German Energy Demand to Hit Lowest Since ‘90 on Weak Economy

(Bloomberg) -- Germany’s energy consumption is poised to drop to the lowest level since reunification as Europe’s largest economy stalls, according to research group AG Energiebilanzen.

Significant production declines in the manufacturing and processing industries this year reduced energy use despite a recent uptick in demand, Energiebilanzen said in a report. The 1.7% drop in consumption to 10,453 petajoules (2,904 terawatt-hours) projected for 2024 follows a slump to a previous low last year.

Germany avoided a technical recession in the third quarter with a slight and unexpected expansion. But the economy remains burdened by a slump in its once mighty manufacturing sector, plagued by high energy costs and competition with global powerhouses such as China. Industrial production has been on a mostly downward trajectory since 2022, when Russia invaded Ukraine and sent natural gas prices soaring.

“In a world in which, at least in manufacturing, China has become the ‘new Germany’, Germany’s old macro business model of cheap energy and easily accessible large export markets is no longer working,” ING economist Carsten Brzeski said in a note. 

Benchmark European natural gas prices have come down from a record reached in August 2022, but they are much higher than in places like the US. Gas futures are up more than 25% this year, while month-ahead power prices have gained over 5%, according to exchange data on Bloomberg. 

Meanwhile, the country’s energy transition has become more evident. Coal and lignite consumption fell by 15% in the first nine months of the year, while the consumption of renewable energy and natural gas rose each by roughly 3%. 

According to AG Energiebilanzen, the increase in natural gas consumption may be linked to the “improved competitive situation” of the fuel in energy-intensive industries over the course of the year.

The use of coal for power generation plunged by 39%, thanks to the increasing consumption of renewable energy and electricity purchases from neighboring countries.

(Updates with additional details from report in sixth paragraph.)

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