Yesterday we reported that just in case the world didn’t have enough things to be worried about, it is now also petrified about Europe’s potential “ doomsday” on July 22 when Putin will decide the fate of the continent: in the event that he resumes gas flows along the Nord Stream 1 pipeline which is currently going through ten-day maintenance, things will be back to normal(ish).
If not, this is actually the scenario contemplated by Walls Street strategists: “ Euro stocks plunging 20%. Junk credit spreads widening previous 2020 crisis levels. The euro sinking to just ninety cents, before a full-on recession slams the world’s 2nd biggest economy. ”
Then overnight, in a note from Deutsche Bank senior economist Eric Heymann (available to pro subscribers ), the largest German lender laid out the three most likely scenarios intended for what the post-maintenance period can look like. As Heymann creates, “ we developed three scenarios on how Russian fuel supplies to Germany via Nord Stream 1 along with the transition point Waidhaus might evolve over the next couple of months. ”
- Scenario 1: Status quo ante. Here, DB assumes that Russian gas deliveries return to the level we had seen in the weeks before the current maintenance period of Nord Stream 1, i. e. 60% below the level at the end of May.
- Scenario 2: Balanced on a knife-edge. Here, the bank assumes one more halving of Russian fuel supplies via both sewerlines. That would correspond to only 20% of Russian fuel supplies seen until Might 2022 (this scenario was validated today as referred to in “ Gazprom Casts Doubt On Reopening Nord Stream Even As Europe Grants Sanctions Waiver Intended for Stranded Turbines “ ) .
- Scenario several: This is the drawback case: welcome to a wintertime of gas rationing. In a third scenario DB assumes that Russia completely turns off the gas shoes to Germany after the upkeep period. That also includes supplies via Waidhaus over the next few months. This is quite a large number in historic comparison even though it is beneath the recent peak associated with roughly 3, 000 GWh per day. The Netherlands and Norway have already increased their exports to Germany since late May by roughly twenty percent (with significant volatility).
So far so good, and there is much more in the full note accessible to pro subs – which we strongly recommend that anyone living in Europe plus naively believing the local energy propaganda, must read today. But what we find most remarkable is DB’s evaluation not of supply but demand, i. e., the bank’s projection of German gas consumption.
Here, as Heymann produces, demand will remain some 10% below the respective level one year ago over the following few months: “ This decrease is driven by financial savings of private households, business, and the services sectors, incentivized by very high gas costs. ”
It gets worse: according to DIE BAHN, the overall weaker economic advancement – because as a reminder, Europe will very soon be in a deep recession – may dampen gas demand in the manufacturing industry.
But the punchline is when DB contemplates possible “ substitution for gas” by other energy sources – the bank lists difficult coal and lignite within the power sector, as for personal households, it predicts that “ wood will be employed for heating purposes where achievable, ” while industrial sectors will switch to oil derivatives, all of which contributes to lower fuel demand.
You read that right: the largest European bank at this point predicts that a growing number of German households will be using firewood for heating! Maybe allowing a petulant Scandinavian teenager to set the country’s energy policy was not the brightest idea in fact.
Finally, DB notes that both cost savings and substitution have already resulted in a reduction in German gas usage by more than 14% yoy in the first five months of 2022. However , because the bank notes, “ large shares of these cost savings are driven by the gentle winter 2021/22 which is why we all assume a reduction simply by another 10% ‘ only’. ”
Of course , chopping kindling and using this for firewood – a return to the glory days of nineteenth century Bismarck Germany if only in terms of heating – will be an option for a very small amount of German households; the unfortunate truth is that should Europe experience a cold winter, you will see tens of thousands of casualties if not more. Yet at least Germany will have taught Putin a lesson (what lesson that is, we are not quite sure).
The revolution will not be televised .