Energy cost shockwave spreads to the industrial gas sector: At a recent industrial gas industry conference hosted by JPMorgan, Air Products & Chemicals (APD) management revealed that persistently high energy prices in Europe are having a significant impact on their large-scale operations in the region.

This global industrial gas giant operates multiple large-scale air separation units and hydrogen production facilities in Europe, with energy costs constituting a key part of its operating expenses. **European Industrial Energy Structure Faces Restructuring** Following the reshaping of natural gas supply patterns after the Russia-Ukraine conflict, European energy prices have remained at historically high levels. Although European natural gas futures prices in the winter of 2023 retreated from the 2022 peak, they were still about 200% higher than the five-year average. This structural change is forcing energy-intensive industries to reassess their capacity layout in Europe. As a high-energy-consuming sector, the industrial gas industry sees electricity consumption account for more than 60% of total production costs, making it extremely sensitive to electricity price fluctuations. **Cost Transmission Mechanism and Pricing Strategies Under Pressure** According to industry analysts, every 10 euro/MWh increase in European electricity prices will raise industrial gas production costs by about 5-8%. Although some costs can be passed on to long-term customers through contract terms, profit margins for spot market businesses with flexible pricing are being significantly squeezed. More critically, the price of European carbon allowances (EUA) has remained above 80 euros/ton, further raising the operational threshold for fossil fuel-based hydrogen projects. **Chain Reactions in the Industrial Supply Chain Emerge** Air Products' difficulties in Europe are not unique. Peers such as Linde and Air Liquide have also reported narrowing profit margins in their European segments in recent financial reports. Notably, as a basic raw material, price fluctuations in industrial gases will be transmitted downstream to industries such as steel, chemicals, and electronics manufacturing. The latest survey by the German Chemical Industry Association shows that more than one-third of companies are considering relocating part of their capacity to regions with lower energy costs. **Accelerated Green Transition and Regional Divergence** Facing cost pressures, industrial gas giants are accelerating the deployment of green hydrogen projects. Air Products previously announced a green hydrogen project at the Port of Rotterdam in the Netherlands, aiming to utilize North Sea wind power to reduce reliance on traditional energy sources. However, analysts point out that differences in energy policies and infrastructure between northern and southern Europe are widening. Regions in Northern Europe, rich in renewable energy, are relatively more attractive, while industrial competitiveness in Southern Europe, which relies on natural gas imports, faces even greater challenges. (Compiled from JPMorgan conference content)