Rich countries gobble up fuel
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.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% 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% and 4% of gross domestic product, according to Ashraf. For comparison, those costs for some emerging nations have climbed above 25% of GDP, he said. Meanwhile, plummeting currencies are keeping import costs prohibitively high, exacerbating efforts to control inflation.
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 US$3 billion after protests over issues including rising fuel prices.
'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 stabilised.”-Fin24