The ex-head of McKinsey with partners calculated the losses of the EU without Russian gas

The costs of the EU to fight the crisis due to a decrease in gas supplies from Russia and rising prices for it may exceed €1 trillion, according to the consulting firm Yakov and Partners. In Europe, costs are estimated to be half as much and are waiting for GDP growth

The total costs of the European Union to fight the crisis due to the reduction in Russian gas supplies and rising energy prices may exceed €1 trillion. This is stated in a study received by RBC from the consulting company Yakov and Partners (the former Russian division of the American McKinsey).

In 2021, Russia accounted for 45% of gas imports to Europe (about 40% of EU gas consumption), which fell sharply this year after the start of a military special operation in Ukraine, the imposition of Western sanctions (they did not directly affect gas) and the resulting supply disruptions " Gazprom. Now, of the three main export routes - through Ukraine (the Ukrainian gas transportation system), Belarus and Poland (the Yamal-Europe gas pipeline) and along the bottom of the Baltic Sea ("Nord Stream") - only the Ukrainian one is operating, and even then not at full capacity. In addition, last week it became known about the accidents at the Nord Stream gas pipelines, through which gas has not been supplied since August, and Nord Stream 2 (has not yet been put into operation, as it has not yet been certified in Germany). ).

Problems with supplies led to an unprecedented increase in gas prices - for example, in August they exceeded $3,000 per 1,000 cubic meters. m, which is almost ten times higher than the pre-crisis level. Now they are almost twice as low, but still several times higher than the prices at the beginning of the year: on the evening of October 4, the cost of the November futures for gas at the TTF hub in the Netherlands reached €169.5 per 1 MWh, which is equivalent to $1,775 per 1,000 cubic meters. m (according to the ICE exchange).

The authorities of the 27 countries that are members of the European Union have already spent €314 billion to protect citizens and companies from rising gas and electricity prices, experts of the European think tank Bruegel calculated, published at the end of September. Taking into account the costs of nationalization and debt buybacks of energy companies, including the German energy holding Uniper, the total EU spending is approaching €450 billion, they note.

 

 

But the Yakov & Associates study says the total costs will be significantly higher. “The total EU spending on compensating gas costs for businesses and households, additional compensation for employees of shutdown enterprises, investments in reducing energy dependence and other measures in 2023 could amount to a total of € 1-1.6 trillion,” said Elena Kuznetsova, partner of the firm. According to her, this is comparable to the potential losses of GDP of the eurozone countries in the absence of active counteraction to the crisis, but should allow avoiding a domino effect and further weakening of the economy.

 

 

“Already today we see double-digit inflation in Europe, the closure of some production facilities and an increase in the cost of debt servicing,” Kuznetsova said. According to Yakov & Partners, due to the reduction in Russian gas supplies and rising energy prices in Europe, 70% of nitrogen fertilizer production capacities have been stopped, aluminum production has been reduced by 25%, and steel production by 5%. Because of this, by the end of 2022, the decline in GDP in European countries may exceed 1% (€200 billion), and in 2023 - from 6.5 to 11.5% (€0.9–1.7 trillion) due to for increases in energy imports, cuts in production and exports, and spillovers on related industries, the study says. Crisis mitigation measures could lead to an increase in the EU budget deficit from €675 billion in 2021 to more than €2 trillion, or from 4.7% of GDP to 11.5-16.2% of GDP,

 

 

The European Commission, in the latest forecast, presented on July 14, reported that in 2022 it still expects GDP growth in European countries by 2.7%, and by 1.5% in 2023 (against 2.3% in the May forecast). Growth this year is driven by “a strong momentum from last year and a better-than-expected performance in the first quarter [2022],” said European Commissioner for the Economy Paolo Gentiloni. But European Commission analysts acknowledged that the EU economy remains "particularly vulnerable" to changes in energy markets due to high dependence on Russian fossil fuels, and weak global economic growth reduces external demand. “Economic growth will slow down significantly in the second half of the year, but will pick up in 2023. In the context of high inflation and tighter monetary policy, it is important to find a balance between a more economical budgetary policy and the protection of the most vulnerable groups,” said Valdis Dombrovskis, Executive Vice President of the European Commission. The European Commission traditionally publishes its autumn forecast for the economy in early November.

The World Bank report, which was published on October 4, says that the cessation of energy supplies from Russia to the EU could lead to a reduction in GDP in Europe and Central Asia by 1.2 percentage points. in 2023. Separately, the bank did not give estimates for the EU.

In July, EU countries reached a “political agreement” to voluntarily reduce gas consumption by 15% by the end of March 2023 compared to the average for the past five years. They also diversified supplies, primarily through increased purchases of liquefied natural gas (LNG). Germany, France and Italy have already said that they can manage without Russian gas this winter. European countries have agreed to fill underground gas storages (UGS) by 80% before the start of the 2022/23 heating season (until November 1). As a result, this plan was fulfilled ahead of schedule - by mid-September, the level of gas reserves in the UGS amounted to about 91.85 billion cubic meters. m, exceeding 85%, but the degree of filling of storage facilities across the Union countries is uneven.