Germany’s chemical industry is a cornerstone of the economy, ranking behind only automotive and mechanical engineering. It generates hundreds of billions in revenue and directly employs roughly half a million people. Yet the sector has been under severe pressure in recent years from sharply higher energy costs, rising regulation, a weak domestic economy and stronger global competition.
Chemical manufacturing consumes large quantities of energy — not just electricity but also heat, steam and pressure — so spikes in energy prices quickly erode competitiveness and margins. Since Russia’s full-scale invasion of Ukraine in 2022 and the loss of cheap Russian gas, German firms have often faced some of the highest energy bills in the world. Tensions in the Middle East this year, including the US‑Israel conflict with Iran, have added further volatility, disrupting supply chains and triggering new price surges for gas and raw materials.
“Energy prices, especially natural gas prices, have doubled since the war in Ukraine started,” said Christof Günther, managing director of InfraLeuna, which runs Germany’s largest integrated chemical site. “They have just doubled again temporarily due to the war in Iran. So we are dealing with extremely high energy costs.”
The industry’s output and revenues have declined sharply. The German chemical association VCI reports overall sales fell by about 22% since 2022 to €220 billion in 2025 and warns production will likely stagnate or decline further this year. The group stresses that lowering natural gas costs is essential: gas is both an energy source and a feedstock for many chemical processes and cannot be replaced overnight. Alternatives such as biomethane can help, but supply remains limited and still in early ramp-up stages.
Experts say firms have already taken many of the available steps to adapt — investing in energy efficiency, recycling and other measures — so the burden of restoring competitiveness now falls largely on policymakers. Anna Wolf of the ifo Institute argues that Germany needs energy available in sufficient volumes, at internationally competitive prices, and reliable infrastructure to match the long investment horizons of chemical producers. Without affordable, dependable energy and the networks to deliver it, she says, regulatory, trade or innovation measures alone will not be enough.
A prolonged economic slowdown in Germany and weak growth across Europe have also softened demand for chemical products. Martin Gornig from the German Institute for Economic Research (DIW Berlin) notes that if domestic demand in Europe recovers, the outlook for the sector would improve.
The difficult conditions have already pushed companies to delay or cancel investments, reduce production and shed staff. Major firms such as BASF have cut costs in Germany while boosting capacity and investment overseas, particularly in Asia, and have shifted some back-office roles abroad. Industry-wide, more than 13,000 jobs have been lost since 2022.
A complete relocation of core chemical production away from Germany is unlikely because of complex industrial linkages and supply chains. However, if the operating environment does not improve, companies are likely to expand capacity elsewhere — a trend that risks eroding Europe’s security of supply for strategically important chemicals.
To support the sector, the German government has proposed measures including electricity subsidies for energy-intensive industries and reforms to the EU’s carbon pricing system to better protect industrial competitiveness while pursuing climate targets. The VCI welcomes these steps but calls for broader action: tax incentives, guaranteed long-term gas deliveries, accelerated permitting, reduced regulatory burdens and greater use of biomethane.
Industry leaders and economists argue that isolated interventions are insufficient. The sector needs predictable, internationally competitive framework conditions and coordinated policy that addresses energy cost, supply security and regulatory hurdles together if Germany is to retain its chemical base and restore competitiveness.