordable energy. Ultimately, many glass production sites in Europe are or could be in danger of closures,” Mr Cazes warned.

He added that current energy prices were unimaginable several months ago; they are not sustainable for most of the glass industry.

“Immediate and impactful action is needed from European authorities,” stated Mr Cazes. “Under the present circumstances, the form of the support matters less than its urgent delivery and its scale. It must be proportional to the energy shock the industry is facing,” he underlined.

Cost-cutting

Various European glass producers have reported embarking on cost-cutting solutions aimed at mitigating the dependence on natural gas. This is a tall order, but given the colossal uncertainty, glass factories have no choice but to seek cost-cutting options.

“Glass manufacturing is an energy-intensive process. Although we are implementing many initiatives aimed to reduce energy demands, it will not be possible to produce glass without gas in the short to medium term,” commented Georg Feith, CEO of Stoelzle Glass Group.

“Our furnaces operate on gas 24 hours a day, 365 days a year. We are also providing services by using electricity in replacement of gas, in most cases, this is done while our furnaces are being built. However, a major conversion from gas to electricity is dependent on the availability of electricity from renewable sources. Currently, a significant part of the available electricity comes from gas-fired plants,” Mr Feith added.

In order to mitigate the current challenges, glass factories are looking into various ways of lowering their natural gas requirements. This is a tricky task, especially since the deadline is rather tight.

“An alternative to gas is the conversion to heating oil,” suggested Mr Feith. “We are currently examining options for replacing natural gas with heating oil so that in the future, we can at least fire our furnaces with heating oil and thus replace 60% of our gas demand with heating oil in individual plants. This process also requires burners, tank- and line systems, which currently have a delivery time of up to nine months,” he cautioned; adding that, “When many more energy-intensive companies make the switch from gas to oil, sourcing heating oil will become challenging.”

Undoubtedly, the 2022/23 season will be a big challenge for European economies and glass producers. There are also fears that the current crisis could be long-term. Belgian Energy Minister Tinne Van der Straeten has warned that unless the European Union moves swiftly to impose price caps on natural gas, the next five to 10 winters in Europe will be terrible.