If Russian gas flows remain at negligible levels, even after summer maintenance, export growth to Europe could fall from 9% annually last quarter to a negative 4% by the first quarter of 2023, Goldman Sachs chief economist Jan Hatzius said.
Investors will soon find out whether the world’s largest subsea pipeline, all 759 miles of it sitting under the Baltic Sea, will save Europe from a potentially devastating winter.
Pipeline deadline Russian energy giant Gazprom RU:GAZP cut gas deliveries to Europe by 60% in June, citing technical problems from a turbine being repaired in Canada that was delayed by sanctions but has now reportedly been returned. In a move that alarmed some, Gazprom on Monday declared force majeure, meaning it claimed unforeseeable circumstances were preventing it from fulfilling its contract to deliver gas to some European customers.
“We think Putin is indeed weaponizing natural gas. We think Russia — which has already reduced supply on other pipelines—won’t restore full and regular flow through the Nord Stream 1 pipeline after July 21, though our best guess is that some limited and intermittent supply will resume,” said an Evercore team led by strategist Krishna Guha, in a July 11 note.
The stress has shown up in the euro EURUSD, +0.15%, which recently dropped under parity against the dollar, partly on worries about gas supplies and a cascading effect on economies. And European natural gas shortages could push the region’s energy and goods prices even higher, eventually causing price effects in downstream industrials, “yet another upside risk to U.S. core inflation.”
Read: Here’s the sector most at risk from Russia permanently shutting off gas to Germany — and it’s taking a tumble
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