BAKU, Azerbaijan, Sept.8. It’s quite conceivable that Russia will cut its remaining gas exports to Europe, especially if the EU caps the price of gas imported from Russia, Trend reports with reference to Capital Economics, UK-based research and consulting company.
“Following the decision by Gazprom to keep the Nord Stream 1 pipeline shut indefinitely, Russia’s natural gas exports to Europe by pipeline are down by 90 percent y/y. But in contrast to its pipeline exports, Russia has slightly increased its LNG exports to Europe, presumably because its market power over Europe rests more on its exports of gas through pipelines rather than globally-traded LNG. The key to not running EU gas stocks too low this winter will be less demand and more LNG imports. Starting with demand, Europe is already scaling back usage. Germany’s gas demand fell by 25 percent y/y in August and is on track to fall further in September. Gas use by both the local distribution zone (LDZ), which mostly serves households, and by industry and power companies has fallen,” reads the report released by Capital Economics.
The report reveals that one factor that will have a huge bearing on demand this winter is the weather.
“To incorporate the uncertainty around the weather (and other circumstances), we modelled alternative scenarios for the European gas market. Our base case forecasts are premised on a mild winter, in line with the latest European Centre for Medium-Range Weather Forecasts projections and historical trends. We also modelled a scenario under which Russia’s last remaining exports to Europe through Ukraine and Turkey are halted and the upcoming winter is colder than last year’s. EU gas stocks would fall much faster under this scenario and would rebuild much more slowly next year. If on top of this there was less-than-expected demand destruction, stocks would fall further and remain very low,” said Capital Economics.