"Winter European Natural Gas Stocks to Drop Significantly... Asian Countries' Prices to Rise in Second Half"

The Bank of Korea "Cannot Rule Out Complete Suspension of Russian Gas Supply to the EU"

[Asia Economy Reporter Seo So-jung] As the Ukraine crisis prolongs, the possibility of Russia completely cutting off gas supplies to the European Union (EU) cannot be ruled out. With the high energy demand during the winter season, there is a forecast that gas inventories will significantly decrease.

On the 28th, the US-Europe Economic Team of the International Economy Department at the Bank of Korea's Research Bureau stated in the overseas economic focus report titled "Review of Russia's Natural Gas Supply Status to the EU" that "EU countries are placing weight on the possibility of a complete gas supply cutoff and emphasizing the need to prepare countermeasures."

So far, natural gas inventories are at levels similar to previous years, but if Russia maintains gas supply through Nord Stream 1 at 20% of its capacity as it currently does, year-end inventories are expected to fall to the 2021 level, which was significantly below the usual levels.

Last year, while economic activities resumed and alternative demand increased due to a decrease in wind power generation, natural gas supply capacity was constrained by maintenance and reduced investment after the pandemic, resulting in inventories remaining lower than usual.

According to the report, the volume of natural gas supplied by Russia to the EU was 130 million cubic meters per day as of last month, which is about 35% of last year's daily average (370 million cubic meters).

Gas supplies to countries within the EU such as Poland and the Netherlands have been halted, and supplies to Germany and Italy have decreased.

The EU depends on natural gas for about 24% of its total energy consumption and imports 36% of its natural gas usage from Russia.

EU countries are increasing imports of liquefied natural gas (LNG) from the United States and continuing efforts to expand pipeline natural gas imports from non-Russian countries such as Norway and Azerbaijan. However, it is assessed that it will be difficult to improve the natural gas supply shortage in the short term.

Additionally, there is an analysis that consumer price inflation rates in Asian countries, which recorded lower levels compared to the global average in the first half of this year, will rise further going forward.

The Asia-Pacific Economic Team at the Bank of Korea stated in the report "Comparison of Consumer Price Inflation Rates in Major Asian Countries and Globally" that "Consumer price inflation rates in Asian countries are expected to rise in the second half of the year due to increases in energy and food prices and changes in policy stances."

According to the analysis, the year-on-year consumer price inflation rates in the first half of this year were China (1.7%), Japan (1.3%), Malaysia (2.5%), Vietnam (2.5%), Indonesia (3.3%), Singapore (5.2%), and Thailand (5.9%), all below the global average (7.7%).

However, the consumer price inflation rates in the second half are expected to exceed the first half in China (2.5%), Japan (2.9%), Indonesia (5.0%), Thailand (7.9%), and Vietnam (5.2%).

The report added, "Consumer price inflation rates in Asian countries are expected to rise above current levels due to increases in energy and food prices and changes in policy stances," and "Subsidy policies in some Asian countries are expected to be reduced due to fund depletion, and export bans are also expected to be lifted."