Europe's industrial sector could be on the cusp of a dramatic revival.
New analysis from research and consulting firm Wood Mackenzie suggests that a surge in global supplies of liquefied natural gas(LNG)are set to deliver cumulative savings of US$189bn to European industry through 2032.
That figure represents roughly 1%of the EU's current GDP.
Wood Mackenzie believes that this drop in fuel prices could help to reverse what it calls"a decade of industrial decline"across the continent.
All in,the consultancy forecasts that annual energy costs across all European industrial sectors could fall by US$41bn a year by 2032.
These savings would provide much-needed relief to energy-intensive manufacturers that have been hammered by record prices,supply chain chaos and decarbonisation mandates since 2021.
The context of Europe's industrial sectors
Since 2021,demand for natural gas across Europe's industrial sectors has collapsed by 21%,Wood Mackenzie reports.
High prices during that period led to some massive investments in LNG capacity,particularly in the US and Qatar.Now,it looks as though that supply wave is about to break.
Wood Mackenzie expects European traded gas prices to almost halve by 2030 compared with 2025 levels,as global LNG supply grows faster than demand.
Even after prices recover somewhat,they will still average around US$8 per million British thermal units in the 2030-2035 period,according to the consultancy's analysis.
"Market dynamics from global LNG supply are creating a window for European industrial recovery that policy intervention has struggled to deliver,"says Massimo Di Odoardo,Wood Mackenzie's VP for Gas and LNG Research.
"For sectors like petrochemicals and metals that have operated under severe cost pressure,this price reversal window could determine whether they manage decline or achieve recovery."
The impact on the US economy
The irony of these forecasts is that the US's LNG export boom could in fact come at a cost to American consumers.
According to Wood Mackenzie,growth in the supplies of LNG and the growth of the American data centre sector will boost US domestic gas demand by almost 40%over the next decade.
That will lift gas prices to an average of US$4.9 per million British thermal units in 2030-2035–that is nearly 50%higher than 2025 levels.
Meanwhile,Wood Mackenzie believes that European industrial users will see their competitive disadvantage against American rivals narrow considerably.
The gap with China,where prices are expected to remain relatively flat,will also shrink.
The winners and losers of the LNG surge
That said,not all European industries stand to benefit equally from the increased production of LNG.
Industries including iron and steel production,along with chemicals,could simply hold their ground in European markets rather than recovering lost ground.
On the other hand,Wood Mackenzie believes that the pharmaceuticals and food processing sectors will better positioned to increase production and capture greater international market shares.
Lower energy costs could also help to expedite investment in data centres,where Europe trails both the US and China despite Brussels'stated ambition to triple its computing capacity by 2035.
Can Europe balance industry and sustainability?
Despite this,Wood Mackenzie suggests that cheaper gas alone will not restore European industrial competitiveness on the world stage.
Massimo warns that the EU's decarbonisation agenda remains the single most important obstacle to industrial revival,though it is unlikely that the bloc will want to compromise the progress it is making on the energy transition.
"The outcome will depend on whether the EU can find a better balance between its goals to reduce carbon emissions and the imperative to boost European industrial competitiveness,"Massimo argues.
Carbon prices in the EU Emissions Trading Scheme already exceed US$84 per tonne and continue rising.
Energy-intensive sectors face mounting pressure to invest in hydrogen,biomethane or carbon capture as free carbon allowances phase out.
The Carbon Border Adjustment Mechanism,which is set to take effect in this year,will impose matching carbon costs on imports but is unlikely to fully shield domestic industries from higher overall costs.
Wood Mackenzie's analysis suggests that lower energy prices alone will not revive European manufacturing.
Heavy regulation,high labour costs and the pace of decarbonisation efforts remain formidable obstacles.
Pro-industry policies,deregulation and more sympathetic taxation will be necessary if energy-intensive industries are to navigate the transition successfully.
