Goodbye Russian gas? Enough of market prices and rationing electricity. Tabarelli’s analysis (Nomisma Energia)
“We are in a state of war, the price of gas cannot be determined by the markets. If we want to hit Russia, we have to turn off the heating in Italy and think about rationing electricity in the coming months because we have to save gas for next winter ”. The analysis of the economist Davide Tabarelli (Nomisma Energia)
The conflict in Ukraine is about to reverberate heavily on our country as well. The territorial claims of Russia are about to enter the homes of Europeans, and Italians, also through a huge rise in the cost of energy (even higher than that already experienced) or, alternatively, through a rationing of energy resources. The latter option is indicated by Davide Tabarelli , professor of economics at the University of Bologna and president of Nomisma Energia, a research company on energy and the environment.
Italy: the numbers of an addiction
In Italy, the total consumption of natural gas amounts to 71.5 billion Smc (standard cubic meters). About 5 per cent of the demand for natural gas is met by national production and the remainder by imports. The main gas exporters to Italy are: Russia with 33.4 billion Smc (equal to 46 percent), Algeria with 13.4 billion Smc (equal to 18.8 percent), Qatar with 6.5 billion Smc (equal to 9.2 per cent), Norway with 6.1 scm (equal to 8.7 per cent) and finally Libya from which we import 5.7 billion scm (equal to 8 per cent). In 2019, a total of 71 billion cubic meters of gas were imported, used in part to satisfy consumption and the rest set aside in storage sites. 13 per cent of total imports come from liquefied natural gas (LNG).
Italy in trouble: oil shock risk. Tabarelli's analysis
“Italy is in trouble, if not desperate. Finding all this volume of gas to replace and oil, because if the embargo on gas is made, it is also on oil, it is very difficult – said Davide Tabarelli on Tuesday 8 March during the Omnibus broadcast on La 7 -. Impossible to replace without heavy rationing . We import 40% of the gas we consume from Russia and about 30% of oil. The price of oil would soar globally. Now it has risen but it is nothing compared to what could happen. The price of diesel this morning reached 2 euros, an all-time record, petrol continues to rise. Then there is the gas. This morning it opened at 270, last year it was at 17, we understand what a cataclysm there is ".
Closing the markets, a plausible hypothesis
Extraordinary times correspond to extraordinary measures. The first of these proposed by the economist Tabarelli is the closure of the markets on which the price of energy goods is created. “ Europe has moved somewhat awkwardly because the markets must be closed at the moment – the president of Nomisma hoped -. We are in a state of war. Our main supplier sends us the gas this morning, we cannot let the market determine the price, in normal conditions ”.
The risk of rationing according to Tabarelli
The second drastic measure mentioned by Professor Tabarelli is rationing, a true measure of times of war. "If we want to implement sanctions and be consistent with what we say and what we have done in the past for less serious things, such as in Iran for 50 years, the sanctions will be followed by rationing – explained the economist -. If we want to hit Russia this morning, we have to turn off the heating. Thinking about rationing electricity in the coming months because we have to save gas for next winter , because we need supplies. And this is done by cutting gas demand. We now pay a bill of 46 cents per kilowatt hour, in a few months it will be at 80 cents and inflation, which now travels at 6.7%, will soon be at 14%. Certainly it is not the drama of the war and of the bombs that fall on the Ukrainians' heads, but we too, in Italy and in Europe, are feeling the weight of the crisis. And even the Americans, who have seen the price of gasoline rise, will be angry with the president. "
Impose a price ceiling
Prime Minister Mario Draghi and Minister for Ecological Transition Roberto Cingolani have proposed to the President of the European Commission Ursula von der Leyen to put a ceiling on gas prices. “ The markets must be closed , today the price of gas in the US is 14 euros per megawatt hour, in Europe it has opened at 280, if this remains the case the bills will triple – remarked Tabarelli -. This is a subjection to finance that must be recognized, they dominate. In this condition it seems absurd not to close the markets. I see politics completely trampled in front of finance. We are looking for gas everywhere, it is coming from the USA, and we are paying dearly for it ”. Western economies are interfacing with the impossibility of finding a reliable substitute for Russia in the supply of gas and oil. “The physical link with gas via pipeline prevents any compensation, if not marginal, by ship, with a shortage to Europe of 150 billion cubic meters that is not even conceivable – wrote Tabarelli in Il Sole 24 ore -. Gas and oil are united by the fact that in their industries there is currently no idle production capacity, because no investments have been made in recent years, partly due to the fact that prices were low, partly due to pressure. of finance and politics that wants, hopes and dreams, the quick end of fossils ".
Germany's opposition to new sanctions on Russia
Germany, through its Chancellor Scholz , has spoken out clearly against new sanctions that weigh on energy , Italy is not on this position. “I swing too. On the one hand, I would like to impose heavy sanctions and exclude the import of gas from Russia, at this moment, it should be remembered, the flows are regular even if at very high prices – adds Davide Tabarelli -. On the other hand, it needs to be very clear to all Europeans that if we want to impose tough and consistent sanctions, we must remain cold and without light . Therefore we must all take this decision together and in any case, beyond what we will do in the contingency of the next few weeks, there is a problem for the next few years, because this energy transition that we have revitalized in recent years Europe, Germany and Italy have always done so. I remember the autarchy of fascism or the methane cars of the 70s, we can't do it without fossils. Without Russia we will have a great deal of trouble in the future, our interest is that peace will return as soon as possible. So, let's confirm the sanctions but let's get ready for the. cold".
Embargo on Russia: a suicidal move
In fact, with the current price crisis, it would be suicidal to say the least to impose an embargo on the supplies of the first gas exporter in Europe. "If Europe and the US have to stop buying about 4 mbg of Russian oil and replace it with purchases from other producers it will be impossible, because there is no spare capacity for this amount in the world – continued Tabarelli in Il Sole 24 ore -. Already in recent months, a shortage was complained of because demand was returning above pre-pandemic levels (precisely by 100 mbg), in the presence of a shortage of unused production capacity, which dropped towards 2.5 mbg, all concentrated in the Middle East, in particular in Saudi Arabia ".
Oil shock: a risk to the US economy
The oil shocks of the 1970s impacted all world economies, including the US. "A 7 mbg freeze on Russia's exports (the second in the world after Saudi Arabia), would cause a price shock similar to that of the 1970s and this would bring the barrel from the already high values of today (around 120 $) towards the threshold of 200 – adds prof. Tabarelli -. Sure, larger volumes of Russian oil could go to India and China, which would stop buying from the Middle East, thus freeing up volumes for Europe. However, it is not all that simple, because exports of Russian crude oil and products are mainly from the Black Sea, now blocked, and the Baltic, and redirecting ships to Asia will not be easy. Then, the high prices of these days would push American oil producers, somewhat resentful of Biden for environmental bans, to resume drilling at full speed, and this would help greater exports from the US, even to Europe. However, the embargo is too dangerous for Biden. Is it possible that he doesn't remember how bad a barrel can hurt him at $ 200? That would mean a price of gasoline, the most important commodity for Americans, at $ 6 per gallon. Already in recent days, the national average has reached 4 dollars, equal to 1 € per liter, a psychological threshold that makes voters turn up their noses, gasoline addicts with their gigantic pickups with a displacement of around 6 thousand cubic centimeters, which with a liter is 5 kilometers. Their price is to be compared with ours of € 2.1 per liter these days , a difference entirely due to the fact that they apply a modest taxation and that, indeed, these days, they are debating whether to eliminate. For us, taxes count for more than half the price, about € 1 per liter ”.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/italia-gas-energia-tabarelli/ on Tue, 08 Mar 2022 14:20:58 +0000.