From JPMorgan Asset Management, September 9:
Soaring gas prices have sent electricity prices skyrocketing, yet fiscal intervention will prevent households and corporates from bearing the full brunt of energy costs.
The energy crisis facing Europe is intensifying as winter approaches. The region’s dependency on gas flows from Russia has created substantial economic vulnerabilities, and prospects of supply disruptions are now looming large. In this piece we aim to provide a framework for understanding the implications of an energy-driven shock, including:
Country sensitivity to supply disruption
Options for diversifying supply and reducing demand
The potential response from policymakers, both fiscal and monetary
The implications for corporate earnings
Gauging vulnerabilities
Three key metrics are crucial to understanding the gas-related risks facing European countries: reliance on Russian imports, share of gas in the energy mix and storage capacity. The European Union (EU) imported just under 40% of its natural gas from Russia prior to the invasion of Ukraine although this figure varies widely by country (Exhibit 1): Germany was the largest importer of Russian gas by volume last year, while liquid natural gas (LNG) terminals in Belgium and Spain help to reduce their Russian dependency. But the share of gas in a country’s energy mix can have a significant impact on risk; for example, over 90% of Finland’s gas imports historically originate in Russia, but gas is under 10% of the energy mix, vastly reducing Finland’s vulnerability. Lastly, while EU member states have made good progress stockpiling supply over the summer, storage capacity could be a limiting factor if it does not provide a meaningful proportion of annual consumption....
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