If the westward flow of Russian pipeline gas were to stop abruptly at the end of Q2 2022, the EBRD would expect an average 2.3 per cent slowdown in growth across its regions in 2022. In 2023, output would still be 2 per cent below the level that could otherwise be expected. Growth would then converge on the Bank’s baseline scenario by the end of 2023.
The slowdown would be driven by a rise in prices on global gas markets and the resulting impact on the competitiveness of heavy industry in western Europe.
The estimated reduction in output is based on an assumption that, in the short term, European gas prices would increase 40-50 per cent and that the Brent crude oil price would rise by 15 per cent (and that Russia’s Urals crude price would decrease by 15 per cent).
In the medium term, under this scenario, as consumers and firms start to look for alternative sources of energy (including renewables) and other sources of natural gas, the EBRD would expect to see a rise in investment in alternative energy sources, with a focus on less carbon-intensive technologies.
By the end of 2023, the economic growth generated by this new investment would almost fully offset the slowdown brought about by the end of Russian gas exports.
Shifting supply chains would present their own challenges to clean technology investors, however.
New investment in renewables and electric cars could be expected to drive demand for copper, chromium, manganese, zinc, nickel and silicon. Russia is a major producer of copper, zinc and nickel, the prices of which skyrocketed in a trading frenzy two weeks after its invasion of Ukraine.
Clean energy generation also requires semiconductors, a key component of electronic devices. The supply chains of some materials used in the production of semiconductors have shifted over the past two months, including that of noble gases (Ukraine produces 35 per cent of the world’s purified neon) and palladium (Russia is the world’s largest exporter of the metal). Concerns that this might provoke semiconductor shortages have not materialised, however.
Prices for rare earth minerals, also needed for green energy technologies, leapt even before Russia’s invasion of Ukraine. China, which used to enjoy a near-monopoly on rare earths, accounting for 80 per cent of rare earth metal exports, continues to control the market with a 60 per cent share.