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By Trend

The resumption of Russian gas flows through the Nord Stream 1 pipeline after a 10-days annual maintenance period does not eliminate risks of a future gas supply cessation, Trend reports with reference to Fitch Ratings.

“Furthermore, the current low levels of supply at 40 percent of capacity are keeping gas prices high and maintaining pressure on the profitability and cash flows of European corporates which may increase further as the heating season approaches. We expect the countries most dependent on Russian gas to accelerate energy savings measures, which could reduce production in some industries. The European Commission has already asked all EU counties to cut their gas use by 15 percent from August 1 until March to prepare for further disruptions in Russian gas deliveries,” said the rating agency.

The European Commission is proposing a new Council Regulation on Coordinated Demand Reduction Measures for Gas, based on Article 122 of the Treaty. The new Regulation would set a target for all Member States to reduce gas demand by 15 percent between 1 August 2022 and 31 March 2023. The new Regulation would also give the Commission the possibility to declare, after consulting Member States, a ‘Union Alert' on security of supply, imposing a mandatory gas demand reduction on all Member States. The Union Alert can be triggered when there is a substantial risk of a severe gas shortage or an exceptionally high gas demand. Member States should update their national emergency plans by the end of September to show how they intend to meet the reduction target, and should report to the Commission on progress every two months. Member States requesting solidarity gas supplies will be required to demonstrate the measures they have taken to reduce demand domestically.

Analysts from Fitch Ratings note that Germany is the EU country most dependent on gas supplied via Nord Stream 1 and reduced volumes affect German companies, with the impact potentially becoming more severe in the event of a complete cut-off leading to gas rationing.

“Utilities across most European countries have taken the greatest hit so far from rising natural gas prices, but the impact varies depending on the operating model and geographic location. Uniper is the most visible casualty of the gas stand-off and is in talks with the German government about a bail-out as it is not able to pass on high spot prices to customers. Chemicals and fertilisers producers are the most exposed among our rated natural resources companies to risks of high gas prices and a supply cut-off, mostly due to their dependence on gas both as feedstock and in energy generation to operate key production assets,” reads the latest report released by Fitch Ratings.

The agency believes that corporates in the heavy manufacturing sector will face increased supply chain risks in the event of an abrupt halt of Russian gas as some of their main suppliers are heavy gas users.

“However, we believe that many rated companies in the sector have business models or mitigation plans that could offset any potential rating pressure arising in this scenario. More broadly, most European corporate sectors will be affected by slow economic growth, or even a recession, in the event of Russian gas supply cessation, particularly in Germany and some central and eastern European countries.”

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