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India, Pakistan left in a lurch as gas deliveries get redirected to Europe

With gas prices more than 150% higher since the Russian invasion in February, and wealthier nations able to pay more to ensure adequate supplies, emerging nations can't compete

inflation, india, pakistan

Representative Image (Photo: Bloomberg)

Stephen Stapczynski, Anna Shiryaevskaya, & Faseeh Mangi | Bloomberg
Russia’s war in Ukraine has Europe bracing for a tough winter, but the costs are piling up higher in emerging nations as governments struggle to keep energy flowing to citizens hit by surging inflation. 

Pakistan’s government is triggering rolling blackouts and boosting power bills because it can no longer secure enough fuel. Shops in Bangladesh are closing at 8 p.m. as part of energy austerity measures, while Mexico’s government has bolstered subsidies to cushion residential electricity costs. 

The crunch comes at a particularly difficult time: The global shift to cleaner energy sources meant developed economies weren’t investing in efforts to boost fossil fuel production, while poorer nations were being pressed to adopt cleaner-burning natural gas. Now, with gas prices more than 150 per cent higher since the Russian invasion in February, and wealthier nations able to pay more to ensure adequate supplies, emerging nations can’t compete. 

“It doesn’t look like there is any way they can outbid the developed countries,” said Muqsit Ashraf, who leads Accenture’s Global Energy Industry practice in Houston. “It is having significant economic implications; it will also have an impact on their ability to fund other economic and national priorities.”

It’s a problem playing out across the developing world. 

Already, gas deliveries that were scheduled for Pakistan or India are being redirected to Europe, where buyers are able to afford higher prices, according to energy traders. Sri Lanka is struggling to secure fuel from its regular suppliers, while Argentina didn’t buy liquified natural gas cargoes for August after prices surged. 

The energy import bills for developed nations are between 2 per cent and 4 per cent of gross domestic product, according to Ashraf. For comparison, those costs for some emerging nations have climbed above 25 per cent of GDP, he said. Meanwhile, plummeting currencies are keeping import costs prohibitively high, exacerbating efforts to control inflation.

Governments across Latin America have responded by ramping up subsidies and cutting taxes on gasoline and diesel to appease angry citizens still struggling to rebound from the pandemic. Mexico will spend about $25 billion on fuel and electricity subsidies this year. In Panama, the government was forced to act after angry protesters took to the streets.

In Africa, the World Bank took the unusual step of subsidizing bus passengers in Mozambique to mitigate the crisis while in Burundi, gasoline shortages are compelling drivers to buy fuel on the black market at three times the official price. Ghanaian President Nana Akufo-Addo is now seeking to double International Monetary Fund support to $3 billion after protests over issues including rising fuel prices.

For much of the last decade, coal and gas were cheap and abundant —  and fast-expanding emerging economies benefited. A flurry of new LNG export facilities came online from Australia to the US, while consumption in Japan and South Korea — the commodity’s top importers — plateaued. Moves by rich governments to abandon dirty coal resulted in a supply glut, and the shale revolution flooded international markets with crude oil.

Those days are over. 

Indian natural gas distributor Gail has been unable to secure enough LNG for its domestic customers, forcing it to cut supply to major users such as petrochemical plants and fertilizer makers. In Thailand, retail electricity tariffs were hiked by 17 per cent this week because of pricey LNG imports.

With LNG rates rallying about 1,300 per cent in the last two years, Pakistan and Bangladesh haven’t been able to secure a single spot shipment for months. BSRM Steels Ltd., Bangladesh’s largest steelmaker by market value, cut production by at least 20 per cent due to the nation’s power crisis, according to Aameir Alihussain, a managing director at the company. 

“Nobody is insulated from this crisis,” he said.

Tawfiq-e-Elahi Chowdhury, the adviser on power, energy and mineral resources to Bangladesh’s prime minister, called for patience, saying earlier this month that “I can’t promise anything unless we find a huge reserve of gas.” 

But citizens in many nations have run out of patience. 

Pakistani protesters have blocked roads across the country. In one incident, demonstrators threw stones at the police, which had to resort to using water cannons to disperse the crowd. In Panama, highways and ports were blocked. 

‘Ripple Effect’

“The longer the energy crisis goes on, the more likely there is to be civil unrest around the world,” said Susan Sakmar, a visiting assistant professor at the University of Houston Law Center.

It’s not just the developing world that is suffering. Germany may not have enough gas to get through winter if Moscow cuts off supplies. The UK is buying Australian LNG for the first time in at least six years amid tight supplies. And a surge in US gasoline prices earlier this summer may do lasting damage to President Joe Biden’s Democratic party in November midterm elections. 

But those nations have options poorer ones don’t. Developing nations have long complained that rich countries aren’t channeling enough money to help with the energy transition and ambitious climate change targets. Now that gap is widening and they are getting left behind. 

“When energy is so central to everyday life, it can have a ripple effect that goes well beyond the energy equation,” said Accenture’s Ashraf. “It may prompt another rethink in the developing world about taking steps in the energy transition more slowly until energy systems are stabilized.”


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First Published: Aug 19 2022 | 8:06 AM IST

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