The international rating company S&P Global published a report entitled “Europe prepares for a gloomy winter”, which examines the effect of the complete disconnection of the European economy from the Russian gas pipeline. This after Russia completely stopped the flow of gas to Europe through the Nord Stream 1 pipeline at short notice due to “maintenance”.
■ A continent in crisis: soaring energy prices spark mass protests in Europe
■ The German fear has come true: Gazprom is completely stopping the supply of gas to Europe
■ The European energy crisis is here: factories in Germany stop production because of the surge in prices
The rating company believes that the ability to replace Russian gas with gas imports from other sources is limited, therefore this will limit the supply and gas prices in Europe will continue to rise significantly. Furthermore, a certain substitutability between fuels will also lead to a certain increase in global oil prices.
In S&P’s negative scenario, which includes a complete cutoff of gas supplies from Russia and the imposition of rationing by the European Union, Germany will enter recession. In Germany, natural gas provides 26% of energy requirements, including about 15% of electricity production, and the share of Russian gas reached almost 60% in 2020. The impact on consumer spending is expected to be particularly significant due to the high inflation as a result of a special levy on all gas contracts that will come into effect on October 1. The rating company also estimates that growth in the Eurozone will weaken by 1.4%.
Since the previous forecast provided by the rating company at the end of June, gas prices have risen even more and with them the inflation forecasts. S&P writes that EU countries are in a race against time to reduce gas consumption by 15% to protect households and the business sector from power outages and rationing this coming winter. “Even without a shock to energy supply, European governments have to choose between protecting households and businesses from exorbitant gas and electricity prices or passing the cost on to consumers at the price of higher inflation,” write S&P.