1/20
Let’s do a #threadstorm about the economic impact in Europe if Russia creates an energy supply crisis due to gas exportation reduction.
1/20
Let’s do a #threadstorm about the economic impact in Europe if Russia creates an energy supply crisis due to gas exportation reduction.
2/20
This is the Europe current situation about energy importation
EU-nations imported 37% of gas, 20 % of coal and 25% from Russia.
3/20
Unlike coal and oil (fungible), gas is piped or transported as liquefied natural gas (LNG) using pipelines that take years to build.
4/20
LNG is 26% of EU’s total energy consumption but only 2% of Russia’s GDP—so they can inflict way more damage on Europe than compared to any loss they incur in return.
5/20
Hence, Russia cut off LNG supplies to Finland, Poland, and Bulgaria when they refused to pay in Roubles.
6/20
GERMANY
Having suspended the Nord Stream 2 pipeline and Nord Stream 1 requiring repairs, that is the reason that Russia is giving to reduce the gas exportation, set back their imports to 40% of capacity.
7/20
28% of their total energy consumption is from Russia (12% from LNG).
Limited supply has nearly bankrupted their key energy provider
8/20
Germany rushed in laws to build new regasification and LNG terminals. However, it is not enough, and Germany is most exposed to a deep recession risk from this supply shock on individuals and businesses.
9/20
Even if Germany be able to resupply 50% of natural gas they will have an economy contraction between 3%-6%.
10/20
AUSTRIA
Austria has the same problems as Germany since 21% of their energy comes from Russia.
11/20
ITALY
Italy sources 40% of its natural gas from Russia.
They are really trying to boost LNG supply from other countries like Algeria and Libya, but the progress has been slow, and they will need huge improvements on infra.
12/20
FINLAND
Finland imports 100% oil, 68% gas and 31% coal from Russia.
Russia already turned off the exportation to Finland when they announced the intention to join NATO. Finland will need to talk with Norway to import more from them
13/20
NETHERLANDS
35% of their natural gas is imported from Russia.
Used to be a large exporter at Groningen but was hit by earthquakes and now down 90% on production levels. Also adds costs on Dutch farmer situation and food shortages.
14/20
BELGIUM
Only 2% of LNG from Russia but imports 36% of its coal, 67% of its oil (35% of total energy) from them so quite exposed in other areas.
15/20
POLAND
Although 39% of its energy comes from Russia and Russia already cut them off once, it’s access to gas is relatively stable due to having an LNG terminal running at full capacity.
16/20
UK
UK it is the only European country that does not have energy dependencies from Russia since they import from Norway, US and Qatar.
17/20
FRANCE
Only 9% total exposure to Russian energy, but that’s because they have big nuclear energy output.
EDF is struggling operationally, leading to multi-decade low energy output pushing French energy prices up further.
18/20
KNOCK ON EFFECTS
The problem with the LNG shortage is that the supply shock will be (partly) filled by Australia, Qatar and the US as big LNG exporters.
19/20
EU imports are already up 50% in the summer months and could be at the ~200% level in the winter.
20/20
Due to this war situation US is now 15% of EU’s supply since new contracts were assigned to start to remove some dependency from Russia.
21/20
The June fire at the Freeport liquefaction facility in Texas will take facilities down for 90 days adding further pressure on global access.
Unfortunately it’s all connected…
22/20
23/20
LNG prices are now 5x higher!
This has led to soaring prices in fertilizer, glass, steel, metals and ceramics.
EU this winter will be in huge trouble as businesses and individuals struggle to afford rising prices.
24/20
But this is not just a ‘Europe problem’ since energy costs will skyrocket globally, and we’ll see higher prices passed on to consumers and layoffs mount as businesses cease to be profitable.
25/20
The only way to slow down the pain is a resolution to the Russia/Ukraine war and for Russia to agree to fully restart energy sales.
26/20
My base case is no end until at least Q2 2023 as (1) the Sep referendum in East Ukraine will likely embolden Putin as he claims a mandate…
27/20
to go further and/or solidify his win in East Ukraine w/ a puppet government and (2) Putin will try to tie energy sales to removing the sanctions, which the West won’t want to look weak on.
28/20
I therefore believe that this bear market rally won’t last into Q4 as the impacts of rates rising, QT and energy prices all collide together
Q1 2023 you’ll see a cold winter plus high rates mean homeowners get squeezed on mortgages
29/20
By that time the unemployment data…
Could be hideous and lead to a recessionary snowball.
30/20
It’s definitely not an energy driven crisis, but this will be a real impediment to a healthy recovery and compound the other macro problems noted above.