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© 2022 International Monetary Fund
WP/22/145
IMF Working Paper
European and Research Departments
Natural Gas in Europe: The Potential Impact of Disruptions to Supply
Prepared by Gabriel Di Bella, Mark Flanagan, Karim Foda, Svitlana Maslova, Alex Pienkowski, Martin
Stuermer and Frederik Toscani*
Authorized for distribution by Laura Papi and Petya Koeva Brooks
July 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: This paper analyzes the implications of disruptions in Russian gas for Europe’s balances and economic output. Alternative sources could replace up to 70 percent of Russian gas, allowing Europe to avoid shortages during a temporary disruption of around 6 months. However, a longer full shut-off of Russian gas to the whole of Europe would likely interact with infrastructure bottlenecks to produce very high prices and significant shortages in some countries, with parts of Central and Eastern Europe most vulnerable. With natural gas an important input in production, the capacity of the economy would shrink. Our findings suggest that in the short term, the most vulnerable countries in Central and Eastern Europe — Hungary, Slovak Republic and Czechia — face a risk of shortages of as much as 40 percent of gas consumption and of gross domestic product shrinking by up to 6 percent. The effects on Austria, Germany and Italy would also be significant, but would depend on the exact nature of remaining bottlenecks at the time of the shutoff and consequently the ability of the market to adjust. Many other countries are unlikely to face such constraints and the impact on GDP would be moderate—possibly under 1 percent. Immediate policy priorities center on actions to mitigate impacts, including to eliminate constraints to a more integrated gas market via easing infrastructure bottlenecks, to accelerate efforts in defining and agreeing solidarity contributions, and to promote stronger pricing pass through and other measures to generate greater energy savings. National responses and RePowerEU contains many important measures to help address these challenges, but immediate coordinated action is called for, with specific opportunities in each of these areas.
| JEL Classification Numbers: | E23, F51, L71, L95, Q02, Q41 |
| Keywords: | Energy supply; natural gas; production output |
| Author’s E-Mail Address: | GDiBella@imf.org; MFlanagan@imf.org; KFoda@imf.org; SMaslova@imf.org; APienkowski@imf.org; MStuermer@imf.org; FToscani@imf.org |
| JEL Classification Numbers: | E23, F51, L71, L95, Q02, Q41 |
| Keywords: | Energy supply; natural gas; production output |
| Author’s E-Mail Address: | GDiBella@imf.org; MFlanagan@imf.org; KFoda@imf.org; SMaslova@imf.org; APienkowski@imf.org; MStuermer@imf.org; FToscani@imf.org |
Title Page
WORKING PAPERS
Natural Gas in Europe
The Potential Impact of Disruptions to Supply
Gabriel Di Bella, Mark Flanagan, Karim Foda, Svitlana Maslova, Alex Pienkowski, Martin Stuermer and Frederik Toscani
Contents
Glossary
Executive Summary
I. Introduction
II. Background
III. Short-Term Adjustment to a Potential Gas Supply Shock
IV. Scenarios and Likely Adaptation
V. Economic Impact of a Prolonged Shut-Off
VI. Policy Discussion
BOXES
1. Short-Term Contracts in the LNG Market
2. Examples of Industrial Demand Compression
3. Stylized Counter-Factual with No Disruption to Russia Gas Supply
FIGURE
1. Sources of Energy in Europe
TABLES
1. EU Gas Import Capacity and, Supply by Source 2021
2. Russian Gas Replaced Over 12-Months
3. Gas Flows in Adverse Scenario
4. Key Features of the Models
5 Output Losses Associated with a Russian Supply Shut-Off: 12-month Ahead
6. Summary of Studies on the Output Effects of a Russian Gas or Energy Shut-Off
APPENDIX
I
II
III
IV
References
The authors would like to thank John Bluedorn, Jorg Decressin, Oya Celasun, Alfredo Cuevas, Ting Lan, Laura Papi, Andrea Pescatori, Agustin Roitman, Galen Sher and Jing Zhou for their helpful comments. We are also grateful for excellent research assistance by Rachel Brasier, Chun Jin, Sabiha Mohona, Ben Park, Wei Zhao and Zeju Zhu.