Natural Gas Shortage: What are the impacts for your business?

THE RESILIENT ENTERPRISE | THE RISKMETHODS BLOG

1. Why might there be a natural gas shortage?

In response to Western sanctions following invasion of Ukraine, Russia cut supplies of natural gas to several countries in Europe. The continent was already facing questions on energy security before the war began. Now a potential natural gas shortage might cause supply chain disruptions. Reasons include: 

  • Reduced flow of natural gas in Russian gas pipelines to Europe. Russia has stopped natural gas delivery to Bulgaria, Denmark, Finland, Latvia, Netherlands, and Poland. It claims that it could only deliver 20% of capacity to Germany’s Nord Stream 1 pipeline because of turbine repair.
  • Alternatives such as liquified natural gas (LNG) are insufficient. Imports of LNG via floating storage and regasification units currently provide only small volumes. Europe is racing to develop liquefied natural gas (LNG) import terminals and new pipelines.
  • Transition to renewable energy takes time. Governments aim to speed transition to renewables such as biogas or fuels based on clean hydrogen. However, standard sources such as nuclear power and fossil fuels, most notably coal, are seeing a revival.

2. Impact of a natural gas shortage on key industries

Disruption of gas supplies from Russia and Ukraine, along with soaring prices, have jolted global supply chain and manufacturing industries. In advanced economies such as the US and Germany, industry consumes about 33% - 37% of natural gas supply. Energy-intensive industries could suffer from a shortage of natural gas needed for production processes or to generate energy. 

Natural gas shortage

  • Chemicals: The chemical industry is among the hardest hit. Natural gas shortages also heavily affect products including pharmaceuticals, plastics, or fertilizer that rely on chemicals. Shortages and high prices thus ripple through to other industries. 
  • Metals: Metals are key for industrial manufacturing. Steel makers may be forced to suspend production. Among others, producing aluminum and zinc consumes huge quantities of gas for smelters.  
  • Glass and paper: Glass and paper are needed for packaging, and their producers are among the top industrial gas users. Europe's largest paper packaging producer, Smurfit Kappa, says gas rationing could lead to a shortage of paper. 
  • Food and beverage: Producing food and drink is also energy intensive. Beer requires lots of energy for brewing processes, for example. And making beer bottles relies on glass, which consumes large volumes of natural gas in production. 

3. Can Europe avoid a natural gas shortage?

According to a July 2022 report by the International Monetary Fund, alternative sources could replace up to 70 percent of Russian gas. This means Europe could avoid extreme shortages during a temporary disruption of around six months.

Nonetheless, a potential natural gas shortage deeply worries most European governments and key industries. Energy security is central to keeping advanced economies running. Households and businesses are being called on to conserve gas and energy to reduce the worst impacts. Even without a natural gas shortage, skyrocketing prices threaten to cripple industry.  

4. How could a natural gas shortage impact your business?

In most industrial processes, energy supplies cannot be replaced quickly or easily. Technical difficulties are joined by often unwieldy approvals processes. As the EU proposes that member states cut natural gas use by 15% in the coming months, rationing may be needed.  

Inflated costs are already forcing strategy shifts. Businesses may have to maintain operations at a reduced load, distribute production capacity among global locations, or stock up on fuel. The search is also on for alternatives. 

Mercedes-Benz, for example, is confident that the company can replace potential gas supply shortfalls with power from renewable energy sources. Yet businesses also need to understand whether their suppliers are at risk of potential drop in natural gas supply. Here is where The riskmethods SolutionTM can help. 

5. Top five tips for assessing your risk of a natural gas shortage

In the initial weeks and months of the Russia-Ukraine war, alerts provided by The riskmethods Solution enabled customers to react faster to the changing situation.

On the country level, customers received early warnings regarding gas supplies and the Russia situation. They also received immediate notification if their suppliers were impacted. Such information gives companies a head-start over the competition in the search for alternatives. 

Here are five tips on how The riskmethods Solution can help you assess your risk of a natural gas shortage in your supply chain: 

Natural gas shortage

  1. Gain visibility into your key suppliers. Are your suppliers, or sub-suppliers, in countries where natural gas delivery was completely stopped? Gain visibility into your supply network to learn where sub-tiers or third parties in your supply networks are located before crisis hits. 
  2. Identify which suppliers could be affected by a natural gas shortage. Determine where any barriers or transport restrictions exist, particularly for critical suppliers. Map these and other risk objects, be the first to learn of energy outages through real-time monitoring.  
  3. Identify critical goods. Uncover single-source suppliers and any dependencies. Asses the criticality of suppliers and the effect of mitigation activities. For example, quantify the effect of using alternatives in regions that are less likely to be hit by natural gas shortages.  
  4. Take charge of your situation. Have proactive action plans ready, so you know what to do if your suppliers are affected by disruption in gas supplies. Also have tools in place to help you coordinate tasks, so you can react and communicate faster.  
  5. Assess supplier risk directly. Use surveys for direct feedback. With short surveys, you assess whether your partners have plans for a natural gas shortage. Save time and effort by automating such risk assessments. 

 

Soaring prices continue to impact entire economies, industries, and companies. riskmethods data shows that power/energy outage alerts have more than doubled in the past two years. Our “energy outage” risk indicator warns of significant power shortages, blackouts, and natural gas shortages.  

The energy outage indicator is among approximately 180 risk indicators available in The riskmethods Solution. Use the power of artificial intelligence and real-time monitoring to receive alerts on all kinds of threats to your supply chain. 

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Learn how to monitor, identify, assess, and mitigate all kinds of risks. Find out why The riskmethods SolutionTM is the right choice for your organization.  

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