Filenews 28 April 2022
The complete interruption of the supply of Russian natural gas to Europe would have an impact of around 3% for Germany, while for the average European economy 0.3% and for Cyprus around 0.5-1%, Professor of Macroeconomics at the University of Cyprus Marios Zachariadis told CNA, who estimates that the consequences of a complete cut-off of Russian natural gas to Europe would be much worse for the Russian economy, rather than for the European one.
As he noted, "it would be painful, but it would not be disastrous for Europe if there were a complete shutdown of Russian gas." On the contrary, he noted, this would have far greater implications for Russia. Mr. Zachariadis mentioned that one reason that Russia is in a position to be able to cut off the supply of natural gas to individual countries today, is that during the last two months there have been continuous foreign exchange flows to Russia from Europe. If they did not exist, it would be more difficult for Russia to have aggressive economic policies or even continue the war, he noted.
Mr. Zachariadis stressed that according to studies, it has been estimated that if the EU imposed a 40% tariff on Russian natural gas, this would limit its use in Europe by 80%, with the result that the economic impact on the European economy would be up to four times less, rather than if there were a complete cut-off. On the contrary, the consequences would be much more disastrous for Russia in this case too, due to the reduction in the inflow of foreign exchange, while the possibilities for Russia to proceed with an absolute cut-off of gas flows to Europe would also be reduced.
In addition, Mr. Zachariadis noted that the continuation of the war will have a greater economic cost for Europe, than if Europe took tougher measures more immediately, for example by imposing tariffs on imports of Russian natural gas, to limit foreign exchange to Russia.
He noted that even in the event of a complete cut-off of Russian gas, economists do not calculate zero substitution. "The economy is adjusting", he said, as there are options, such as reducing demand from those who do not need it, importing energy from different countries, or importing goods that would be produced at energy costs within the EU. There will be a cost, he said, but according to many studies, this does not seem to be, at worst, more than 3% for Germany and for the average European economy around 0.3%.
Bulgaria is the country most vulnerable to such a gas shutdown, he noted, so its economy will have a serious impact from it. "But it is a small economy that will not affect Europe to a great extent," he said, while what creates a bigger problem is the uncertainty that Russia may cut off gas in other countries as well.
DBRS Morningstar says in today's publication that a complete replacement of natural gas would be impossible immediately and with an impact on eurozone GDP. "In the event of a disruption of Russian gas, the complete replacement of other sources of supply would not be possible in a short period of time. In such a situation, assuming that Eurozone GDP will fall by another 2.51 percentage points in addition to the imf's latest forecast, GDP growth could be just 0.3% instead of 2.8% in 2022," he says.
The Dean of the Faculty of Engineering and Technology of the CUT, Professor Sotiris Kalogirou, spoke to the CNA about the possibility of the complete replacement of Russian natural gas with other energy sources, who believes that Europe does not have an immediately applicable alternative in case of cut-off of Russian natural gas.
As he noted while speaking to CNA, the alternative is either RES or the import of liquefied natural gas from the US. Both solutions, however, seem to require long-term planning and infrastructure and are not immediately feasible to replace Russian gas in Europe.
Specifically, Mr. Kalogirou said that the solution of liquefied gas does not seem to be immediately feasible, as there must be infrastructure for its dehydration, while solutions are needed for its transportation. These take several months to materialize, not a solution that can yield results before 2 years, he said. In addition, this solution is much more expensive, as it concerns the export of shale gas, he noted, while the investments and transportation costs that will be needed are much greater.
On the other hand, the solution of Renewable Energy Sources also needs long-term planning and preparation, as well as solving their technical problems, as the production of all RES is intermittent (affected by sunshine, weather conditions, etc.). "While there is the EU's policy of zero carbon emissions by 2050, renewables are not a solution that can deliver results immediately," he said, adding that in addition, there is the issue of energy storage, so as not to upset the grid to the point that a black-out is created by the sharp fluctuation in energy demand.
