EU, Japan to Lose Third of High-Energy Goods Share, IEA Says

Japan and the European Union may lose a third of their combined export market share of energy-intensive goods partly because of their high natural gas, coal and electricity costs, the International Energy Agency said.

The U.S., whose factory power costs are less than half those in the EU and Japan, may get a “slight increase” in the share of exports from industries including chemicals, aluminum and cement, according to the IEA’s World Energy Outlook 2013. That’s the “clearest indication” of the link between low energy prices and the outlook for industry, the IEA said.

Energy-intensive industries account for about a quarter of industrial employment and 70 percent of industrial energy use, the Paris-based adviser to 28 nations said in the report. Disparities in regional energy prices will influence investment decisions and company strategies, according to the IEA.

“Unlike crude oil prices, which are relatively uniform worldwide, prices of other fuels have become subject to significant regional variations,” the IEA said. “Although gas price differentials have come down from the extraordinary levels seen in mid-2012, natural gas in the U.S. still trades at one-third of import prices to Europe and one-fifth of those to Japan.”

Exports from Asia will advance as demand and consumption surges in that region, according to the IEA. Chinese manufacturers pay almost twice as much as U.S. factories for power, the agency said.

Supply Contracts

Europe can respond to the risk of losing exports by boosting energy efficiency, increasing domestic gas output and ensuring its energy subsidies aren’t too generous, Fatih Birol, the chief economist at the IEA, told reporters today at a press conference in London.

Gas-supply contracts linked to oil can also be renegotiated to cut costs as suppliers will probably have decreasing influence over prices, Birol said. It’s becoming a “market for buyers,” he said.

A wave of new liquefied natural gas supply in the early 2020s may “strengthen the hand of buyers during contract negotiations, precipitating a shift in the pricing paradigm,” according to the IEA report.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.