Page 19 - RusRPTNov22

gas at $1,500 per 1,000 cubic metres mid-winter and, depending on the weather, it is still not entirely clear if Europe can get to April without a shortage of gas to heat homes and power industry.
The EU has almost been too successful in its efforts to prepare for a possible end to Russian exports of gas to Europe. And indeed that gas flow has indeed largely stopped after a series of explosions destroyed three of the four strands of the two Nord Stream gas pipelines that run under the Baltic Sea on September 26. A reduced flow of gas continues to transverse Ukraine and the TurkStream pipeline continues to operate, although the capacity of that pipeline is far smaller than Nord Stream.
Another problem is that record-high European demand and customers that are willing to pay ten-times the usual market rates have sucked in a large supply of LNG carriers that now find they can’t unload their gas.
An economic slowdown in China has left it with a surplus of Russian LNG that it has been reselling to Europe, accounting for 7% of the total LNG supplies in September.
A crunch in both supply and prices may come soon, as Brussels is currently discussing how to impose a price cap mechanism on European gas imports as part of an eighth sanctions package. Importantly, at a EU ministers meeting in Brussels last week Berlin dropped its objections to a gas price cap, although the details of the mechanism have not been agreed on and will be worked out in the coming weeks.
Silver lining In the meantime, the fall in energy prices is good news for many European countries. It reduces the pressure on budgets and allows governments to pass on smaller price increases to households, thus reducing the size of the political backlash that there would have been if power and heating bills were to decuple in the course of a few months.
There are three key channels through which this fall in gas prices will benefit economies across Central and Eastern Europe (CEE), according to Capital Economics.
“First, it will reduce upward pressure on inflation by limiting the extent to which household and business energy bills rise. Second, it will (therefore) support economic activity by limiting the squeeze on household real incomes and business profitability,” says Nicholas Farr, an emerging Europe economist with Capital Economics. “Third, by reversing some of the deterioration in countries’ terms of trade and reducing how much government support is needed to soften the blow of high prices, it should restrict any further deterioration of external and fiscal positions.” The relief will be largest in the countries with the biggest current account deficits, especially Hungary and Turkey.
“Hungary is one of the most dependent in Europe on gas for its energy needs and Hungarian assets have come under significant pressure this year as energy prices have surged,” says Farr.
Hungary’s central bank has scrambled to prop up the sinking forint with a series of emergency intra-meeting extreme rate hikes in an effort to cap
19 RUSSIA Country Report November 2022 www.intellinews.com