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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

‘Crippling’ energy bills force Europe’s factories to go dark

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The furnace, heated to 1,500 degrees Celsius, was glowing red. Workers at the Arc International glass factory loaded it with sand that slowly pooled into a molten mass. Nearby on the factory floor, machines transformed the shapeless liquid with a blast of hot air into thousands of delicate wine glasses, destined for sale to restaurants and homes worldwide.


Nicholas Hodler, the CEO, surveyed the assembly line, shimmering blue with natural gas flames. For years, Arc had been powered by cheap energy that helped turn the company into the world’s largest producer of glass tableware — and a vital employer in this working-class region of northern France.


But the impact of Russia’s abrupt cut-off of gas to Europe has doused the business with new risks. Energy prices have climbed so fast that Hodler has had to rewrite business forecasts six times in two months. Recently, he put one-third of Arc’s 4,500 employees on partial furlough to save money. Four of the factory’s nine furnaces will be idled; the others will be switched from natural gas to diesel, a cheaper but more polluting fuel.


“It’s the most dramatic situation we have ever encountered,” Hodler said, shouting to be heard over the din of clinking glasses. “For energy-intensive businesses like ours, it’s crippling.” Arc is not alone. High energy prices are lashing European industry, forcing factories to cut production quickly and put tens of thousands of employees on furlough. The cutbacks, though expected to be temporary, are raising the risks of a painful recession in Europe. Industrial production in the euro area fell 2.3 per cent in July from a year ago, the biggest drop in more than two years.


The whirlwind has unnerved the inhabitants of Arques, a town whose fortunes have been tied to glassmaking for more than a century. The modern-day Arc was founded in 1825 as the Verrerie Cristallerie d’Arques, then a small local maker of fine crystal goblets.


Today, Arc’s operations are enormous, spanning an area nearly half the size of New York’s Central Park. Its mass is such that Arc indirectly generates another 15,000 or so jobs in the region, from cardboard factories that package its glass to transport companies ferrying its products. Arc’s other factories are in China; Dubai, United Arab Emirates; and New Jersey.


“The shutdown of the furnaces is bad news,” said one worker, a 28-year veteran of the factory, who spoke on condition of anonymity for fear of compromising his job. “Sure, high energy prices are having an impact,” he added, “but it’s scary how fast it’s happening.” To some extent, the crisis is a blowback from European sanctions that were intended to punish Russia for its invasion of Ukraine. The pain has undermined confidence at European companies and their ability to plan.


This past week, the European Commission president, Ursula von der Leyen, proposed offsetting the hit by capping revenue from low-cost electricity generators and forcing fossil fuel firms to share the profit they make from soaring energy prices.


But the solutions may not be fast enough. Costs have already soared beyond what many manufacturers can afford. Thousands of European companies are near the end of fixed energy contracts signed when prices were cheaper, and must renew them in October at current prices. Year-ahead electricity prices, which are tied to the cost of gas, are around 1,000 euros (about $1,000) per megawatt-hour in Germany and France, while natural gas is at record highs of around 230 euros per megawatt-hour.


Hodler is labouring to steer Arc away from trouble, following years of financial difficulties linked to over-expansion and, more recently, pandemic lockdowns. In December, shortly after Holder took over in a management shake-up, Arc received an emergency 45 million euro loan backed by the French state and is now asking the government for additional relief from high energy bills.


The site, which consumes as much energy as 200,000 homes, makes “arts de table,” including Luminarc dinner plates and Cristal d’Arques-branded table and barware. All told, Arc produces 4 million glasses a day, as well as items like candle holders for Bath & Body Works and promotional glasses for Heineken and McDonald’s.


Doing so requires intense heat to melt sand into glass in furnaces that must stay lit 24 hours a day. In summer, Europe’s power crunch propelled Arc’s energy bill to $75 million, from 19 million euros a year ago. On top of that, consumers suddenly stopped buying items like candle-holders and washing machines, for which Arc makes glass windows, sending orders plunging.


“People are worried about their winter energy bills, and are saying, ‘I’ll wait to buy that non-essential item,’” Hodler said.


The double-whammy sent Arc’s management team scrambling for solutions — all of them less than desirable.


This month, 1,600 workers were asked to stay home two days a week to cut costs. And for the first time, Arc’s furnaces will switch to diesel power instead of natural gas, which is fed directly to the factory through a pipeline. The diesel will raise Arc’s carbon footprint by 30 per cent, and must be delivered in huge quantities by tanker trucks.


Even more daunting was the prospect of idling Arcs furnaces. “You can’t just shut down a glass furnace, it would destroy it,” Hodler said. “If they are powered down gently, they will survive, but then they take more than one month to be reheated.” Two furnaces that were planned for scheduled maintenance may now remain offline for the foreseeable future, Hodler said. Another two will be temporarily mothballed to make up for the fall in demand.


“We don’t want to stop operations completely,” Hodler said. “But we are not going to produce if we lose money.” — The New York Times


Liz Alderman is the Paris-based chief European business correspondent for The New York Times, covering economic and inequality challenges around Europe.


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