More than two months into Russia's war in Ukraine, an embargo on Russian gas imports in Europe is still "very unlikely," according to Marc Spieker, CFO of German utility E.ON SE.
While imports of Russian coal have been sanctioned and an embargo on Russian oil was announced last week, lawmakers continue to be hesitant about switching off Europe's Russian gas supplies.
E.ON itself owns a 15.5% stake in the Nord Stream 1 pipeline that is still moving molecules from Russia into Germany. Its sister project, Nord Stream 2, while completed, saw its certification process suspended before even starting operations.
"If you look at the position of the German government, it's crystal clear that a gas embargo would massively and adversely affect the German economy," Spieker said May 11 as E.ON announced its first-quarter earnings.
E.ON CEO Leonard Birnbaum previously said that exiting the company's Nord Stream 1 stake would not hurt Russia.
Germany imports over half of its gas from Russia, and its industrial base needs the molecules for petrochemical processes, food production, fertilizer making and steel production. "Three months in, still no one has a clear idea of what the impacts [of a gas ban] would be," Spieker said.
About 60% of Germany's gas imports came from Russia in 2021, according to S&P Global Commodity Insights, while Russian gas accounts for 32% of gas demand in the EU and U.K., according to the International Energy Agency.
An abrupt stop to gas receipts would cut Germany's gross domestic product by up to 8% in the first year, German economist Tom Krebs of the University of Mannheim, Germany, said in a May 9 study. Further, it would create a "cascading effect" of economic decline through higher prices and reduced consumer spending, the research showed.
In the unlikely event of such a shock to the gas supply, E.ON's retail supply contracts would likely not face penalties. "We would reach out to our customers and encourage them to save energy, but it's not something you can control," the CFO said.
Russia cut off the gas supply to EU member nations Poland and Bulgaria in recent weeks for not paying in rubles for its gas, a demand made in response to the raft of sanctions introduced against it.
E.ON does not have direct agreements with Russian gas suppliers and is therefore not having to pay for gas in rubles, Spieker said.
Ukraine argues that gas receipts help fill Russia's war chest and stopping payments would shorten the war.
S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.