Investment Times Newspaper 2023 Edition | Issue 23

T-bills: government interest cost for last 3 months hits ¢4.416bn

AGM petroleum relinquish South Deep Water Tano block

Global Chamber of Business Leaders congratulates Nigeria

MIIF mulls investment in Ada Songhor Salt project

The Minerals Income and Investment Fund (MIIF) has revealed plans to support the development of the salt industry in Ghana with the Ada Songhor Lagoon as utmost priority.

This followed a working tour by the Board and Management of MIIF and o cials of the Ghana Stock Exchange. The Ada Salt pans on the Songhor Lagoon have the potential to be the largest salt producing area in sub-Saharan Africa. The CEO of MIIF revealed to reporters that, “MIIF is far advanced with plans to invest in the Ada Songhor salt project towards de-

Samsung launches Galaxy S23 Series as it exceeds pre-order numbers

veloping it to be the largest in sub-Saharan Africa. Ultimately this investment seeks to ensure that Ghana bene ts from the many uses of salt, especially as a core input to support the industrialization agenda of the Government of Ghana”.

The Ada Songhor pans which sit on some 41,000 acres straddling at least thirty-three (33) Ada Com-

munities is larger in acreage than Walvis Bay of Namibia which is about 16,700 acres and is the largest in sub-saharan Africa.

According to o cials of Electrochem Ghana Limited which is the Ghanaian company developing the salt pans, the Songhor has the potential to produce more than 5 million MT at capacity with an estimated  650,000 metric tons (mt) of industrial salt in 2023 and circa 1.5 million MT over the next ve years with a 99.99% purity. MIIF’s Salt outlook and Investment MIIF has declared salt as a priority mineral in Ghana in line with its investment strategy of generating downstream to upstream value from every single mineral. According to Professor Douglas Boateng, the Board Chairman of MIIF, “the Fund is targeting investments across the

There is no locked-up pension balance to be collected– SSNIT

AGM petroleum relinquish South Deep Water Tano block

AGM Petroleum Ghana Limited (AGM) and its owners have decided to relinquish the South Deep Water Tano (SDWT) block after carefully considering all options.

AGM has carried out substantial activity in Ghana and contributed through drilling two ultra deepwater wells including the Nyankom discovery, and matured the subsurface understanding to the bene t of the Ghanaian authorities and other industry players. Further, AGM has carried out CSR investments and full lled all of the obligations under the petroleum agreement.

The SDWT block is situated in ultra deep waters with substantial investments required to proceed.

A relinquishment conclusion is a normal conclusion for exploration blocks like SDWT, and the petroleum regime in Ghana presumes that the Operator has to decide to drill or drop at speci c

times during the exploration period.

AGM is an independent company and the decision has no implication for Aker Energy’s plans in Ghana.

AGM Petroleum in 2019 announced that it will start oil drilling activities at the South Deepwater Tano (SDWT) block following the rati cation of the AGM Petroleum Agreement by parliament.

The oil company said at the time that it can now begin exploring for oil in the ultra-deepwater block, over 3.5 kilometres below sea levels.

In a statement on Monday, 6 May 2019, AGM added that the petroleum agreement rati ed by parliament on 3 May 2019, gives a scal take to Ghana, which is substantially above the international deepwater average of approximately 55 percent.

Global Chamber of Business Leaders congratulates Nigeria President-elect Bola Tinubu

The Global Chamber of Business Leaders (GCBL), the world's leading coalition of governmental leaders, CEOs and executives, has congratulated veteran politician, Bola Ahmed Adekunle Tinubu, on his election as President of Nigeria.

Mr. Tinubu, a former Lagos State Governor, won the February 25, 2023 Presidential election of Nigeria on the ticket of the ruling All Progressives Congress (APC). He will take over power from incumbent President Muhammadu Buhari on May 29, 2023.

"Allow me to congratulate you on your landslide victory in the Nigerian elections.  With you as President, Nigeria will surely turn a new leaf in its history," GCBL  Chairman, Dejan Stancer told Mr. Tinubu in a letter dated March 3,

2023.

In the letter, Mr. Stancer says under the leadership of Mr. Tinubu, GCBL will strive for even closer cooperation with Nigeria.

GCBL Chairman assured Mr. Tinubu that the Chamber "will also strive for an even stronger national chapter in Nigeria, which is excellently led by Dr. Abubakar Muhammad, as well as for greater integration of young people into special programs that operate within the framework of the Global Chamber of Business Leaders, such as the Young Business Leaders Program, or the World Future Leaders program, with which we want to connect young people from all over the world and encourage them with the experiences of the best global business leaders."

MIIF mulls investment in Ada Songhor Salt project

producing areas in the Greater Accra and Central regions of Ghana”.

The CEO of MIIF, Mr. Koranteng further stressed that “Salt is an in nite resource with over 14,000 uses. At full potential and with such expansive usage, salt in Ghana has the potential to earn circa $500 Million a year in foreign exchange with Nigeria and the sub-region as priority markets.

Salt as a raw material covers the pharmaceuticals, food processing, oil and gas, food preservation, production of caustic soda, the textiles industry, mining, road maintenance, hospitals and hospitality sectors which all require high grade salt to support the manufacturing of inputs or processing.

This is the reason why MIIF is excited about this opportunity for Ghana and is currently working on a broad-based investment which would include a listing of the project on the Ghana Stock Exchange”.

The scale of the Ada Songhor salt project also presents opportunities for two export jetties to facilitate export and other lake transport opportunities,

create massive employment in the producing areas and substantially revitalize the local economies.

In accordance with MIIF’s investment strategy to ensure that all major investments are listed on the Ghana Stock Exchange, the Chief Executive O cer of MIIF, Edward Nana Yaw Koranteng conrmed that Electrochem has agreed to list on the Ghana Stock Exchange as a condition for MIIF’s investment.

Mr. Koranteng stated that, “Investing in salt is part of our mineral diversi cation strategy in line with President Nana Akufo-Addo’s charge to MIIF, to ensure that we create Ghanaian business champions while at the same time creating opportunities along the value chain and on the capital markets for Ghanaians to directly have the chance to invest in such companies”.

The Managing Director of the Ghana Stock Exchange Ms. Abena Amoah who is also a member of the Investment Advisory Committee (IAC) of MIIF said; “What I have come to see here, really warms my heart.

A great company is underpinned by the

quality of the asset. We can become Africa’s number one salt producer, the sea never dries, the technology exists to mine the salt, the market for salt is not in doubt and with some ringfencing and

great risk management, the investment in Electrochem and its listing on the Ghana Stock Exchange will be a win-win for all Ghanaians.”.

Samsung launches Galaxy S23 Series as it exceeds pre-order numbers

Samsung Electronics Co., Ltd., recently announced the global availability of its Galaxy S23 smartphones following impressive pre-order results.

Pre-orders for the previous year’s Galaxy S22 series had already been a great success, with numbers more than double those of the Galaxy S21 series within the rst week. This year, pre-order results were even higher than those of the Galaxy S22 series, with 60% of consumers opting for the most premium Galaxy S23 Ultra.

“The great momentum we’re witnessing speaks to customers’ excitement about products that push the envelope and give them

the freedom to express themselves creatively,” said TM Roh, President and Head of Mobile eXperience Business at Samsung Electronics. “This year’s pre-order numbers echo our customers’ strong trust in our brand and demonstrate how our commitment to ground-breaking innovation and sustainability continues to resonate with consumers.”

Led by the Galaxy S23 Ultra with its new 200MP Adaptive Pixel sensor and iconic embedded S Pen, the Galaxy S23 series, also featuring the Galaxy S23+ and Galaxy S23, represents a new era of Samsung’s ultimate premium phone experience. The Galaxy S23 series features epic cameras that give users more freedom to

explore their creativity, fast mobile graphics thanks to the Snapdragon® 8 Gen 2 Mobile Platform for Galaxy, and a striking design that advances the company’s sustainability commitments with more components made using recycled materials than in any other Samsung Galaxy smartphone.

Samsung Galaxy S23 series also unlocks the next level of mobile security with Samsung Message Guard. This powerful sandboxing tool preemptively protects against zero-click exploit attacks. This is a new kind of cyberattack where just receiving an image can compromise a device – even without the user’s interaction. Samsung Message Guard acts as a vir-

tual quarantine, trapping harmful images and ensuring you receive safe images. Find out more about Samsung Message Guard at [www.samsungmobilepress.com/feature-stories/samsung-message-guard-protects-you-from-new

-and-invisible-threats].

The Galaxy S23 Ultra, Galaxy S23+, and Galaxy S23 are now widely available through carriers and retailers, in four nature-inspired matte hues: Phantom Black, Cream, Green, and Lavender.

There is no locked-up pension balance to be collected– SSNIT

The Social Security and National Insurance Trust (SSNIT) is advising the public, particularly pensioners to disregard calls by some unscrupulous persons that they could help them claim their benet from the trust.

In a statement, the Trust, said management of SSNIT wishes to inform the public to disregard such calls as there is no “locked up pension balance to be collected”.

It explained that the trust has not

engaged or commissioned any individual or body to assist pensioners to claim any bene t from SSNIT.

It cautioned the public not to engage any individual or body purporting to act on behalf of the

trust in this regard.

“We encourage the public especially pensioners to report such persons to the nearest police station or SSNIT

O ce”

The trust further stated that the processing of pension bene ts is free.

T-bills: government interest cost for last 3 months hits ¢4.416bn

Interest cost on Government of Ghana Treasury bills for the last three months (December 2022, January 2023 and February 2023) is estimated at ¢4.416 billion.

The government bought a total of ¢33.08 billion worth of T-bills in the last three months.

The treasury instruments were sold by government at an average yield of 35%.

In December 2022, the government secured ¢12.60 billion at an interest rate of 35.72%.

Interestingly, the government in January 2023 reduced its appetite for the short-term securities, mobilising ¢7.3 billion at a rate of 35.66%.

However, the government borrowing from T-bills signi cantly

shot up to ¢13.1 billion in February 2023 at an interest cost of 35.50%.

Executive Director of nance rm, Dalex, Joe Jackson in a tweet said “should you be cautious in buying T-bills?”

“Government of Ghana bought 33.08 billion in the last three months. The weighted average interest rate was 35.62% and will cost a whopping ¢4.42 billion”.

The government only source of borrowing for now is the treasury market, hence the signi cant borrowing on the short-term market.

The government will this week borrow ¢2.78 billion from Treasury bills to re nance maturing bills worth ¢2.55 billion.

World Bank Women, Business & Law Index: Ghana improves to 26th position in Africa

Ghana improved by one place to the 26th position, out of 53 countries in Africa, in the 2023 World Bank Women, Business & Law Index.

The country however maintained its 7th position in West Africa, but better than Nigeria (66.3%).

Though the nation scored the same marks of 75% in 2021 and 2022, poor scores in Parenthood (20%) and Pay (50%) categories affected its quest to improve its rank-

ings.

Quite a number of African countries improved their rankings. Ghana scored full marks of 100% in Mobility, Workplace and Marriage.

Again, Ghana scored 75% in the Entrepreneurship and Pensions categories. The positions were however unchanged from the 2022’s rankings, meaning very little progress have been made in these categories.

It however scored 80% in the Asset category.

Côte d’Ivoire and Gabon were jointly ranked 1st in Africa with a total score of 95%, overtaking Mauritius (89.9%) which placed 3rd. South Africa placed 4th (88.1%), whilst Zimbabwe (86.9%) and Cape Verde (86.3%) placed 5th and 6th  globally.

The Women, Business and the Law 2023 is the ninth in a series of annual studies measuring the laws

that a ect women’s economic opportunity in 190 economies.

The project presents eight indicators structured around women’s interactions with the law as they progress through their lives and careers: Mobility, Workplace, Pay, Marriage, Parenthood, Entrepreneurship, Assets, and Pension. Women, Business and the Law 2023 identi es barriers to women’s economic participation and

encourages the reform of discriminatory laws. This year, the study also includes new research, a literature review, and analysis of 53 years of reforms for women’s rights. The indicators build evidence of the critical relationship between legal gender equality and women’s employment and entrepreneurship.

Dr Bawumia commissions Ghana’s first national children’s library

Vice President Dr Mahamudu

Bawumia has commissioned the rst National Children’s Library and a Mobile Library lled with over 1000 books, with a renewed pledge by the Akufo-Addo government to continually work to close Ghana's current learning poverty gap and make her a "learning nation"

The two storey Library, constructed by the Social Security and National Insurance Trust (SSNIT) as part of its Corporate Social Responsibility plans, is the 115th Public Library in

Ghana and the 13th in Greater Accra Region.

It consists amongst others of an Early Childhood Section; a Children’s Library; a Play Room and an Indoor Playground; an Electronic Library; Books/Stationery and Gift Shops; Old and New Books Stores; Multipurpose Community Activity Meeting Hall as well as a First Aid Post.

The edi ce will also serve as a model library, where training can be o ered to libraries and schools. It is currently lled with 22,000 books, 50 comput-

ers, 24 tablets, and assistive devices for persons with sight and hearing challenges, according to o cials of the Ghana Library Authority. Speaking at the commissioning in Accra on Wednesday, February 15, 2023 Vice President Bawumia emphasized that if Ghana is to sustain growth in its economic performance, the need to build a literate society cannot be underestimated.

Children in their formative years require consistent exposure to books to build and sus-

tain interest in reading and also for knowledge, and Ghana cannot be a learning nation if it does not prioritise access to knowledge resources.

“It is on this premise that the 2018-2030 Education Strategic Plan is anchored: on making Ghana a "learning nation".  Ghana cannot be a learning nation if it does not prioritise access to knowledge resources through the public library system. Since 2017, the government of Nana Addo Dankwa Akufo-Addo's investment in the

Ghana Library Authority has been visible all over the country,” Vice President Bawumia underscored.

This support, Vice President Bawumia indicated, includes the provision, through GETFUND, of 20 new pickup vehicles for the Authority's operations, as well as revamping its mobile library services by xing its vans to be motorable. Government has also increased the personnel of the Library Authority to 532.

Commending the Board, Man-

agement and Sta of the Ghana Library Authority for the strides chalked over the past six years, Dr Bawumia maintained that “The ability of children to read and write by the age of ten is the surest way to close Ghana's current learning poverty gap. It is, therefore, exciting to witness the e orts of the Ghana Library Authority in revamping public libraries in the country and working to address the systemic challenges confronting the State in achieving those goals.”

Libraries

The Executive Director of the Ghana Library Authority, Hayford Siaw, disclosed that over the past ve years, Government has helped increase the number of public libraries from 61 in 2017 to 115 at the end of 2022. 48 out of the 61 libraries inherited in 2017 have received a facelift, creating a conducive

environment for learners.

Government has also increased the number of books on the shelves of public libraries from 393,430 in 2016 to 1,281,839 at the end of 2022, a 325% increase in six years.

“We have provided internet connections to 29 public libraries and some 688 computers to support computer literacy initiatives at 67 public libraries across the country.

“Government has also invested in developing and rolling out the Digital Library App, currently managed by the Ghana Library Authority. The App, which is zero-rated by some of the telecommunication companies, allows every Ghanaian to have access to eBooks, videos, and audio resources. The government relied on GhLA during the COVID-19 school closure period to use this platform to assure learning continuity.”

Serene Insurance board chair inducted into Corporate Ghana Hall of Fame

The Board Chairman of Serene Insurance Limited, a member of the First Sky Group, Charles Edem Gidi has been inducted into the 2023 Corporate Hall of Fame at the sixth edition of the Ghana Corporate Executive Hall of Fame awards held in Accra.

The sixth edition was held on the theme: Guiding Corporate Ghana through the economic challenges of 2023.

The Corporate Ghana Hall of Fame is an avenue targeted at rallying corporate/ institutional Board Chairpersons and in some cases, non-executive Directors as a public policy advocacy group and business strategy think tank while cre-

ating business leadership networking platform and a management capacity building vehicle to drive policy formulation for the sectors, they operate in.

The prestigious award is in recognition of Mr. Gidi’s exemplary and visionary leadership in steering Serene Insurance Limited in becoming a strong household brand in the general insurance sector of the economy.

Sharing the honour with other captains of industry at the induction, a citation accompanying the induction with a plaque and medal noted that Mr. Gidi’s exceptional leadership, character,

vision, integrity and focus to continuously provide direction to deliver projects impacted directly on positioning Serene Insurance Limited as the insurance company of choice in the country.

Commenting on the award, Board Chair of Serene Insurance, Mr. Gidi said ‘I am humbled by this recognition which is an indication that we are doing something worthy of note.

It is therefore pleasing to know that the presence of Serene Insurance impacts positively on the overall agenda to deepen insurance penetration to boost business competiveness in the coun-

try. There is more to be done in this regard and I am more than motivated to continue to push further to consolidate the brand of Serene Insurance.” Since its inception in late 2018, Serene Insurance has built a privileged reputation as a provider of reliable and cost-e ective insurance products and services that address the needs of the insuring public, having been adjudged the fastest growing insurance company in Ghana in 2022.

Serene Insurance has demonstrated strong growth in key nancial metrics across its various business segments as it recorded about 43.3 million

in gross written premiums for the 2021 nancial year, representing 50% increase as against 21.7 millio in 2020.

From the onset with one branch, today Serene Insurance boasts of nine branches with over 68 sta and more than 40,000 institutional and retail client base showing the steady growth and penetration into the market in Ghana in a space of four years.

The Corporate Ghana Hall of Fame as an alliance of outstanding Board Chair Persons (both Executive and Non-Executive) and non-executive directors, was initiated and administered by The Business Executive Media Group.

In a related development, Vice President Bawumia has handed over prizes to the winners of the Vacation Reading Challenge

2022 organized by the Ghana Library Authority in collaboration with Smartline Ltd. The prizes include laptops and books to the schools of the award winners.

FX Insights

Weekly Outlook and Review

Foreign Exchange

Down

32%

As Nigerians prepare to go to the polls on Saturday to elect a new president, a cash shortage caused by a policy to exchange old Naira notes for newly designed bills continues to cripple the economy, creating a rift in the ruling All Progressives Congress (APC) party. The note swap plan championed by incumbent President Muhammadu Buhari has led to violent protests across the country and resulted in a temporary suspension of banking operations in some states. Several governors have petitioned the Supreme Court to overturn the policy, citing severe hardship faced by people and businesses dependent on cash for survival. Buhari’s apparent intention behind the policy is to curb vote buying by politicians, turning a deaf ear to APC governors who have made repeated calls to postpone the implementation of the policy. Amid fears of the current tensions spilling over to political violence, Buhari said he’s mobilising military and security agents to monitor polling stations for evidence of vote rigging. The severe cash shortage has held the currency steady in spite of the economic turmoil, with the Naira strengthening marginally against the dollar to 755 from 756 at last week’s close. In this context, resolving the cash shortage has become more significant for the Naira outlook than the election result—with the rate likely to hold around current levels until Naira supplies recover.

Rand sinks to lowest in more than 3 months

The Rand depreciated against the dollar, trading at 18.25 from 18.05 at last Friday’s close—its weakest level since early November. The currency is being dragged lower by broad risk-off sentiment globally and ongoing domestic concerns about the electricity crisis. In an effort to ease concerns about Eskom’s finances, South Africa’s government said it will take on more than half of the power company’s debt over the next three years to help strengthen the balance sheet and avoid the risk of default. We expect the Rand to continue trading with an 18 handle in the near term, mainly due to the risk-off mood that is impacting emerging markets FX.

Foreign Exchange

Ghana’s latest ratings downgrade drives Cedi lower

Foreign Exchange

The Cedi weakened against the dollar, trading at 12.76 from 12.38 at last week’s close as Fitch Ratings cut Ghana’s foreign currency credit rating to ‘restricted default’ after the country missed a $40.6m coupon payment on one of its outstanding Eurobonds. The downgrade aligns with Fitch’s local currency rating, which was cut earlier this month. The foreign debt default was largely expected after Ghana said it would suspend payments on certain bonds as part of its restructuring plan to unlock $3bn in emergency funding from the IMF. The country faces pushback from bondholders over preferential treatment for bilateral lenders, who are being offered better terms in the debt restructuring. Against this backdrop—and with inflation remaining elevated despite a slight improvement in January—we expect the Cedi to depreciate further in the near term.

Egypt issues debut $1.5bn sukuk

The Pound depreciated against the dollar, trading at 30.60 from 30.48 at last week’s close, amid broader risk-off sentiment and a stronger dollar. Egypt this week issued its debut Islamic finance bond, or sukuk, raising $1.5bn. The three-year deal priced to yield 11%, having attracted investor demand of more than $5bn. The deal provides some relief to Egypt’s finance ministry given the country’s need to boost FX inflows and repay existing debt. We expect the Pound depreciate further in the week ahead mainly due to dollar strength.

Foreign Exchange

94%

Shilling strengthens as Uganda resists rate rise

Foreign Exchange Down

The Shilling strengthened against the dollar, trading at 3674 from 3684 at last week’s close. Uganda’s central bank kept its benchmark interest rate on hold at 10% for a second consecutive monetary policy meeting. The bank last raised by 100 basis points in October, with rates ending the year 350 basis points higher than they were at the start of 2022. Policymakers said the decision to hold rates was aimed at containing domestic demand pressure and supporting economic recovery. The bank said it expects inflation to slow to its 5% target by the end of the year despite inflation edging up to 10.4% last month. In the near term, we expect the Shilling to weaken amid continued food and energy price inflation. 4.8%

Kenyan Shilling hits new low as FX reserves dwindle

Foreign Exchange

Down

The Shilling weakened to a fresh low against the dollar, trading at 126.15 from 125.90 at last week’s close amid increased FX demand from the oil and energy sector. The currency has now lost more than 2% of its value this year. Kenya’s foreign currency reserves also dropped to a new record low $6.88bn from $6.94bn the previous week. There are signs of recovery in FX flows: Kenya secured a $27m funding deal with the European Union to boost exports to the 27-nation bloc and strengthen the overall business environment. The government is also anticipating $3.4bn in tourism-related earnings this year as it expects tourist numbers to exceed pre-pandemic levels. In the immediate term, however, we expect the Shilling to remain under pressure as importers clamour for dollars to meet month-end obligations.

Senior Treasury Associate, AZA Finance

Yadhav Panday

Murega Mungai Trading Desk Manager, AZA Finance

Mitch Diedrick

Alex Barmuta Forex Dealer, AZA Finance

Europe’s next gas crisis

Europe can heave a sigh of relief – for now. Thanks to an exceptionally mild winter and a well-designed strategy of supply diversication and consumption-reduction measures, the continent avoided what could have been a catastrophic energy crisis following Russia’s invasion of Ukraine.

Its untapped gas-storage capacity is at around 60% –ten percentage points above the historical average for this time of the year – and the benchmark TTF price has fallen more than 85% from its peak last August, from €340 per megawatt hour ($360/MWh) to less than €50/MWh. But this run of good luck must not lead to complacency. There is a risk of signi cant repricing in the coming months, which would weigh heavily on rms and households’ energy bills.

The tightness in European gas markets will likely become more apparent as summer approaches, possibly pushing prices back toward €100/MWh or even higher. The European Central Bank’s ght against ination is not over.

As complex as Europe’s energy situation is, it can be understood with some relatively simple arithmetic. Before Russia’s invasion, European natural-gas consumption amounted to just under 500 billion cubic meters per year. Add today’s (unusually high) stockpiled gas, domestic production, and current  imports of both natural gas

and lique ed natural gas (including from Russia), and you get 440 bcm. Thus, Europe will need to cut consumption or increase LNG imports by 60 bcm to ll the demand-supply gap.

But implementing such a strategy is easier said than done.

Although Europe did manage to reduce gas consumption to roughly 430 bcm in 2022 (13%  below the 2021 level), the unseasonably warm weather played a key role, and there was substantial cross-country variation. Spain, bene ting from its lack of exposure to Russian gas, cut its consumption only moderately, and France and Italy cut theirs by less than the European average. Germany and the Netherlands, by contrast, cut signicantly more, reducing consumption by around 20% compared to 2021. Assuming that weather patterns return to relative normality next winter, European governments will need to aim to cut consumption by 10% from their 2021 levels to keep the total below 450 bcm.

Though the EU set a voluntary target of 15% last year, that would not have been achieved without the anomalously warm weather. A 10% target is much more realistic.

The reduction will come partly from industries such as chemicals, metals, and glass, which use natural gas intensively and will have experienced some scarring from 2022. At the same time, European rms and households will probably maintain the prudent energy-saving practices they have adopted, and mandated consumption caps (such as for residential heating) will likely

remain in place. If so, 50 bcm of the 60 bcm gap can likely be lled through consumption cuts.

The remaining 10 bcm will require Europe to import more LNG from global suppliers. According to the International Energy Agency, global LNG production in 2023 is expected to  increase by about 23 bcm. But that means Europe will need to seize almost half of the overall increase. And since it will nd itself in erce competition with recovering Asian economies –not least China – the demand for LNG will likely push the TTF price above current levels, probably setting a oor at around €80/MWh. The situation will get more challenging if imports of Russian natural gas and LNG are halted completely, which remains a distinct possibility. Overall, these shipments currently amount to  around 45 bcm (a mere 20% of their pre-war levels). Combined with the 10 bcm shortfall, this loss of supply would create a gap of around 55 bcm, more than twice as much as the expected increase in global LNG supply. And since only a fraction of Russian gas can be diverted away from Europe and sold internationally, the global LNG market would be severely undersupplied. In this scenario, the TTF price would be pushed well above €100/MWh – more than ten times its pre-war price – and governments might need to resort to rationing.

Moreover, even if there was enough global LNG supply, Europe would lack the necessary regasi cation capacity. It would need to process around 190 bcm in this extreme scenario, but its current capacity is only around 157 bcm (though

By Edoardo Campanella

more facilities are under construction). Of course, if the consumption cuts were lower than 10%, the gas shortages would be signi cantly higher, creating even more intense upward price pressure. That said, natural-gas prices in Europe are not likely to exceed €200/MWh for three reasons (beyond the fact that the EU has a €180/MWh price cap).

First, high prices last year were partly due to the lack of preparation for such an unprecedented shock. Compared to a year ago, Europe is in a much stronger position to deal with gas shortages. Second,  joint purchases of natural gas at the EU level will help control prices, owing to the bloc’s immense negotiating power as the world’s largest single market.

Third, the EU is in the process of introducing its own price benchmark for LNG contracts.

Currently, LNG prices in

Europe are pegged to the TTF price, which is directly in uenced by disruptions to the ow of natural gas to the continent. But the new benchmark will make LNG prices in Europe more responsive to dynamics in the global LNG market than to natural-gas deliveries through pipelines.

Although Russia’s role as a gas supplier to Europe has been reduced substantially, its shipments will remain essential for balancing supply and demand in the European market until new regasi cation capacity is built, or until alternative energy sources are brought online. LNG is undoubtedly more important in Europe’s energy mix than it was just a few years ago; but there are limits to the relief it can provide. Consumption cuts and solidarity mechanisms (in case of extremely low supply) will remain necessary to avoid an energy crisis next winter.