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April 23 (The following statement was released by the rating agency)
A ban on Russian gas imports to the EU would cause
substantial disruption to Europe's economy and industry, Fitch Ratings says. In
the immediate aftermath, the region would suffer from gas shortages and high
prices due to its limited ability to reduce demand, source alternative supplies
and transport gas to the most affected countries. A surge in gas prices after a
ban would probably also have knock-on effects on electricity, coal and oil
prices. Industry would bear the brunt of supply shortages as household demand
would be given priority.
A lengthy ban on Russian gas is a low-probability, but high-impact scenario.
Russia supplies around 27% of Europe's gas and, given the high cost a ban would
impose on all sides, we believe it would take a severe deterioration in the
Ukraine crisis for it to happen. A temporary disruption just affecting gas
supplies via Ukraine is a more likely scenario, for which Europe is better
prepared due to high reserves and the recent opening of a new pipeline from
Russia to Germany.
In the event of a lengthy ban imposed by either Europe or Russia, gas-intensive
sectors such as steel and chemicals would be most affected. This would
accelerate the closure or mothballing of capacity that is suffering from low
profitability due to competition from low-cost energy jurisdictions such as the
US or Middle East. In particular, issuers without geographic and product
diversification would be most at risk of adverse rating action.
In 2013 Russia supplied 145bcm of gas to Europe, which would have great
difficulty in sourcing alternative supplies. Increased European gas production
and North African piped gas could offset a small proportion of this. Tapping
into the global LNG market would yield limited volumes as Europe's Russian gas
demand equates to nearly half of the world's LNG production, which is already
mostly tied to long-term supply contracts. Hence, gas and other energy prices
In theory, Europe has plenty of unused LNG regasification capacity, which could
help replace some Russian supplies. But the majority of plants are located in
Southern Europe and the UK, far away from the Central and Eastern European
countries that are most reliant on Russian gas. The European gas networks suffer
from bottlenecks, which limit the ability to transport gas across borders.
Demand reduction initiatives would only be of limited benefit. Japan was able to
reduce power demand by 4.7% following the Fukushima disaster, but this was
partly weather-related and achieving that level of reduction across 28 countries
with their own agendas and exposures would be far harder.
For more details on the impact that a ban on Russian gas would have on Europe,
please see the report "Living Without Russian Gas - Replacing Russian Gas in the
Short-term" published today and available from www. fitchratings.com. The report
is the first in a series that will examine the potential impact on European
utilities and how Europe could reduce its energy reliance on Russia in the
Link to Fitch Ratings' Report: Living Without Russian Gas - Part 1: Replacing
Russian Supplies in the Short Term