The cost of natural gas shortages in Ireland

This paper investigates the economic implications of disruptions of one to ninety days to the supply of natural gas in Ireland. We assess the impact of a hypothetical gas supply disruption in both winter and summer in 2008 (with observed market characteristics) and in 2020 (with projected market characteristics). The cost of a natural gas outage includes the cost of natural gas being unavailable for heating and other purposes in the industrial and commercial sectors, lost consumer surplus in the residential sector, the cost of lost electricity in all sectors and lost VAT on the sale of gas and electricity. Ireland generates much of its electricity from natural gas and the loss of this electricity accounts for the majority of the cost of a natural gas outage. Losing gas-fired electricity would cost 0.1–1.0 billion euro per day, depending on the time to the week, the time of year and rationing. Industry should be rationed before households to minimise economic losses, but current emergency protocols do the opposite. If gas-fired electricity is unavailable for three months, the economic loss could be up to 80 billion euro, about half of Gross Domestic Product. Losing gas for heating too would add up to approximately 8 billion euro in economic losses. We also discuss some options to increase Ireland's security of supply, and find that the cost is a small fraction of the avoided maximum damage. - Highlights: ► The cost of losing three months of gas-fired power could be as high as 80 billion euro or 50% of GDP in Ireland. ► Losing gas for heating for three months would add another 8 billion euro on average. ► The best response in an outage is to cut power to industry first. ► The costs of a 90 day gas disruption in Ireland would far outweigh the cost of investing in a 90 day storage facility.