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### 2.1 To What Extent are Markets for Natural Gas Globally Integrated? — Global segmentation and market structure
- Global natural gas consumption was roughly 3,850 billions of cubic meters (Bcm) in 2019 (British Petroleum).
- Roughly 3,000 Bcm is pipeline gas that is mostly not integrated at global scale.
- About 70 percent of global LNG trade is traded via long-term contracts which fix minimum gas volumes; pricing formulas are often linked to major gas benchmarks such as the Dutch TTF or the Korean/Japan marker.
- Non-EU LNG consumption is about 436 Bcm (BP, 2022).
- Major LNG-importing economies named: the United Kingdom, China, India, Japan, Pakistan, South Korea, and Taiwan Province of China.
- LNG trade has increased since the United States lifted its export ban; LNG import/export capacity expansion has connected European markets increasingly with the global LNG market.
- A sizable share of long-term LNG contracts are with traders who resell LNG on the spot market; when arbitrage opportunities arise LNG cargoes are rerouted between Asia and Europe.
- North American market integration: North American natural gas market is only partially integrated with the global LNG market; U.S. natural gas prices have not increased in line with European and Asian LNG benchmark prices due to LNG export terminal capacity constraints.
- US LNG export terminals are at full capacity due to high global demand; capacity expansion faces 2 to 4 year lags.
- To obtain bank financing for 10 to 15 billion USD projects, LNG companies need to secure 15-20 years contracts with overseas customers.

### 2.1 To What Extent are Markets for Natural Gas Globally Integrated? — Pricing and pass-through
- Pipeline gas supplies are priced with different pricing formulas, involving a mix of oil and regional gas prices.
- In the last decade, linking gas prices to oil prices declined due to the shale gas revolution, though some pipeline contracts (especially in Asia) remain oil-indexed.
- European benchmark: Dutch Title Transfer Facility (TTF) Virtual Trading Point gas price has moved strongly upward; spreads have widened.
- Higher gas prices cause demand compression both within the EU and in other LNG importing countries; LNG cargos are rerouted to Europe when profitable.

### 5.1 Four Scenarios — Calibration goal and analytical intent
- Aim: separately and jointly quantify the different roles of market size and demand elasticities in computing the output effects of a cessation of Russian natural gas exports to the EU.
- Use four scenarios to jointly assess how market size and demand elasticities drive estimated output effects of a cessation of Russian natural gas exports to the EU.
- Isolate influence of market size (presence or absence of global LNG market) by comparing supply shocks of -16.8 percent versus -34.7 percent.
- Isolate influence of demand elasticity by comparing sector-weighted demand elasticities with the manufacturing-sector elasticity.

### 5.1 Four Scenarios — Scenario design (shock sizes and demand elasticities)
- Scenario 1:
  - Supply shock: -16.8 percent (based on the EU and non-EU market).
  - Demand elasticity: sector-weighted demand elasticity by country or region.
- Scenario 2:
  - Supply shock: -16.8 percent (same size as Scenario 1).
  - Demand elasticity: lower price elasticity of demand, equal to the elasticity for the manufacturing sector.
- Scenario 3:
  - Market assumption: no global LNG market or LNG imports completely price inelastic (natural gas market is only the EU).
  - Supply shock: -34.7 percent.
  - Demand elasticity: sector-weighted demand elasticity by country or region (as in Scenario 1).
- Scenario 4:
  - Market assumption: no global LNG market or LNG imports completely price inelastic (natural gas market is only the EU).
  - Supply shock: -34.7 percent (same size as Scenario 3).
  - Demand elasticity: lower price elasticity of demand, equal to the elasticity for the manufacturing sector (as in Scenario 2).

### 5.2 Calibration Steps — Methodology and data inputs
- Compute expenditure on net imports of natural gas in 2021 by: multiplying (natural gas consumption − production) from Eurostat (2022) by annual average European reference price for natural gas (Dutch TTF) for 2021 from International Monetary Fund (2022a).
- For non-EU countries use 2019 data from BP (2022); 2021 data not available and 2020 was a special year due to the pandemic.
- Use nominal gross national expenditure (GNE) from International Monetary Fund (2022b) to compute expenditure shares. Nominal GNE is taken as given; feedback effects are omitted.
- Use Dutch TTF natural gas price for Q1 2022 as the basis when computing scenario prices to capture price increases in the run-up to the conflict (including low storage levels and anticipation effects).
- Adjusted consumption and production computed using equations (1) and (2); net imports in the new steady state = adjusted consumption − adjusted production.
- Natural gas import expenditure over a twelve month horizon is computed as (net gas imports × estimated prices), divided by IMF (2022b) forecast of nominal GNE for 2022.
- Plug natural gas import expenditure shares into equation (9) to derive change in output.

### 5.2 Calibration Steps — Scenario price impacts (as reported)
- Scenario 1: Scope = Global; Elasticity = Weighted; log Price level = 0.75; Price increase (%) = 2.11; Price ($/MMBtu) = 10.96 8.0
- Scenario 2: Scope = Global; Elasticity = Minimum; log Price level = 1.17; Price increase (%) = 3.22; Price ($/MMBtu) = 20.71 103.3
- Scenario 3: Scope = EU; Elasticity = Weighted; log Price level = 1.54; Price increase (%) = 4.73; Price ($/MMBtu) = 67.41 50.6
- Scenario 4: Scope = EU; Elasticity = Minimum; log Price level = 2.41; Price increase (%) = 11.11; Price ($/MMBtu) = 1010.83 57.9

### 5.2 Calibration Steps — EU gas consumption and expenditure shares (selected)
- Scenario 1 (Global, Weighted): Equil. EU consumption adjusted = 312.9 Bcm; Import share (%) = 1.4; Import expenditure share (2021) (%) = 4.7; Change in Expenditure share (%) = 3.3
- Scenario 2 (Global, Minimum): Equil. EU consumption adjusted = 322.2 Bcm; Import share (%) = 1.4; Import expenditure share (2021) (%) = 7.3; Change in Expenditure share (%) = 5.9
- Scenario 3 (EU only, Weighted): Equil. EU consumption adjusted = 265.1 Bcm; Import share (%) = 1.4; Import expenditure share (2021) (%) = 8.8; Change in Expenditure share (%) = 7.4
- Scenario 4 (EU only, Minimum): Equil. EU consumption adjusted = 264.0 Bcm; Import share (%) = 1.4; Import expenditure share (2021) (%) = 22.2; Change in Expenditure share (%) = 20.8

### 5.2 Calibration Steps — Impact on aggregate output — EU (one year horizon, Table 5)
- Scenario 1 (Global, Weighted):
  - Output as share of consumption (%) = -0.42
  - Supply shock as share of consumption (%) = -16.8
  - Price elasticity of demand (%) = 0.17
  - Net imports adjusted (Bcm) = 0.170313111
  - Price increase (%) = 111
- Scenario 2 (Global, Minimum):
  - Output as share of consumption (%) = -0.50
  - Supply shock as share of consumption (%) = -16.8
  - Price elasticity of demand (%) = 0.084
  - Net imports adjusted (Bcm) = 0.084322221
  - Price increase (%) = 322
- Scenario 3 (EU only, Weighted):
  - Output as share of consumption (%) = -1.38
  - Supply shock as share of consumption (%) = -34.5
  - Price elasticity of demand (%) = 0.17
  - Net imports adjusted (Bcm) = 0.170265367
  - Price increase (%) = 367
- Scenario 4 (EU only, Minimum):
  - Output as share of consumption (%) = -2.65
  - Supply shock as share of consumption (%) = -34.5
  - Price elasticity of demand (%) = 0.084
  - Net imports adjusted (Bcm) = 0.0842821011
  - Price increase (%) = 1011
- Key numeric result: Scenario 1 implies a 111 percent rise in gas prices (compared to Q1 2022), a decline in the quantity of EU gas net imports of 50.6 Bcm, and a 0.42 percent decline in aggregate output.

### Heterogeneity across EU countries — Output impacts by country (selected examples, four scenarios)
- Austria: -0.30; -0.39; -1.00; -2.09
- Belgium: -0.49; -0.57; -1.64; -3.14
- Hungary: -1.06; -1.19; -3.36; -6.29
- Netherlands: -0.77; -1.02; -1.89; -4.02
- Poland: -0.59; -0.73; -1.84; -3.73
- EU aggregate: -0.42; -0.50; -1.38; -2.65
- United Kingdom: -0.33; -0.45; -0.83; -1.91
- Note: Countries with large expenditure shares of net natural gas imports (e.g., Hungary, Slovakia, Netherlands) could see substantial output effects that more than triple under scenarios without global LNG market integration.

### Spillovers to non-EU LNG importing economies (selected examples, Scenarios 1 and 2)
- China: -0.05; -0.07
- India: -0.13; -0.16
- Japan: -0.27; -0.36
- Korea: -0.42; -0.53
- Pakistan: -0.40; -0.47
- Taiwan Province of China: -0.38; -0.55
- Mexico: -0.06; -0.08
- Chile: -0.14; -0.18
- Kuwait: -0.38; -0.66
- Singapore: -0.18; -0.27
- Range reported: from -0.05 percent (China, Scenario 1) to -0.42 percent (South Korea, Scenario 1) under global scenarios; slightly more negative under minimum elasticity.

### Robustness notes and alternative baselines (selected)
- Using average 2021 TTF prices as baseline yields lower output effects than the Q1 2022 baseline (results reported in Tables 10 and 11 in the appendix).
- Table 8: EU adjusted consumption (Bcm) by country across four scenarios (selected values): Austria: 88 78 ...; France: 36 37 31 33; Germany: 82 85 72 76; EU total: 360 371 315 334
- Table 9: Consumption adjusted (Bcm) for non-EU economies (selected values): China: 76 77 76 69; India: 29 29 25 26; Japan: 94 96 84 86
- Table 10 and Table 11 present macro impacts using average 2021 price baseline (selected country examples mirrored at smaller magnitudes).

### Discussion — mechanisms, limitations, and policy-relevant insights
- Role of global LNG market:
  - Global LNG market acts as a shock absorber; inclusion reduces EU output losses and shifts costs partly to other LNG importers.
  - Absence of substitution through LNG trade (Scenarios 3 and 4) substantially amplifies EU output losses.
- Elasticity assumptions:
  - Lower demand elasticities (Scenario 2 and 4 using industrial-sector elasticity of -0.08) raise prices more but do not proportionally increase output losses because consumption declines less and the global market shares the shock.
  - Scenario 2 shows gas prices triple but EU output impact rises only from -0.42 to -0.50 percentage points.
- Model features and caveats:
  - Framework is a first-round, largely supply-side, comparative static approximation over a 12 month horizon; does not model dynamic adjustment, monetary policy, fiscal response, or storage and seasonality explicitly.
  - The underlying Baqaee and Farhi (2019a) model lacks sticky prices; higher gas prices are offset by lower relative prices of other goods, including real wages—sticky-price models could yield larger output effects.
  - Nonlinearities and value-chain amplification can strongly increase output effects for large shocks (Baqaee and Farhi (2019b) evidence).
  - The model does not include bankruptcies or credit frictions; sectoral and firm-level impacts could be larger.

### Policy considerations and social distribution
- Exempting households from demand adjustment leverages the shock into industry and power generation sectors with lower demand elasticities, producing similar aggregate impacts to assuming household elasticity = 0.
- Market-based allocation allows efficient pass-through to firms producing essential intermediates; rationing or price regulation can cause inefficiencies and potentially amplify output losses.
- Fiscal support measures (price subsidies, price ceilings, rationing) can protect households but risk amplifying aggregate output effects by inhibiting demand adjustment.
- Important policy trade-off: invest in additional regasification capacity with broader regional scope versus strengthening interconnection capacity to carry gas from existing regasification terminals across Europe.
- Social acceptability and distribution:
  - For EU aggregate in scenarios 1 and 2, overall increase in gas expenditure divided by EU population is between $ 2,000 and $ 10,000 per capita.
  - Because household gas consumption (narrowly defined) is about 17% of total, the extra bill to households would be $ 350 and $ 1,700 per capita based on estimates.
  - Framework assumes homothetic preferences and steady proportion of expenditure shares across rich and poor households; real-world heterogeneity will be substantial.

### Conclusion — main findings
- Global LNG market integration substantially damps EU output impacts but creates spill-overs to other LNG importers.
- EU aggregate output declines range from -0.42 percent (Scenario 1) to -2.65 percent (Scenario 4) over a one year horizon across the four scenarios.
- Country-level impacts vary markedly; some countries (e.g., Hungary, Slovakia, Netherlands) face much larger losses, particularly without global market integration.
- Results are first-round, supply-side approximations; second-round effects from monetary and fiscal policy, storage, seasonality, market fragmentation, and nonlinear value-chain amplifications remain important topics for further research.

*Source: wpiea2022143-print-pdf — sections 2.1, 5.1, 5.2*

### 2.1    To What Extent are Markets for Natural Gas Globally Integrated?

### 2.1 To What Extent are Markets for Natural Gas Globally Integrated?

### Global segmentation and market structure
- Global natural gas consumption was roughly 3,850 billions of cubic meters (Bcm) in 2019 (British Petroleum).
- Roughly 3,000 Bcm is pipeline gas that is mostly not integrated at global scale.
- About 70 percent of global LNG trade is traded via long-term contracts which fix minimum gas volumes; pricing formulas are often linked to major gas benchmarks such as the Dutch TTF or the Korean/Japan marker.
- Non-EU LNG consumption is about 436 Bcm (BP, 2022).
- Major LNG-importing economies named: the United Kingdom, China, India, Japan, Pakistan, South Korea, and Taiwan Province of China.
- LNG trade has increased since the United States lifted its export ban; LNG import/export capacity expansion has connected European markets increasingly with the global LNG market.
- Long-term LNG contracts: a sizable share are with traders who resell LNG on the spot market; when arbitrage opportunities arise LNG cargoes are rerouted between Asia and Europe.
- North American market integration: North American natural gas market is only partially integrated with the global LNG market; U.S. natural gas prices have not increased in line with European and Asian LNG benchmark prices due to LNG export terminal capacity constraints.
- US LNG export terminals are at full capacity due to high global demand; capacity expansion faces 2 to 4 year lags.
- To obtain bank financing for 10 to 15 billion USD projects, LNG companies need to secure 15-20 years contracts with overseas customers.

### Pricing and pass-through
- Pipeline gas supplies are priced with different pricing formulas, involving a mix of oil and regional gas prices.
- In the last decade, linking gas prices to oil prices declined due to the shale gas revolution, though some pipeline contracts (especially in Asia) remain oil-indexed.
- European benchmark: Dutch Title Transfer Facility (TTF) Virtual Trading Point gas price has moved strongly upward; spreads have widened.
- Higher gas prices cause demand compression both within the EU and in other LNG importing countries; LNG cargos are rerouted to Europe when profitable.

*Italic: Source: wpiea2022143-print-pdf - 2.1    To What Extent are Markets for Natural Gas Globally Integrated?*

### 5.1    Four Scenarios

### 5.1    Four Scenarios

### Calibration goal
- Aim: separately and jointly quantify the different roles of market size and demand elasticities in computing the output effects of a cessation of Russian natural gas exports to the EU.
- Approach: lay out four different scenarios based on the stylized facts presented in section 2.

### Scenario design — shock sizes and demand elasticities
- Scenario 1:
  - Supply shock: -16.8 percent (based on the EU and non-EU market).
  - Demand elasticity: sector-weighted demand elasticity by country or region.
- Scenario 2:
  - Supply shock: -16.8 percent (same size as Scenario 1).
  - Demand elasticity: lower price elasticity of demand, equal to the elasticity for the manufacturing sector.
  - Purpose: trace sensitivity of results to different demand elasticities.
- Scenario 3:
  - Market assumption: no global LNG market or LNG imports completely price inelastic (natural gas market is only the EU).
  - Supply shock: -34.7 percent.
  - Demand elasticity: sector-weighted demand elasticity by country or region (as in Scenario 1).
  - Purpose: examine counterfactual output effects if global LNG market did not absorb the shock.
- Scenario 4:
  - Market assumption: no global LNG market or LNG imports completely price inelastic (natural gas market is only the EU).
  - Supply shock: -34.7 percent (same size as Scenario 3).
  - Demand elasticity: lower price elasticity of demand, equal to the elasticity for the manufacturing sector (as in Scenario 2).
  - Purpose: as in scenarios 1 and 2, differ in underlying assumed demand elasticities to assess sensitivity.

### Analytical intent
- Isolate influence of market size (presence or absence of global LNG market) by comparing supply shocks of -16.8 percent versus -34.7 percent.
- Isolate influence of demand elasticity by comparing sector-weighted demand elasticities with the manufacturing-sector elasticity.
- Use four scenarios to jointly assess how market size and demand elasticities drive estimated output effects of a cessation of Russian natural gas exports to the EU.

*Source: wpiea2022143-print-pdf - 5.1    Four Scenarios*

### 5.2    Calibration Steps

### 5.2    Calibration Steps

### Methodology and data inputs
- Compute expenditure on net imports of natural gas in 2021 by: multiplying (natural gas consumption − production) from Eurostat (2022) by annual average European reference price for natural gas (Dutch TTF) for 2021 from International Monetary Fund (2022a).
- For non-EU countries use 2019 data from BP (2022); 2021 data not available and 2020 was a special year due to the pandemic.
- Use nominal gross national expenditure (GNE) from International Monetary Fund (2022b) to compute expenditure shares. Nominal GNE is taken as given; feedback effects are omitted.
- Use Dutch TTF natural gas price for Q1 2022 as the basis when computing scenario prices to capture price increases in the run-up to the conflict (including low storage levels and anticipation effects).
- Adjusted consumption and production computed using equations (1) and (2); net imports in the new steady state = adjusted consumption − adjusted production.
- Natural gas import expenditure over a twelve month horizon is computed as (net gas imports × estimated prices), divided by IMF (2022b) forecast of nominal GNE for 2022.
- Plug natural gas import expenditure shares into equation (9) to derive change in output.

### Scenario price impacts (Table 3)
- Scenario 1: Scope = Global; Elasticity = Weighted; log Price level = 0.75; Price increase (%) = 2.11; Price ($/MMBtu) = 10.96 8.0
- Scenario 2: Scope = Global; Elasticity = Minimum; log Price level = 1.17; Price increase (%) = 3.22; Price ($/MMBtu) = 20.71 103.3
- Scenario 3: Scope = EU; Elasticity = Weighted; log Price level = 1.54; Price increase (%) = 4.73; Price ($/MMBtu) = 67.41 50.6
- Scenario 4: Scope = EU; Elasticity = Minimum; log Price level = 2.41; Price increase (%) = 11.11; Price ($/MMBtu) = 1010.83 57.9

### EU gas consumption and expenditure shares (Table 4)
- Scenario 1 (Global, Weighted): Equil. EU consumption adjusted = 312.9 Bcm; Import share (%) = 1.4; Import expenditure share (2021) (%) = 4.7; Change in Expenditure share (%) = 3.3
- Scenario 2 (Global, Minimum): Equil. EU consumption adjusted = 322.2 Bcm; Import share (%) = 1.4; Import expenditure share (2021) (%) = 7.3; Change in Expenditure share (%) = 5.9
- Scenario 3 (EU only, Weighted): Equil. EU consumption adjusted = 265.1 Bcm; Import share (%) = 1.4; Import expenditure share (2021) (%) = 8.8; Change in Expenditure share (%) = 7.4
- Scenario 4 (EU only, Minimum): Equil. EU consumption adjusted = 264.0 Bcm; Import share (%) = 1.4; Import expenditure share (2021) (%) = 22.2; Change in Expenditure share (%) = 20.8

### Impact on aggregate output — EU (Table 5) — one year horizon
- Scenario 1 (Global, Weighted):
  - Output as share of consumption (%) = -0.42
  - Supply shock as share of consumption (%) = -16.8
  - Price elasticity of demand (%) = 0.17
  - Net imports adjusted (Bcm) = 0.170313111
  - Price increase (%) = 111
- Scenario 2 (Global, Minimum):
  - Output as share of consumption (%) = -0.50
  - Supply shock as share of consumption (%) = -16.8
  - Price elasticity of demand (%) = 0.084
  - Net imports adjusted (Bcm) = 0.084322221
  - Price increase (%) = 322
- Scenario 3 (EU only, Weighted):
  - Output as share of consumption (%) = -1.38
  - Supply shock as share of consumption (%) = -34.5
  - Price elasticity of demand (%) = 0.17
  - Net imports adjusted (Bcm) = 0.170265367
  - Price increase (%) = 367
- Scenario 4 (EU only, Minimum):
  - Output as share of consumption (%) = -2.65
  - Supply shock as share of consumption (%) = -34.5
  - Price elasticity of demand (%) = 0.084
  - Net imports adjusted (Bcm) = 0.0842821011
  - Price increase (%) = 1011

- Key numeric result: Scenario 1 implies a 111 percent rise in gas prices (compared to Q1 2022), a decline in the quantity of EU gas net imports of 50.6 Bcm, and a 0.42 percent decline in aggregate output.

### Heterogeneity across EU countries (Table 6 highlights)
- Output impacts (percent change) under four scenarios by country — selected examples:
  - Austria: -0.30; -0.39; -1.00; -2.09
  - Belgium: -0.49; -0.57; -1.64; -3.14
  - Hungary: -1.06; -1.19; -3.36; -6.29
  - Netherlands: -0.77; -1.02; -1.89; -4.02
  - Poland: -0.59; -0.73; -1.84; -3.73
  - EU aggregate: -0.42; -0.50; -1.38; -2.65
  - United Kingdom: -0.33; -0.45; -0.83; -1.91
- Countries with large expenditure shares of net natural gas imports (e.g., Hungary, Slovakia, Netherlands) could see substantial output effects that more than triple under scenarios without global LNG market integration.

### Spillovers to non-EU LNG importing economies (Table 7 highlights)
- Scenario 1 (Global, Weighted) and Scenario 2 (Global, Minimum) output impacts — selected examples:
  - China: -0.05; -0.07
  - India: -0.13; -0.16
  - Japan: -0.27; -0.36
  - Korea: -0.42; -0.53
  - Pakistan: -0.40; -0.47
  - Taiwan Province of China: -0.38; -0.55
  - Mexico: -0.06; -0.08
  - Chile: -0.14; -0.18
  - Kuwait: -0.38; -0.66
  - Singapore: -0.18; -0.27
- Range reported: from -0.05 percent (China, Scenario 1) to -0.42 percent (South Korea, Scenario 1) under global scenarios; slightly more negative under minimum elasticity.

### Robustness notes and alternative baselines
- Using average 2021 TTF prices as baseline yields lower output effects than the Q1 2022 baseline (results reported in Tables 10 and 11 in the appendix).
- Table 8: EU adjusted consumption (Bcm) by country across four scenarios (selected values):
  - Austria: 88 78 ...
  - France: 36 37 31 33
  - Germany: 82 85 72 76
  - EU total: 360 371 315 334
- Table 9: Consumption adjusted (Bcm) for non-EU economies (selected values):
  - China: 76 77 76 69
  - India: 29 29 25 26
  - Japan: 94 96 84 86
- Table 10 and Table 11 present macro impacts using average 2021 price baseline (selected country examples mirrored at smaller magnitudes).

### Discussion — mechanisms, limitations, and policy-relevant insights
- Role of global LNG market:
  - Global LNG market acts as a shock absorber; inclusion reduces EU output losses and shifts costs partly to other LNG importers.
  - Absence of substitution through LNG trade (Scenarios 3 and 4) substantially amplifies EU output losses.
- Elasticity assumptions:
  - Lower demand elasticities (Scenario 2 and 4 using industrial-sector elasticity of -0.08) raise prices more but do not proportionally increase output losses because consumption declines less and the global market shares the shock.
  - Scenario 2 shows gas prices triple but EU output impact rises only from -0.42 to -0.50 percentage points.
- Model features and caveats:
  - Framework is a first-round, largely supply-side, comparative static approximation over a 12 month horizon; does not model dynamic adjustment, monetary policy, fiscal response, or storage and seasonality explicitly.
  - The underlying Baqaee and Farhi (2019a) model lacks sticky prices; higher gas prices are offset by lower relative prices of other goods, including real wages—sticky-price models could yield larger output effects.
  - Nonlinearities and value-chain amplification can strongly increase output effects for large shocks (Baqaee and Farhi (2019b) evidence).
  - The model does not include bankruptcies or credit frictions; sectoral and firm-level impacts could be larger.
- Policy considerations:
  - Exempting households from demand adjustment leverages the shock into industry and power generation sectors with lower demand elasticities, producing similar aggregate impacts to assuming household elasticity = 0.
  - Market-based allocation allows efficient pass-through to firms producing essential intermediates; rationing or price regulation can cause inefficiencies and potentially amplify output losses.
  - Fiscal support measures (price subsidies, price ceilings, rationing) can protect households but risk amplifying aggregate output effects by inhibiting demand adjustment.
  - Important policy trade-off: invest in additional regasification capacity with broader regional scope versus strengthening interconnection capacity to carry gas from existing regasification terminals across Europe.
- Social acceptability and distribution:
  - For EU aggregate in scenarios 1 and 2, overall increase in gas expenditure divided by EU population is between $ 2,000 and $ 10,000 per capita.
  - Because household gas consumption (narrowly defined) is about 17% of total, the extra bill to households would be $ 350 and $ 1,700 per capita based on estimates.
  - Framework assumes homothetic preferences and steady proportion of expenditure shares across rich and poor households; real-world heterogeneity will be substantial.

### Conclusion — main findings
- Estimation of aggregate output effects of a cessation of Russian natural gas exports to the EU shows:
  - Global LNG market integration substantially damps EU output impacts but creates spill-overs to other LNG importers.
  - EU aggregate output declines range from -0.42 percent (Scenario 1) to -2.65 percent (Scenario 4) over a one year horizon across the four scenarios.
  - Country-level impacts vary markedly; some countries (e.g., Hungary, Slovakia, Netherlands) face much larger losses, particularly without global market integration.
- Results are first-round, supply-side approximations; second-round effects from monetary and fiscal policy, storage, seasonality, market fragmentation, and nonlinear value-chain amplifications remain important topics for further research.

*Source: wpiea2022143-print-pdf — 5.2 Calibration Steps*

### References

### References (Market Size and Supply Disruptions: Sharing the Pain of a Potential Russian Gas Shut-off to the European Union, Working Paper No. WP/2022/143)

### Cited empirical studies of energy demand and substitution
- Andersen, T. B., O. B. Nilsen, and R. Tveteras (2011). “How is demand for natural gas determined across European industrial sectors?” Energy Policy 39.9, pp. 5499–5508.
- Asche, F., O. B. Nilsen, and R. Tveteras (2008). “Natural gas demand in the European household sector”. The Energy Journal 29.3.
- Krichene, N. (2002). “World crude oil and natural gas: a demand and supply model”. Energy economics 24.6, pp. 557–576.
- Labandeira, X., J. M. Labeaga, and X. López-Otero (2017). “A meta-analysis on the price elasticity of energy demand”. Energy Policy 102, pp. 549–568.
- Serletis, A., G. R. Timilsina, and O. Vasetsky (2010). “Interfuel substitution in the United States”. Energy Economics 32.3, pp. 737–745.

### Supply disruptions, sanctions, and market-structure analyses
- Carvalho, V. M., M. Nirei, Y. U. Saito, and A. Tahbaz-Salehi (2021). “Supply chain disruptions: Evidence from the Great East Japan Earthquake”. The Quarterly Journal of Economics 136.2, pp. 1255–1321.
- Gholz, E. and L. Hughes (2021). “Market structure and economic sanctions: the 2010 rare earth elements episode as a pathway case of market adjustment”. Review of International Political Economy 28.3, pp. 611–634.
- Chepeliev, M., T. Hertel, and D. van der Mensbrugghe (2022). “Cutting Russia’s Fossil Fuel Exports: Short-term pain for long-term pain”. VoxEU Blog March 9.
- Bachmann, R., D. Baqaee, C. Bayer, M. Kuhn, Löschel, A. Peichl, K. Pittel, B. Moll, and M. Schularick (2022). “What if? The economic effects for Germany of a stop of energy imports from Russia”. ECONtribute Policy Brief 28.
- Baqaee, D., B. Moll, C. Landais, and P. Martin (2022). “The Economic Consequences of a Stop of Energy Imports from Russia”. Conseil d’Analyse Economique Focus 84.
- DiBella, G., M. Flanagan, K. Foda, S. Maslova, A. Pienkowski, M. Stuermer, and F. Toscani (2022). “Natural Gas in Europe. The Potential Impact of Disruptions to Supply”. IMF Working Paper.
- Lan, T., G. Sher, and J. Zhou (2022). “The economic impacts of a potential shutoff in Russian gas”. Germany Selected Issues, International Monetary Fund.
- Langot, F. and F. Tripier (2022). “Le Coût d’un Embargo sur les Énergies Russes pour les Économies Européennes [The Cost of an Embargo on Russian Energy for European Economies]”. Observatoire Macro du CEPREMAP 2.

### Theoretical and methodological foundations
- Hulten, C. R. (1978). “Growth accounting with intermediate inputs”. The Review of Economic Studies 45.3, pp. 511–518.
- Baqaee, D. and E. Farhi (2019a). Networks, Barriers, and Trade. Working Paper 26108. National Bureau of Economic Research.
- Baqaee, D. R. and E. Farhi (2019b). “The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten’s Theorem”. Econometrica 87.4, pp. 1155–1203.
- — (2020). “Productivity and misallocation in general equilibrium”. The Quarterly Journal of Economics 135.1, pp. 105–163.
- Nakamura, E., J. Steinsson, P. Sun, and D. Villar (2018). “The elusive costs of inflation: Price dispersion during the US great inflation”. The Quarterly Journal of Economics 133.4, pp. 1933–1980.
- Gagnon, E. (2009). “Price setting during low and high inflation: Evidence from Mexico”. The Quarterly Journal of Economics 124.3, pp. 1221–1263.
- Petrella, I., E. Santoro, and L. de la Porte Simonsen (2018). “Time-varying price flexibility and inflation dynamics”.
- Ilzetzki, E. (2022). Learning by necessity: Government demand, capacity constraints, and productivity growth. Working Paper. London School of Economics.
- Carvalho, V. M., M. Nirei, Y. U. Saito, and A. Tahbaz-Salehi (2021). “Supply chain disruptions: Evidence from the Great East Japan Earthquake”. The Quarterly Journal of Economics 136.2, pp. 1255–1321.

### Data sources, institutional reports, and datasets cited
- BP (2022). Statistical review of world energy. British Petroleum, London.
- International Energy Agency (2022). A 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas. International Energy Agency, Paris.
- European Commission (2022). REPowerEU Plan. European Network of Transmission System Operators.
- European Network of Transmission System Operators (2022a). Summer supply outlook. European Network of Transmission System Operators.
- — (2022b). System Development Map. European Network of Transmission System Operators.
- European Network of Transmission System Operators for Gas (ENTSOG) (2022). ENTSOG Summer Supply Outlook. European Network of Transmission System Operators for Gas.
- Gas Infrastructure Europe (2022). Aggregate Gas Storage Inventory. Gas Infrastructure Europe.
- Eurostat (2022). Database. Eurostat, Brussels.
- Kpler (2022). LNG dataset. Kpler.
- International Monetary Fund (2022a). Primary Commodity Price System. International Monetary Fund, Washington DC.
- — (2022b). World Economic Outlook Database (Retrieved on June 3). International Monetary Fund, Washington DC.
- Amaglobeli, D., E. Hanedar, G. Hong, and C. Thévenots (2022). “Fiscal Policy for Mitigating the Social Impact of High Energy and Food Prices”. IMF Notes 2022/001.

*Reference list for Working Paper No. WP/2022/143*

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_Source: https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022143-print-pdf.pdf_