Germany’s industrial southwest, Switzerland and parts of France face a dearth of fuel supplies in the coming weeks just as freezing temperatures threaten to lift demand for heating oil.
A prolonged drought this summer has led to record-low water levels on the Rhine river, closing many parts of the key transport artery to barge traffic. With little relief in sight, the German government is seeking to loosen rules on fuel transports by road to prevent shortages. The logistics bottleneck led to production halts at Covestro AG, contributing to a profit shortfall at the German plastics maker and sending the shares tumbling on Tuesday.
In normal market conditions, upwards of 100,000 tons a week of diesel-like fuels flow up the Rhine from Rotterdam. Gasoline also moves in the opposite direction when the waterway is functioning without restrictions. Water levels in the Rhine basin, which have been well-below average since July, will continue to fall or remain unchanged with little significant rainfall forecast in the next few days, according to Germany’s waterway administration.
High pressure forecast over northern and central Europe will act to block rain this month, and there’s a chance that those weather conditions could continue into December, according to Giacomo Masato, an analyst and meteorologist at Marex Spectron Group Ltd. in London.
Tense Situation
The situation in Switzerland, which relies on Europe’s busiest waterway for two-thirds of its diesel supplies and a quarter of its gasoline deliveries, has become “tense,” according to the nation’s EV-UP oil federation.
“We’re watching developments closely,” David Suchet, the Zurich-based group’s spokesman, said Tuesday. Switzerland can draw on refinery and rail supplies and like Germany released a portion of its strategic reserves in October. “November is a pretty dry month, so we don’t expect the situation to ease soon.”
Covestro suffered as barges could only be loaded to 20 percent of their capacity. That’s had a knock-on effect on volumes shipped to customers. The Leverkusen-based company abandoned a goal for profit growth this year in part due to Rhine-related disruptions. Evonik Industries AG has also struggled with access to raw-material supplies.
Alternative Routes
“While we cannot predict the weather, we hope for rain every day,” Evonik Chief Financial Officer Ute Wolf said on a Nov. 6 call.
In combination with unplanned halts to refineries, Rhine levels already helped to lift diesel prices. Measured against crude, a key gauge for traders, the fuel is at its strongest for the time of year since 2011.
The low water levels discouraged traders from sending cargoes to Rotterdam thereby diminishing inventories in the key pricing hub for diesel in Europe, according to Petromatrix GmbH. In addition, getting fuels inland to Germany requires using alternative delivery routes.
Part of the strength in diesel prices also stems from higher truck demand to transport the fuel, Rainer Seele, the chairman of Austrian oil company OMV AG, said in an interview in London on Friday.
Additional Imports
The supply tightness may yet become more acute. Royal Dutch Shell Plc said on Tuesday that it cut processing rates at a refinery complex in Germany, and that barges were unable to reach some of its facilities because of the low water levels. That could require additional imports.
A spokesman for BP Plc said Wednesday that the low water level presents a logistical challenge for the entire mineral oil industry to secure fuel supply for the tank farms and filling stations along the Rhine, especially in the Cologne area.
To ease the bottlenecks on the Rhine—a major petroleum product transportation corridor that runs northwest from the Swiss Alps through Switzerland, Germany, France, and the Netherlands—Germany’s Transport Ministry has asked states to stop enforcing bans on fuel transports by road on Sundays and public holidays.
The German government has capacity to release more supplies from strategic reserves. Last month, it released 70,000 tons of gasoline, 150,000 tons of diesel and 56,000 tons of kerosene to ease supplies on the middle- and upper Rhine, the federal Economy and Energy Ministry said.
“We’re holding intensive talks with the federal government,” said Ralf Heineken, spokesman for the Environment Ministry in the state of Baden-Wuerttemberg, home of Mercedes-Benz maker Daimler AG. “It’s not that the oil isn’t there—it’s a logistical problem.”
