Is Europe Prepared for the Winter? - Part Two

In Part One of our report we outlined, the impact of the Russian invasion of Ukraine and the subsequent curtailment of gas flows to Europe, on the global energy market.

We further detailed, the EU countries most at risk and dependent on Russian gas, as well as the potential impact of an energy crisis on the EU on the semiconductor and electronic manufacturing industry.

The International Energy Agency (IEA) has stated that the EU continues to face the risk of a complete gas cut-off by Russia this winter. In this report we will look at the current state of the gas storage in key semiconductor manufacturing EU countries and key fall outs.

EU Energy Status & Mitigation Plans

In the past several months, the EU and IEA have been working on plans to create energy independence in Europe. In anticipation of potential gas shortages and power disruptions, EU countries are working to build their gas reserves, secure alternate energy sources and have agreed to voluntarily cut their gas usage by 15% until March 2023 if needed per the recommendation of the IEA “10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas”. 

The IEA plan included accelerating the deployment of solar and wind power, installing energy efficiency measures in houses and businesses, maximizing the use of existing low emissions energy sources such as renewables and nuclear, and most importantly, looking for alternate suppliers for gas and fuel. 

Another short-term measure which the EU member states agreed on was to increase their gas reserves quickly and to secure sufficient energy supply for Europeans during the winter. This was done by securing liquid natural gas (LNG) from other sources such as Norway, Azerbaijan and the United States and reducing overall energy usage by all EU member states. 

In October 2022, the average gas storage levels among EU members was over 92%. Most EU member states have gas storage facilities on their territory, but almost two thirds of the EU’s total storage capacities is in five countries (Germany, Italy, France, the Netherlands, and Austria). 

The EU member states have further agreed that the gas can be shared between them in the spirit of solidarity and that, countries without gas storage facilities will have to store 15% of their annual domestic gas consumption in stocks located in other member states as means to strengthen the security of EU’s gas supplies while sharing the financial burden of filling the EU’s storage capacities. 

Although in the short term the EU has been able to shore up its reserves there are still concerns about Europe’s energy security especially in 2023, analysts have warned against complacency.

"Are we out of the woods? Absolutely not. While it's mild now, a prolonged cold spell could still lead to surging prices towards the end of winter, or indeed next winter," added Tom Marzec-Manser, head of gas analytics at ICIS. Currently, a number of LNG cargoes have been circling off the coasts of Spain unable to secure slots to unload, exposing Europe's lack of regasification capacity.

Factors such as higher demand for LNG from Europe or Asia if they experience a cold winter, and any delays to LNG outages or additional large outages at gas infrastructure, could affect the situation at any time. 

Potential Impact on European Semiconductor and Electronic Manufacturing Industry

Based on the current assessments and measures, resource intensive manufacturing industries such as the semiconductor and electronic manufacturing continue to be vulnerable in Europe.

There are thousands of electronic and semiconductor manufacturing sites located in 34 European countries. 80% of them are located in 10 countries (Czech Republic, France, Germany, Italy, Netherlands, Poland, Sweden, Switzerland, Spain, and United Kingdom). 

Germany, U.K., and France are home to most of the factories including, STMicroelectronics N.V., TE Connectivity Ltd., Diodes Incorporated, onsemi, NXP Semiconductors, Phoenix Contact GmbH & Co. KG, Schurter Holding AG, Schneider Electric, and Molex Incorporated. These companies include manufacturing headquarters, final and module assemblies, IC packaging assemblies, fabs, and factories which produce different types of semiconductors like chip resistors, film capacitors, circular connectors, and microcontrollers.

Germany

Germany is home to most of EUs semiconductor facilities, over 2500 of them. Nearly 600,000 semiconductor parts including chip resistors, microcontrollers, film resistors, circular connectors, clock generators, and programmable oscillators are supplied by, Infineon Technology AGG, ITT Cannon, Vishay Intertechnology, Robert Bosch, Microchip Technology Inc., X-Fab Silicon Foundries, Texas Instruments, Recom Power, and WIMA.

Germany currently has over 98% gas storage and taken control of three Russian-owned refineries in the country to ensure energy security. Additionally, Germany is keeping coal plants in operation despite greenhouse gas emission goals and also keeping the option of reactivating two nuclear plants to ensure the countries energy security. 

However, in September, the government announced that it could face natural gas shortages by spring of 2023 urging consumers to save more gas as they are home to thousands of factories. The government further announced in October that 15,000 German stores were facing bankruptcy due to high energy costs which can impact Germany’s plans of becoming a leading semiconductor manufacturing hub.

Following that news, the car manufacturer Volkswagen warned of production shift from Germany, as the country may need to save fuel this winter and cut manufacturing energy consumption. Additionally, ArcelorMittal shut down a German blast furnace, BASF announced it could cut output due to the fragile gas supply and German Aluminum Smelter made a similar announcement. 

On the positive front, Germany which is Europe’s biggest economy can now import gas from France but France has been having their own problems have warned Germany that it may not be able to send gas to Germany.

The U.K.

The U.K. is the second largest manufacturing hub in Europe and has over 1,800 factories, of which nearly 80,000 semiconductors are produced by; TE Connectivity, Harwin PLC, Global Connector Technology, Kemet Corporation, Cambion Electronics, and Diodes Inc. They produce products such as microcontrollers, ADCs, audio amplifiers, aluminum electrolytic capacitors, timers circular backshells, cable clamps connector, rectangular free hanging connectors, rectangular connector headers and receptacles.

The U.K. has not been part of the EU energy mitigation plans due to Brexit which has caused difficulties for the country and the government has announced it has limited gas supplies. 

The household energy bills increased by 80% in October and Britain’s electricity operator said this week that homes and businesses could face three-hour blackouts this winter if supplies run too low, preparing for a worst-case escalation of Europe’s energy crisis. 

Tens of thousands of businesses in the UK, are at risk of suspending their business because of soaring energy bills. On top of that, The UK energy regulator Ofgem announced earlier this month that some power plants in the country may cease operations due to a gas shortage caused by the energy crisis.

France

France is home to many semiconductor fabs and the third largest manufacturing hub in Europe. Most notable fabs include, STMicroelectronics and Vishay Intertechnology, and TE Connectivity. These suppliers produce over 90,000 semiconductor component including chip resistors, through hole resistors, chassis mount resistors, microcontrollers, logic gates and inverters, switches, multiplexers, and decoders.

Russia's Gazprom has reduced gas delivery to France's Engie since September. France has sent an emergency power alert to neighbors including UK and Spain, asking them to be ready to send as much power as possible to France if needed.

Despite a 98% gas storage, France has announced a cap of 15% power and gas price hikes but nationwide strike called by several hard-left trade unions demanding higher pay continue in the country.

Last month, Aluminum Dunkerque announce plans to reduce production by one-fifth in response to the electricity costs.

France has been working to shore up its energy security, the French company Total Energies announced a joint venture with Brazilian company Casa dos Ventos to set up a new renewable energy portfolio in Brazil.

Italy

Italy has over 650 manufacturing sites, including Molex Incorporated, ITT cannon, STMicroelectronics, and Kemet Corporation. These companies currently operate 13 fabs and produce over 60,000 parts. STMicroelectronics run 9 of these fabs and 16,000 parts.   

In September, Italy announced it is worried that France would stop exporting electricity due to production decline in their nuclear power factor. In addition, Italy's Eni announce it would not receive any of the gas it had requested from Russian supplier Gazprom for October. The CEO of Eni stated that Italy could face a gas shortfall of 5-6 billion cubic meters in the winter of 2023 and 2024 without a new regasification terminal. 

Other Main Manufacturing Countries

The Czech Republic, Netherlands, Poland, Spain, Sweden, and Switzerland are home to over 2,100 fabs combined. 

Surprisingly, the Czech Republic produces the most components out of these countries around 210,00 semiconductors which include chip resistors, through-hole resistors, logic gates, circuit breakers, and clock generators. The Netherlands, Sweden, and Spain each produce close to 1,100 components.

These countries have been facing similar issues as all European countries with companies announcing they are cutting production or going out to business due to energy costs. For example, one in ten companies in Switzerland has scaled back output because of high electricity prices before possible winter energy shortages.

In Conclusion

There is an energy crisis looming in Europe which can potentially impact thousands of electronic manufacturers despite the short-term gas storage increases among the EU countries.

The product groups most at risk include Microcontrollers (MCUs), Memory, Power, Diodes, Resistors and Capacitors. 

It is important for businesses to take a closer look at their supply chain dependencies in order to take any necessary precautions regarding potential energy disruptions within Europe. 

Having a deep and comprehensive understanding of your manufacturing and supplier locations and dependencies to the level of raw material sourcing will help you take proactive measures in your procurement and production processes. 

Building strategies to navigate increased supply chain risks such as geo-political, and environmental volatilities are key to building a resilient supply chain. 

Additionally, having visibility into your supplier diversity will help you take measures such as multi-sourcing to reduce vulnerabilities within your electronic supply chain and building resiliency within your operational DNA. 

Sifting through magnitude of data and risk factors, then deciphering relevancy to your operations is time consuming and costly. Adding to the complexities is bridging internal and external data in one usable platform where multiple teams can collaborate and access the information they need.   

Digitizing your supply chain and utilizing tools that help bring visibility to your supply chain risks, increases business agility and operation success.