Abstract
The war in Ukraine has focused attention on energy security, including prices and supplies of oil and gas from Russia to Europe. This paper analyzes the natural gas sector in Switzerland, focusing on imports and consumption patterns. Comparisons with developments in EU countries find similarities; however, limited gas storage capacity in Switzerland appears to be associated with higher seasonality of imported volumes. Scenario analysis of the impact in interruption of gas supplies from Russia suggests prospects for demand-supply mismatches and risks to energy security, particularly over the winter season. A range of near- and medium-term policies could be considered to reduce these risks and boost energy security. The authorities have started to employ some of the policies; additional measures may be needed to ensure sufficient supplies for the 2022–23 heating season.
Natural Gas in Switzerland: Consumption, Imports, and Risks1
The war in Ukraine has focused attention on energy security, including prices and supplies of oil and gas from Russia to Europe. This paper analyzes the natural gas sector in Switzerland, focusing on imports and consumption patterns. Comparisons with developments in EU countries find similarities; however, limited gas storage capacity in Switzerland appears to be associated with higher seasonality of imported volumes. Scenario analysis of the impact in interruption of gas supplies from Russia suggests prospects for demand-supply mismatches and risks to energy security, particularly over the winter season. A range of near- and medium-term policies could be considered to reduce these risks and boost energy security. The authorities have started to employ some of the policies; additional measures may be needed to ensure sufficient supplies for the 2022–23 heating season.
A. Motivation
1. The war in Ukraine has led to emergence of risks for energy imports from Russia. Since the start of the war, energy prices in Europe have surged (Figure 1). Concerns are mostly focused on natural gas imports, as it would be more challenging to adjust to disruptions of gas supplies than oil or other products. While other hydrocarbons are imported at least partly by sea, rail, and road links, natural gas is predominantly transmitted via pipelines to and across Europe, many of which run from Russia. Other supply sources (liquified natural gas, North Africa, Norway) face technical constraints (terminal and pipeline capacity). This limits the ability to replace Russian gas imports in the short term. A recent decision of by Russia’s Gazprom to stop gas supplies to Bulgaria and Poland has heightened concern.
Switzerland: Energy Prices
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Sources: Bloomberg; and IMF staff calculations.2. Switzerland shares risks of gas supplies with the rest of Europe as its gas transmission system is heavily linked to the continent’s gas networks. As Switzerland is a land-locked country, it does not have a direct access to LNG flows and relies on the transmission of gas through pipelines. The main gas inflows to Switzerland come from a pipeline connecting Germany and Italy. Usually, natural gas flows from north to south, although the pipeline can operate in the opposite direction. Switzerland has other cross-border connection points with Germany, Italy, and France. Limited amounts of natural gas are held in storage by Swiss gas importers. This distinguishes natural gas from other energy products (e.g., petrol, diesel, and heating oil), for which stockpiles are required to meet average Swiss demand for several months.
3. This paper analyzes the impact of a possible interruption of Russian gas imports on Switzerland’s energy balance and provides policy recommendations. Section B considers developments in the natural gas sector in Switzerland, comparing these to developments in the EU. Section C presents a scenario analysis of the impact of a halt in Russian gas imports. Section D concludes and provides policy recommendation, with a discussion of measures being implemented by the Swiss authorities.
B. Natural Gas Reliance in Switzerland and the European Union
4. About a half of energy consumed in Switzerland comes from hydrocarbons. Switzerland’s reliance on coal, natural gas, oil, and petroleum products declined from about 60 percent of gross energy consumption in 1990 to 48 percent in 2020 (Figure 2). Trends across different types of hydrocarbons varied during the period. Shares of coal and oil and petroleum products, respectively, in gross energy consumption declined from 1.5 and 52.3 percent in 1990 to 0.4 and 35.2 percent, while the share of natural gas increased from 6.7 to 11.9 percent in the period. The developments are quite similar to those in the European Union (EU), where the share of hydrocarbons also trended down. That said, the share of hydrocarbons in gross available energy is higher in the EU.
Switzerland: Gross Energy Consumption
(Percent shares)
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Sources: Bundesamt für Energie BFE, Schweizerische Gesamtenergiestatistik 2020; and IMF staff calculations.5. Natural gas is mostly used for heating and cooling in Switzerland. The share of natural gas in energy consumption for heating and cooling has increased over time, reaching almost 29 percent in 2020 (Figure 3). Gas became the key energy source for this purpose, exceeding the share of heating oil. Unlike for heating and cooling, natural gas does not play an important role in electricity generation. Fossil-fuel thermal energy sources contributed just 4 percent to electricity production in Switzerland, which was largely generated by nuclear and hydro power plants.
Switzerland: Energy Usage for Heating and Electricity
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Sources: Bundesamt für Energie BFE, Schweizerische Gesamtenergiestatistik 2020; Office fédéral de l’énergie OFEN, Analyse de la consommation énergétique suisse 2000–2020 en fonction de l’application; and IMF staff calculations.6. Reliance on natural gas for electricity and heating in Switzerland is relatively less than in the EU. The shares of natural gas in electricity production and gross heat production were 20 and 37 percent, respectively, in the EU in 2020 (Figure 4). That said, reliance on natural gas varies significantly across countries in Europe and among Switzerland’s neighbors.
Heat Production in Switzerland and the EU
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Sources: Office fédéral de l’énergie OFEN, Analyse de la consommation énergétique suisse 2000–2020 en fonction de l’application; Eurostat; and IMF staff calculations.7. About ¾ of natural gas was used by households and industry in 2019 (Figure 5). Households mostly used natural gas for heating. Among other sectors of the economy about a third of natural gas was used by manufacturing2, while public administration and real estate activities, professional, and scientific, technical and administrative activities consumed about 5 percent each.
Switzerland: Natural Gas Usage
(Percent, 2020)
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Source: Bundesamt für Energie BFE, Schweizerische Gesamtenergiestatistik 2020; Office fédéral de l’énergie OFEN, Analyse de la consommation énergétique suisse 2000–2020 en fonction de I’application; Verband der Schweizerischen Gasindustrie Statistik 2021; and IMF staff calculations.8. Consumption and imports of natural gas in Switzerland vary significantly across seasons. As much of natural gas is used for home heating, consumption is higher during the winter months (October-April) and low during summer (May-September) (Figure 6). Natural gas consumption in the EU countries also has seasonal patterns; however, imports of natural gas across the EU are less volatile due to use of gas storage facilities for smoothing. During warmer months, natural gas imports are accumulated in storage facilities to be withdrawn to supplement imports during months of high consumption. As an importer of gas from EU countries, Switzerland benefits from and contracts for space in storage facilities in neighboring countries, notably in France, but does not maintain sizable supplies domestically. Storage arrangements in EU countries may give priority to EU consumers during period of tight supply.
Monthly Natural Gas Imports
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Sources: Verband der Schweizerischen Gasindustrie; Eurostat; and IMF staff calculations.9. Russia is the largest natural gas importer for both Switzerland and the EU. However, dependence on Russian imports is somewhat larger in Switzerland: slightly more than a half of total gas imported to Switzerland originated in Russia in 2019; for the EU, this share was 41 percent. The share of gas originated in Russia in total imports to Switzerland declined in 2020 to 43 percent. Other important gas importers for Switzerland are Norway and the EU countries (transshipment). Most of imported gas is bought at a spot market.
Imports of Natural Gas
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Sources: Verband der Schweizerischen Gasindustrie; Eurostat; and IMF staff calculations.C. Analyzing an Impact of a Stop in Russian Gas Imports
10. Scenario analysis is used to model impacts of an interruption in natural gas imports from Russia. A baseline scenario is developed from historical trends, assuming no changes to import flows from Russia. Switzerland’s annual gas imports averaged about 36.6 TWh during 2017–2020. About 80 percent of gas imports occurred in the winter season. As gas consumption depends on weather conditions, some volatility in gas demand over the winter season is possible. It is assumed that half of the imported gas comes from Russia—broadly similar to the import composition in 2019–2020. The baseline assumptions imply imports of 3.5 and 14.8 TWh of natural gas from Russia in summer and winter seasons, respectively (Figure 8).
Switzerland: Baseline
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Sources: Verband der Schweizerischen Gasindustrie; Bundesamt für Energie BFE, Schweizerische Gesamtenergiestatistik 2020; and IMF staff calculations.11. The scenario for interruption of natural gas imports assumes no flows from Russia. This means that Switzerland would face a supply gap of 18.3 TWh of natural gas; for the scenario, imports from other countries are kept unchanged. To compensate for the shortfall of natural gas supplies, companies could switch fuel from natural gas to other fuels like diesel oil (e.g., in dual-fuel plants). It is assumed that fuel switching would be able to compensate for about 20 percent of the gas consumption (Figure 9). This leaves a gap of 2.1 and 8.9 TWh in the summer and winter months, respectively. Reductions in demand would help reduce the gap, but the magnitude of the shock suggests that shortages/rationing may emerge if additional supplies of natural gas are not secured.
Switzerland: Scenario of No Russian Gas Imports
Citation: IMF Staff Country Reports 2022, 172; 10.5089/9798400212994.002.A003
Sources: Verband der Schweizerischen Gasindustrie; Bundesamt für Energie BFE, Schweizerische Gesamtenergiestatistik 2020; and IMF staff calculations12. The scenario suggests potential vulnerabilities to energy security in Switzerland if the risk of interruptions in imports materializes. Large mismatches between demand and supply of gas may emerge, particularly during the winter season. Dual-fuel plants may help in industry, but less so for households. The timing of the interruption in imports would be important for the impact on the economy and population. In addition, the scenario analysis also has a strict assumption of no substitution from alternative suppliers. If Switzerland secures gas imports from other countries, this would help to reduce supply-demand mismatches; although it seems likely that if Swiss supplies from Russia are cut, so would natural gas supplies to neighboring EU countries, who would be similarly scrambling to identify new suppliers. Demand reduction would help, to an extent, but major manufacturers may be affected, and households may not be able to adjust to a full cut-off.
D. Policy Implications
13. The Swiss authorities are implementing policies to address risks of gas supply interruptions in the near term. In order to ensure sufficient gas supplies for the 2022/23 winter season, the authorities have created conditions for gas companies to jointly procure additional gas imports and LNG terminal and storage capacities. In late May 2022, the Federal Council required to book gas storage capacity for around 6 TWh (15 percent of the Switzerland’s annual consumption), about a half of which has already been booked in France. In addition, 6TWh of natural gas that can be accessible at a short notice for a fixed fee will be purchased in France, Germany, Italy, and the Netherlands. Separately, Switzerland, together with Austria, Belgium, France, Germany, Luxembourg, and the Netherlands, has signed a political declaration to coordinate gas storage on a regional level (Pentalateral Energy Forum).
14. Additional measures underway to boost energy security may help to reduce gas-supply-related risks. The authorities have asked key companies to prepare risk-management plans in case of electricity-supply shortages. Incentives for house refurbishments are being implemented that could lead to a reduction in energy consumption, but will take time (and there may be shortages/bottlenecks for equipment like heat pumps or solar panels). Streamlining procedures for renewable energy projects would help tilt Switzerland’s energy mix further towards green energy, although bringing these projects on line would take even longer. Measures adopted at the federal level are supplemented by initiatives at lower levels.3
15. To strengthen energy security, the authorities could implement additional immediate and medium-term policies:
Immediate measures should target crisis preparedness and preparation for the next winter season. They could include developing and updating contingency plans for the sector and large consumers; high-frequency monitoring of natural gas supplies, distribution, and consumption; securing alternative gas supplies, and increasing use of other fuels where feasible. Near term, demand-management efforts could be considered, initially voluntary, but possibly price- or incentive-based or through use of smart meters. It could be also beneficial to consider solidarity agreements with neighboring countries—similar to the agreements between some EU countries, recognizing that EU neighbors are likely to be facing the same obstacles and demands. Separately, temporary and targeted measures to support parts of the economy most vulnerable to interruptions in gas supplies could be considered.
Over the medium term, the focus should remain on progressing with green energy transition by increasing contribution from renewable energy sources and improving energy efficiency.
References
Federal Council (2022). Ordinance on Ensuring Deliveries in Case of a Severe Shortage of Natural Gas Supplies.
Federal Council (2017). Energy Strategy 2050.
IMF (2022). Regional Economic Outlook for Europe, April 2022.
Prepared by Svitlana Maslova (EUR). The author thanks Mark Horton and the Swiss authorities for helpful comments, including during a seminar presentation in Bern in April 2022.
Globally, the chemical, paper, and primary metal industries are among the largest natural gas consumers in manufacturing (see, for example, the 2018 Manufacturing Energy Consumption Survey, U.S. Energy Information Administration). The chemical and metal industries are important in Switzerland.
E.g., the Zurich municipal utility company is gradually shutting down parts of natural gas transmission system in a bid to switch to distance heating.
