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Natural gas dependence and risks to activity in the euro area

Author

Listed:
  • Gunnella, Vanessa
  • Jarvis, Valerie
  • Morris, Richard
  • Tóth, Máté

Abstract

This box reviews the dependence of the euro area on natural gas and provides an assessment of the impact of gas price increases and a possible rationing shock on activity. Natural gas is the second most important primary energy resource in the euro area and the most important in the manufacturing sector. More than 90% of the natural gas consumed in the euro area is imported. With indirect use in the early stages of production accounting for more than two-thirds of gas consumption, supply chain linkages significantly amplify the reaction of goods producers and services providers to gas price increases. An accounting framework based on input-output tables shows that the direct and indirect impact of a hypothetical 10% gas rationing shock would reduce euro area gross value added by about 0.7%. Illustrative simulations based on the ongoing surge in oil and gas prices and futures suggest that, by the end of 2022, euro area real GDP may be around 0.2% lower than its counterfactual level, with the effect likely peaking in the first quarter of this year. JEL Classification: D45, D57, Q43

Suggested Citation

  • Gunnella, Vanessa & Jarvis, Valerie & Morris, Richard & Tóth, Máté, 2022. "Natural gas dependence and risks to activity in the euro area," Economic Bulletin Boxes, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:ecbbox:2022:0001:4
    Note: 2700331
    as

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    File URL: https://www.ecb.europa.eu//pub/economic-bulletin/focus/2022/html/ecb.ebbox202201_04~63d8786255.en.html
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    Citations

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    Cited by:

    1. De Santis, Roberto A. & Tornese, Tommaso, 2023. "Energy supply shocks’ nonlinearities on output and prices," Working Paper Series 2834, European Central Bank.
    2. Iana Liadze & Corrado Macchiarelli & Paul Mortimer‐Lee & Patricia Sanchez Juanino, 2023. "Economic costs of the Russia‐Ukraine war," The World Economy, Wiley Blackwell, vol. 46(4), pages 874-886, April.
    3. Egan, Paul & Bergin, Adele & O'Toole, Conor, 2023. "The potential impact of the war in Ukraine on the Irish economy," Papers WP759, Economic and Social Research Institute (ESRI).
    4. Behn, Markus & Couaillier, Cyril, 2023. "Same same but different: credit risk provisioning under IFRS 9," Working Paper Series 2841, European Central Bank.
    5. Tomasz Rokicki & Piotr Bórawski & András Szeberényi, 2023. "The Impact of the 2020–2022 Crises on EU Countries’ Independence from Energy Imports, Particularly from Russia," Energies, MDPI, vol. 16(18), pages 1-26, September.

    More about this item

    Keywords

    activity; natural gas; prices; rationing;
    All these keywords.

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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