BASF’s Betrayal: Why the World’s Biggest Chemical Company Is Moving 10,000 Jobs from Ludwigshafen to China After German Gas Prices Tripled

Expert Comment — Europe Programme

2026-01-12

IOn February 24, 2023, one year to the day after Russia invaded Ukraine, BASF announced a decision that would have been unthinkable five years earlier. The world’s largest chemical company, founded in 1865 and headquartered in Ludwigshafen ever since, would permanently close several of its most energy-intensive plants at its home site and cut 2,600 jobs there. Simultaneously, it announced a €10 billion investment in a new chemical complex in Zhanjiang, China. The juxtaposition was not lost on anyone in German industry. Ludwigshafen, the largest integrated chemical site in the world, was shrinking. China was growing. The reason was captured in a single number: before the war, BASF paid approximately €25 per megawatt-hour for natural gas at Ludwigshafen. By late 2022, the spot price had exceeded €200 per megawatt-hour. German manufacturing would never be the same.

The chemical industry is unique in its sensitivity to energy costs because energy is not merely an overhead expense but a raw material. BASF’s Ludwigshafen site uses natural gas not only to generate heat and power but as a feedstock for producing basic chemicals such as ammonia, methanol, and hydrogen. Natural gas accounts for up to 70 per cent of the variable production cost of these basic chemicals. When German gas prices tripled relative to global benchmarks, the economics of producing basic chemicals in Germany collapsed. BASF’s response was rational: shift production of basic chemicals to locations with cheaper energy, primarily China and the United States, and focus German operations on higher-value speciality chemicals that are less energy-intensive.

The implications extend far beyond BASF. Germany’s chemical industry, with annual sales of over €200 billion and 460,000 direct employees, is the third-largest industrial sector in the country. It is also the foundation of a vast downstream supply chain that includes pharmaceuticals, plastics, automotive components, construction materials, and consumer goods. The erosion of the basic chemicals industry in Germany creates a hollowing-out effect, as the downstream industries that depend on chemical inputs either follow their suppliers abroad or face higher costs and reduced competitiveness. The chemicals industry’s decline is not an isolated sectoral story but a bellwether for the entire German industrial model.

The loss of BASF’s basic chemicals production at Ludwigshafen creates a cascade of negative effects that extend through the entire regional economy. The site employs 39,000 people directly and supports an estimated 100,000 additional jobs indirectly through suppliers, service providers, and local businesses. Each direct job at the site supports approximately 2.5 indirect jobs in the region. The closure of production units and the reduction in site activity will reduce employment, tax revenues, and economic activity across the Rhine-Neckar region. The social and political consequences of this hollowing-out are already visible in the rise of populist parties in Germany’s industrial heartlands.

What is happening at Ludwigshafen is the canary in the coal mine for German industry. If the world’s largest chemical company cannot make the economics work in Germany, no energy-intensive manufacturer can.

BASF’s €10 billion investment in Zhanjiang, China, is the largest single foreign investment in the history of the Chinese chemical industry. The site, located on a 9-square-kilometre plot on the island of Donghai, will be BASF’s third-largest integrated chemical site globally and the company’s first fully-owned site in China. The decision to invest in China rather than Germany reflects not only energy cost differences but also access to the world’s largest chemical market, a more favourable regulatory environment, and Chinese government support for foreign investment in advanced manufacturing. The Zhanjiang site will serve the rapidly growing Chinese market for speciality chemicals used in automotive, electronics, and consumer goods applications. The contrast between the shrinking Ludwigshafen site and the expanding Zhanjiang site captures the broader shift in global industrial geography that is reshaping the German economy.

The German government’s response to the industrial crisis has been criticised as too slow and too small. The “Doppelwumms” energy relief package, while generous at €200 billion, primarily provided temporary relief rather than structural solutions. The government’s commitment to expanding renewable energy, while necessary, will not produce competitive energy prices for German industry in the short to medium term. The renewable energy build-out faces bottlenecks in permitting, grid connection, and supply chain capacity. The government’s industrial policy, including support for green hydrogen and carbon contracts for difference, is still in its early stages. The structural transformation of Germany’s industrial base will require not just relief measures but a comprehensive strategy for maintaining industrial competitiveness in a high-energy-cost environment.

The energy crisis is not only affecting large corporations like BASF. Germany’s Mittelstand, the small and medium-sized enterprises that employ over 60 per cent of the country’s workforce, are being hit hard. These firms operate on thin margins and cannot easily pass energy cost increases on to customers. Many have reduced production, delayed investment, or relocated operations abroad. The cumulative impact is greater than the sum of individual decisions: the Mittelstand is the backbone of Germany’s industrial ecosystem, and its erosion threatens the dense network of suppliers, innovators, and specialists that has been the foundation of Germany’s export success for decades.

The long-term consequences of Germany’s energy shock extend beyond individual company decisions. The country’s industrial structure is being reshaped in ways that will persist for decades. Energy-intensive industries — chemicals, steel, aluminium, paper, glass, ceramics — are shrinking, while less energy-intensive sectors such as services, software, and pharmaceuticals are growing. The shift represents a fundamental change in Germany’s economic model, from an industrial economy based on energy-intensive manufacturing to a service-oriented economy that is more resilient to energy price shocks but also less productive, less export-oriented, and less capable of generating the high wages that German workers have historically enjoyed. The transformation is not a cyclical downturn that will reverse when energy prices fall. It is a structural shift that will permanently alter the shape of the German economy.

The European Union has responded to the energy crisis with a combination of emergency measures and long-term initiatives. The REPowerEU plan aims to reduce EU dependence on Russian gas through diversification, energy savings, and renewable energy expansion. The Green Deal Industrial Plan and the Temporary Crisis and Transition Framework for state aid provide a framework for European industrial policy. Germany has used the EU framework to support strategic investments in key sectors. But the European response has been constrained by political divisions, fiscal limits, and the complexity of coordinating industrial policy across 27 member states. The effectiveness of the European response will determine not only Germany’s economic future but the future of the European project as a whole.

Paradoxically, Germany’s labour market remains exceptionally tight, with unemployment below 3 per cent and over 700,000 unfilled vacancies. The combination of industrial decline and labour shortage creates a complex policy challenge. The workers displaced from energy-intensive industries are not easily redeployed to the expanding service sector. The skills required for software development, healthcare, and professional services are different from those of chemical plant operators and steelworkers. The geographical distribution of job opportunities is also mismatched: declining industrial regions in western and southern Germany are not the same as growing service centres in Berlin, Munich, and Hamburg. The structural transformation of Germany’s economy will require not only investment in new industries but significant investment in retraining, regional development, and social support for the workers and communities affected by industrial change.

Germany’s energy transition, or Energiewende, has been held up as a model for the world. But the crisis has exposed tensions within the model. The expansion of renewable energy has been impressive, with renewables now accounting for over 50 per cent of electricity generation. But the build-out has been slower than needed, constrained by permitting delays, grid connection bottlenecks, and supply chain capacity. The nuclear phase-out, completed in 2023, removed 6 gigawatts of low-carbon baseload capacity at precisely the moment when Germany needed to reduce its dependence on fossil fuels. The coal phase-out, scheduled for 2038, is too slow to meet Germany’s climate commitments but too fast to maintain energy security without adequate alternatives. The Energiewende was designed for a world of stable energy markets and cooperative international relations. The world has changed, and the Energiewende must change with it.

Germany’s industrial challenges are occurring in a global context that is also changing rapidly. The United States Inflation Reduction Act offers $369 billion in subsidies for clean energy technologies, with domestic content requirements that favour US manufacturers. China has emerged as the world’s dominant producer of solar panels, batteries, and electric vehicles. Other European countries, including France and Spain, are pursuing their own industrial strategies. Germany cannot assume that its traditional advantages — engineering excellence, export orientation, social partnership — will sustain its competitiveness in a world of subsidies, protectionism, and technological disruption. The country must develop a new competitiveness strategy that recognises the changed global environment and plays to Germany’s genuine strengths while addressing its emerging weaknesses.

The industrial transformation underway in Germany has profound social implications. The regions that benefited most from the old industrial model — Baden-Wurttemberg, Bavaria, North Rhine-Westphalia — are the regions most exposed to the costs of transformation. The workers most affected by industrial change are older, less mobile, and less adaptable than the workforce as a whole. The social safety net, while generous by international standards, is designed for a world of stable employment rather than structural transformation. The political consequences of industrial decline are already visible in the rise of the far-right Alternative for Germany in the country’s industrial heartlands. Managing the social consequences of industrial transformation is as important as managing the economic transformation itself.