CEO chemical giant Lanxess: 'We are ready to shut down factories in two hours'

Nowhere in Europe are the nerves about a closing Russian gas tap more tense than in Germany. As CEO of the chemical giant Lanxess, captain of industry Matthias Zachert can hardly handle his frustration. ‘If we want the European industry dead, we are well on the way.’

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‘Sometimes you have to dare to use strong words. I don’t want to hide in moments that beg for clear language.’ It is clear from the outset that Matthias Zachert, the CEO of the German chemical group Lanxess, does not intend to mince words when we get him on the phone from Cologne for a conversation about the impact of the energy crisis.

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It’s a situation that extremely frustrates Zachert – who manages 15,000 workers in 33 countries. ‘Agony’, he describes the feeling – perhaps best translated as ‘soul pain’. ‘I am extremely unhappy about the incapable energy policy that Germany has pursued over the past ten to fifteen years. I warned about that years ago. For me as CEO it would be unacceptable to make my company dependent on one supplier for our raw materials. Even if you were to count on a friendly company with a sympathetic CEO, you wouldn’t want to be so vulnerable. And yet that’s what we’ve done with Russia.’

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“Russia has been an undemocratic company for decades, headed by the dictator and now also mass murderer Vladimir Putin,” says Zachert. ‘It is appalling that we have counted on just one supplier like this.’

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‘While we were relying entirely on Russian supplies, Germany took the decision in 2011 to simply close the nuclear power stations, and on top of that, phase out the coal-fired power stations. That’s absurd. I believe that experts should urgently reconsider the closure of nuclear power plants. The combination of those two decisions, the coal and nuclear phase-out, now places the entire German industry in a particularly problematic situation.’

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The situation is so precarious that forced shutdowns of the gas grid are becoming an option. What does that mean for you?

If we don’t go back to coal, people will pay the price. The poorest Germans first.

Matthew Zachert

CEO Lanxess

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Matthias Zachert: ‘In the event of gas shortages, families served first, and the rest will be allocated to companies through a mechanism to be determined. That is not a nice prospect. When you’re dealing with rationing, some factories have to close. And when factories close, you get unemployment. And when chemical plants close, you get problems throughout your economy. Because if we stop producing, you cut off entire industries from their essential raw materials. The impact of such a situation will be a tough stress test for the entire European Union. This is a situation that we have not experienced since the Second World War.’

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What was the first thing you did when the German government declared the gas alarm?

Zachert: “It came as no surprise to us. Fortunately, most companies, including us, started early and had the preparations for a gas embargo ready. But that does not alter the fact that it puts enormous pressure on the entire economy.’

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How does a company like Lanxess prepare?

The combination of the coal and nuclear phase-out now places the entire German industry in a particularly difficult situation.

Matthew Zachert

CEO Lanxess

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Zachert: At the beginning of March, in the second week after the Russian aggression and the outbreak of the war in Ukraine, we started a factory-by-factory analysis. In the US there is ample gas and supply was not a concern. The same largely applies to our factories in Belgium and the Netherlands.’

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‘The concern is mainly concentrated in the German state of North Rhine-Westphalia, where we have three major sites. In the largest two, in Leverkusen and Uerdingen, we have about 50 plants, two of which are very gas-intensive installations and three with high gas consumption. Should there be a complete gas embargo, then by shutting down the most intensive factories we can reduce our gas consumption by 30 to 50 percent. Those factory directors know exactly what to do in the event of a gas embargo. They can phase out production in 60 to 120 minutes. Those plans are ready, although we hope we don’t have to implement them.’

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This can help as a temporary emergency brake, but what about the long term?

Zachert: ‘In the short term you can shut down your factory for a while. But when that goes on for more than two or three months, things get really serious. Then you get de-industrialization. That’s what you’ve seen in the past in the US and the UK. In a few decades they have lost a large part of their industry and switched to services and financial sectors. After the financial crisis, everyone there suddenly looked around and asked: where has our industry gone?’

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I am extremely unhappy about the incapable energy policy that Germany has pursued over the past ten to fifteen years.

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‘Today we pay three to four times more for energy in Europe than a year ago. We are by far the most expensive energy region, with prices five to six times higher than in Asia or North America. You can handle that in the short term. But if that persists, that’s a threat.’

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You paint a very pessimistic outlook.

Zachert: “If we want to kill the industry in continental Europe, we’re doing it in the best possible way. Industry has always been the backbone of economic prosperity. But by rapidly introducing super-bureaucratic regulations, while you’re sitting with massive inflation and energy costs explode, you’re going to squeeze the industry to death. We will see that in the coming years. People will then look back and wonder what went wrong.’

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Which bureaucratic regulations do you mean?

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Zachert: ‘I refer, for example, to the European carbon limit tax CBAM, which was accepted this week† It is a bureaucratic monster whose scope and economic implications no one can properly assess. At the same time, the European CO₂emissions trading system drastically changed (including a phasing out of the free CO₂emissions rights for industry, red† If we put up such major regulatory hurdles at a time when energy costs more in Europe than in any other region, we shouldn’t be surprised if the entire European continent becomes de-industrialized.’

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Surely you cannot deny that the European CO2 emissions trading system has led to good results and significant emission reductions by making companies pay for their CO2 emissions?

Zachert: “If you look at the chemical industry in Germany, we have seen production volumes increase by 60 percent, while CO₂emissions have fallen by more than 40 percent. So it has certainly worked to deliver on our climate commitments. But now we’re introducing something on top of that that no one fully understands and that could lead to global trade barriers. We’re threatening to break something that worked extremely well. I have serious reservations about that.’

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Lanxess

Lanxess was spun off from the German industrial group Bayer in 2004 as a producer of chemical additives, plastics and synthetic rubber.

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The chemical group, headquartered in Cologne, has nearly 15,000 employees worldwide, as well as four chemical plants in the port of Antwerp, which together employ about 950 people.

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Lanxess has been led since 2014 by Matthias Zachert (54), who was the group’s financial director from 2004 to 2011.
Turnover (2021): 7.6 billion euros
Gross operating profit (EBITDA): 1 billion euros
Net profit: 267 million euros
Market value 3.1 billion euros

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How realistic is the worst-case scenario where the gas tap from Russia is completely closed?

Zachert: ‘No one can really estimate that. We are dealing with a dictator who will not let his cards be seen. But the chance is increasing. When the gas supplies to Poland and the Netherlands were stopped, that was already a sign. Since the supply to Germany has been reduced by more than half, I estimate the probability of a complete shutdown at more than 50 percent.’

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Energy prices in Europe are five to six times higher than in Asia or North America. If that continues, our industry will disappear.

Matthew Zachert

CEO Lanxess

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The Belgian government considers itself less vulnerable than the German one, because we barely use Russian gas and have more different supply routes. Justly?

Zachert: ‘We are concerned about the situation in Germany, not the situation in Belgium. Our second largest production site is in Antwerp and we have no concerns there. That site will not have to be shut down because of gas. Disruptions in supply chains can play a role, but that is no different in Belgium than elsewhere in Europe, in Asia or in America. Everyone has to deal with it.’

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Germany returns to coal-fired power stations. Do you then think: ‘See, I’ve been warning about this for a long time?’

Zachert: ‘I am not interested in being right. I want the best for our country. That is why I can appreciate what our green Minister of Economy (Habeck, red.) now does. In Germany we have a saying: sometimes you have to dare to jump over your own shadow. That means as much as daring to let go of your own dogmas and beliefs, in the public interest. That’s what the Greens are doing now.’

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‘I appreciate that a green minister realizes that the population will pay the price if we don’t go back to coal. The poorest Germans are then hit first and hardest. If we do nothing, they will soon be unable to heat their homes. If you let that happen, you will get social unrest. That realization is starting to sink in. I don’t care if I was right or not.’

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CEO chemical giant Lanxess: ‘We are ready to shut down factories in two hours’

The situation is so precarious that forced shutdowns of the gas grid are becoming an option. What does that mean for you?

What was the first thing you did when the German government declared the gas alarm?

How does a company like Lanxess prepare?

This can help as a temporary emergency brake, but what about the long term?

You paint a very pessimistic outlook.

Which bureaucratic regulations do you mean?

Surely you cannot deny that the European CO2 emissions trading system has led to good results and significant emission reductions by making companies pay for their CO2 emissions?

Lanxess

How realistic is the worst-case scenario where the gas tap from Russia is completely closed?

The Belgian government considers itself less vulnerable than the German one, because we barely use Russian gas and have more different supply routes. Justly?

Germany returns to coal-fired power stations. Do you then think: ‘See, I’ve been warning about this for a long time?’

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