20220718-IMF-Market_Size_and_Supply_Disruptions_Sharing_the_Pain_of_a_Potential_Russian_Gas_Shut-off_to_the_European_Union_38页_1mb

Summary

Russian gas imports are crucial for the European Union.

A sudden halt would drastically increase energy prices and disrupt economic activity.

Unlike previous studies, this IMF working paper considers the integration with the global liquefied natural gas (LNG) market.

Including the global LNG market reduces the adverse economic impact on the EU, shrinking it five-fold, from approximately -2.65% to -0.42% one year after the shock.

LNG market integration acts as a buffer by allowing trade rerouting and price adjustments.

However, the same mechanism increases gas prices (by up to 100% in the EU) and negatively affects non-EU economies (e.g., Japan, Korea, Pakistan), comparable in magnitude to the EU impact.

Key Factors:

• Supply Shock: Complete cessation of Russian gas exports (141.8 billion cubic meters), equivalent to a -16.8% shock in the EU and global LNG market combined.
• Price Surge: Gas prices rise substantially, potentially by 100-1,000% depending on market integration.
• Demand Elasticity: Different elasticities produce varying outcomes, with higher elasticities mitigating price increases.
• Output Effects: Lower estimates due to a global buffer; higher estimates when considering only the EU market.
• Country-Specific Variations: Countries like Hungary, Slovakia, and the Netherlands face significant risks.

Methodology:

• A model combining general equilibrium theory and a competitive LNG market model.
• Four scenarios based on market integration and demand elasticity assumptions.

Limitations and Caveats:

• Estimates are first-round, supply-side approximations neglecting demand-side feedbacks (central bank responses, fiscal policies) which could amplify or offset effects.
• Assumes market integration; infrastructure bottlenecks or price interventions could worsen impacts in specific EU regions.
• No historical precedent for such a shock, so this remains a theoretical projection.

Conclusion:
The study underlines that while the global LNG market mitigates Europe’s economic pain, geopolitical risks along Europe’s energy supply chains remain a major concern.