"If they are too big to fail, make them smaller." - George P. Shultz
Ludwigshafen am Rhein is a small city on the banks of the Rhine River in Germany. Founded in 1844 by the Bavarian King Ludwig I and sitting opposite the river to the better-known city of Mannheim, its name literally translates to “Ludwig’s port on the Rhine.” While many readers may not have heard of Ludwigshafen, it is a critically important industrial city. The chemical giant BASF SE is headquartered there, and BASF doesn’t do anything on the small.
Take the company’s corporate restaurant. Formally called BASF Gesellschaftshaus but known colloquially to its many English-speaking business visitors as the BASF Casino, the restaurant’s 100-plus rooms and six venues parade corporate excess. Built in 1900 and heavily renovated to mark its centennial anniversary in 2000, the Casino’s luxurious décor, countless staff, fine cuisine, and sheer size harken back to the days when such monuments to corporate power were considered critical investments in company morale. Dining at the Casino, one can’t help but feel that it all makes sense.
And then there is the company’s wine cellar, a four-story structure constructed a year after the Casino which allegedly holds approximately one million bottles of wine. Why a publicly traded chemical company located in an otherwise sleepy industrial town of fewer than 200,000 residents needs such a collection is a question many on Wall Street might ponder, but to the leaders of BASF such inquiries would surely be nonsensical. The wine cellar exists because it exists, and the thought of it not existing is absurd. Some things simply don’t belong in a spreadsheet.
Haute cuisine and corporate oenophiles aside, Ludwigshafen is most relevant to today’s discourse because it is home to the largest integrated chemical complex in the world. Mere blocks away from the Casino lies the fence line delineating this staggering display of technical complexity and raw industrial might. With approximately 2,000 buildings and 200 production plants, BASF’s Ludwigshafen site is home to roughly a third of the company’s total global production. All told, nearly 20 billion pounds of stuff is made there every year, and that stuff serves as the starting material for countless global supply chains.
Last week, the Wall Street Journal published an important story about how sanctions on Russia – however justified the motivation to impose them might be – are beginning to backfire in ways Western leaders seem to have been unable to calculate in advance:
“For years, BASF SE, one of the world’s largest chemicals companies, built its business model around cheap and plentiful Russian natural gas, which it uses to generate power and as feedstock for products that make it into toothpaste, medicines and cars.
Today, dwindling Russian gas supplies are proving a threat to the company’s vast manufacturing hub here—the world’s largest integrated chemical complex spanning some 200 plants. Earlier this month, Russia started throttling back its supply of gas to Germany and other European countries. In response, company executives are doing what was unthinkable just a few months ago: considering how to potentially shut down the complex if gas supplies fall further.”
Last year, we wrote a piece called Where Stuff Comes From that explained the critical and irreplaceable role of carbon-based feedstocks in society. In a related piece published a month ago titled Crazy Pills, we argued that the world simply cannot live without Russia’s oil and gas. In Ludwigshafen, we are beginning to see the convergence of those two conclusions. Why did the chemical industry evolve in a way that concentrates so much activity in so-called “Verbund” sites like Ludwigshafen and what would be the impact of this site’s closure? Let’s dig in.