Mr. Cillian O'Donoghue:

I thank the Senator. There were two questions for me. The first was about the replacement of Russian gas supply and demand, and the second was about hedging. The Senator's analysis is correct in terms of supply and demand. Traditionally, we received 40% of our gas from Russia, which was 155 to 170 bcm. We are now getting 9%. Approximately 150 bcm needs to be replaced. It is quite tricky to reduce demand. With gas we will try 15% and with electricity we will try 10%, but that still will not bring down the curve enough. We are hoping that a milder winter will mitigate the situation, but we are trying to get more gas in via LNG. In particular we have the idea of using floating terminals, also known as FSRUs, which are used in certain member states. For example, there is a joint project between Estonia and Lithuania to at least get minimum gas in for this winter. It takes a year or longer to build a LNG terminal, but that is something we will try and build out. However, the Senator's analysis is correct and that is what I am flagging for this winter. The supply and demand curves just do not match. The demand is inelastic and hard to reduce. It is also hard to get new supply on board. That is the challenge. We hope that France, which traditionally exported 10 GW of electricity but is now importing 10 GW, will quickly get back up nuclear plants that are currently down. There is a big push in France to do that. We hope that the weather is suitable as well.

Hedging is a normal strategy in the electricity sector. We see from the current crisis that it creates winners and losers. I will speak both to the consumer perspective and then the electricity producer perspective and will use the example of the aluminium sector in which I worked for six years. If consumers are hedged and, therefore, have bought electricity for the next 15 years at a set price of €30 per MWh, they are not affected by the high prices now. They are only paying €30 instead of €500, which is the price to which some hours have gone. They are making a lot of profit as they are hedged. From the other side of the coin, if a company is a supplier and has to sell this electricity for €30 per MWh, even if buying it at a much higher price from Russia, then it is losing money and some companies are going bust. That is how hedging works. They buy out in the time ahead and it creates winners and losers. I will give one example from Germany. A large German company had a long-term contract for Russian gas. It has to sell its electricity at a certain price to its customers. The Russian gas, which was at a set price, was cut off. It then had to buy from the market at an extremely high price, but has to sell to its customer at the agreed price, which is hedged. It made a huge loss, because it is buying gas from the spot market at an extremely high price but is locked in to sell to its customer at a low price. The state had to intervene to find solutions to alleviate that problem. That is how hedging works, and I hope I have explained it well enough.