by Institute of Energy Economics at the University of Cologne (3 September 2014)
This recent study analyses how an embargo on Russian gas exports would affect the security of gas supply in Europe. Having in mind that in 2013 Russian gas made up more than 30% of Europe’s annual gas demand, Russian gas exports are crucial for European security. The analysis is conducted on a country level with a special focus on Germany, but this study is particularly interesting for Central European countries. They are especially dependent on Russian gas (e.g., Lithuania imports 100% of gas from Russia, Hungary – 90%, Poland – 60%, etc.), therefore, any halt in gas supply in these countries would put them on a challenging course to find substitutes.
The study is based on a TIGER computer simulation and includes such factors as European pipelines system, gas storage facilities and LNG infrastructure utilization. Different durations of gas embargo on Russia are simulated, i.e., from 1 to 9 months, also different availability of LNG on global gas markets is included in the model, as well as different usage of gas storages. The main assumptions of the simulation model are presented in the second part of the report. The third section specifies a scenario in the period between 1 November 2014 and 31 October 2015.
The fourth section concludes that in case of an embargo, gas supply would be secured in almost all of the European countries during a 3 month period, except for Poland, Turkey and Finland. However, a 6 month ban would cause shortfalls in Germany and many countries in Eastern Europe ‒ Poland, Czech Republic, Slovenia, Croatia, Moldova, etc. Whereas a 9 month embargo would additionally severely affect gas supplies in Germany, Italy and France.
The study also asks if LNG could fully compensate for Russian gas. It is argued that purchasing greater volumes of LNG from international markets increases security of gas supply. Despite that, increasing LNG imports do not help to prevent supply shortfalls in Poland or Turkey because of limited infrastructure. The role of gas storages is also important as they help to secure gas supplies, particularly in a case of a short embargo.
Another task of the study is to evaluate, how much revenues Gazprom would lose in case of gas embargo to Europe. The conclusion was that for each month of gas cut off, Gazprom would lose 4 to 4.5 billion EUR of revenues which equals 3.5% of the company’s annual revenues. Therefore, it would significantly affect Gazprom’s profitability.