Energy prices are causing havoc in Asia. The rest of the world should be worried

These are just some of the most compelling scenes taking place in the Asia-Pacific region, where various countries are facing the worst energy crisis in years and grappling with growing discontent and instability caused by soaring living costs. .

In Sri Lanka and Pakistan, the sense of crisis is palpable. Public anger has already sparked a wave of ministerial resignations in Colombo and contributed to the fall of Imran Khan as prime minister in Islamabad.

In other parts of the region, the signs of problems may be less obvious, but still have far-reaching consequences. Even in relatively wealthy countries such as Australia, economic concerns are beginning to surface as consumers feel the burden of higher energy bills.

Wholesale electricity prices in the first quarter of 2022 were up 141% compared to last year; households are being urged to reduce consumption, and on June 15 – for the first time – the Australian government suspended the national electricity market indefinitely. in an attempt to lower prices, ease pressure on the energy supply chain and prevent blackouts.

But it is the experience of India, where electricity demand recently hit record highs, that most clearly illustrates why this is a global and not a regional crisis.

Suffering from massive power outages due to record temperatures, the world’s third-largest carbon emitter announced on May 28 that state-owned Coal India would import coal for the first time since 2015.

What is causing the problem?

While each of these countries is facing a unique set of circumstances, they have all been hit by the dual impact of the coronavirus pandemic and Russia’s war in Ukraine — two unforeseen events that have turned previously reasonable assumptions about supply routes and regional security on its head, and plunged the world of economic planning is in chaos.

At the root of the problem, experts say, is a growing mismatch between supply and demand.

Over the past couple of years, the pandemic has kept demand for energy at an unusually low level. with a drop in global electricity consumption by over 3% in the first quarter of 2020, as lockdowns and other restrictions kept workers at home, cars were off the roads and ships were stuck in ports.

But now, as countries begin to put the pandemic behind them, fuel demand is skyrocketing, and sudden competition is pushing coal, oil and gas prices to record highs.

Turbocharging this trend is Russia’s invasion of Ukraine, world’s third largest oil producer and second largest exporter of crude oil. As the United States and many of its allies have imposed sanctions on Russian oil and gas, many countries are being forced to seek alternative sources, further intensifying competition for limited supplies.

“Energy demand has recovered from the coronavirus quite quickly and faster than supply,” said Samantha Gross, director of the Brookings Institution’s Energy Security and Climate Initiative.

“So we saw high prices even before the Russian invasion of Ukraine (but then it was) really a shock to the energy supply. The various actions taken in response to this are indeed a problem for the energy supply around the world.”

Why Asia?

While the price of energy imports resurrected sharply around the world, with global coal prices five times higher than a year ago and natural gas prices up to 10 times higher than last year, experts say there are reasons why some Asian economies, especially dependent on imports, developing countries were the hardest hit. .

“If you’re a country, especially an emerging economy like Sri Lanka, that has to buy these commodities, has to buy oil, has to buy natural gas, it’s a real fight,” said Mark Zandi, chief economist at Moody’s Analytics. .

“You pay a lot more for what you need, but what you sell hasn’t gone up in value. So you’re shelling out a lot more money trying to buy the same things to keep your economy going.”

Poorer countries that are still developing or have recently industrialized are simply less able to compete with richer rivals — and the more they need to import, the bigger their problem will be, said Antoine Half, senior fellow at Columbia University’s Center for Global Studies. Energy policy.

“So Pakistan certainly fits in there. Sri Lanka, I think, is also suitable there,” he said. “They are taking a hit on price, but they are also suffering from supply cuts. They have to pay more for their energy supplies and in some countries like Pakistan it is really hard for them to get energy.”

Canaries in a coal mine

This dynamic is behind the increasingly chaotic scenes taking place in these countries.

As recently as a week ago, Sri Lanka’s energy and energy minister said it was only a matter of days before the country ran out of fuel. That grim warning came as lines at gas stations in Colombo widened to 3 kilometers (nearly 2 miles) and clashes between police and the public erupted in many cities.
It is almost as if everyday life itself is shutting down. On Monday, government offices, public schools and government-approved private schools were closed for at least two weeks. Public sector workers have been ordered to take Fridays off for the next three months, with the suggestion that they use the time to grow their own food.

Pakistan has also had to shorten the workweek from six days to five, though that could only make matters worse. Its recently introduced six-day work week was supposed to boost productivity and stimulate the economy.

Instead, hour-long daily power outages plagued the country of 220 million for at least a month, with shopping malls and restaurants in Pakistan’s largest city of Karachi forced to close early to save fuel.

The energy supply of the country is almost 5,000 megawatts below demand, a deficit that could between 2 million and 5 million houses on some estimates.
As Information Minister Marriyum Aurangzeb put on june 7: “We are facing a major crisis.”
A vendor sells fabrics under an emergency light connected to a motorcycle during a power outage in Karachi, Pakistan on June 8.

And any notion that such problems only affect poorer, less developed countries has been dispelled by the experience of Australia, a country that has one of the world’s highest levels of median wealth per adult.

Lucky Country has been operating without 25% of its coal-fired power capacity since May, due in part to planned maintenance outages, but also to supply disruptions and price spikes that caused unscheduled shutdowns.

Like their counterparts in Pakistan and Bangladesh, Australians are now being urged to save money, and Energy Secretary Chris Bowen recently asked households in New South Wales, including Sydney, to go off electricity for two hours every evening.

Big problem ahead

The reaction of these countries may create an even bigger problem than rising prices.

Under public pressure, governments and politicians may be tempted to return to cheaper and dirtier forms of energy such as coal, regardless of the impact on climate change.

And there are indications that it may already have begun.

In Australia, the federal government’s Energy Security Council proposed that all electricity producers, including coal-fired ones, be paid to maintain additional capacity in the national grid to prevent power outages. And the New South Wales government has used emergency powers to divert coal from mines in the state to local generators rather than overseas.

Both measures have been criticized by those who accuse the government of betraying its commitment to renewable energy.

In India, a country of 1.3 billion people that uses about 70% of its energy from coal, New Delhi’s decision to increase coal imports is likely to have even more severe environmental impacts.

Sharp cuts in coal production are needed to limit the worst effects of global warming, scientists say, but that would be difficult to achieve without the involvement of one of the world’s largest carbon emitters.

“Any country, be it India, be it Germany, be it the US, if they double down on any kind of fossil fuel, it will eat into the carbon budget. This is a global problem,” said Sandeep Pai, senior scientific leader. Energy Program of the Center for Strategic and International Studies.

While Pai said India’s decision could only be a temporary “crisis response”, if countries continue to rely on coal in a year or two, it would have a significant impact on the war on global warming.

“If these actions happen, they will eat into the carbon budget, which is already shrinking in India, and the 1.5 or 2 degree target will become increasingly difficult,” Pai said, referring to the goal of the Paris Climate Agreement to keep the global average growing. temperature from 1.5 to 2 degrees Celsius.

Scientists suggest that if the temperature increase exceeds this range, even temporarily, some of the changes it causes on the planet may be irreversible.

As Pai puts it, “The scale, size and demand of India means that if it does double its coal consumption, we’re going to have a really big climate problem.”

Iqbal Atas contributed reporting.

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