How energy crisis strengthens its grip across Europe and Asia
Gas, coal and electricity prices have risen to their highest levels in decades - and that's having sweeping consequences across the world.
There is increasing alarm in world capitals about the energy crises sweeping countries just as they emerge from the Covid-19 pandemic.
The International Energy Agency (IEA) is warning countries that the energy crunch could last for at least two years.
The jump in energy consumption (6 percent), the largest since 2010, is being driven by a number of reasons including unusual weather and economies rebounding from Covid-19 lockdowns and restrictions. However, the latter piece of good news will be of little comfort to governments who will now need to deal with another headache and potentially even political and economic instability.
So how are different countries coping with the energy crises?
The UK has seen a surge in energy prices, threatening already fragile living standards in the country.
The country was already struggling to increase living standards following the 2007 financial crisis. A British think tank has calculated that before the pandemic began that the country was experiencing the worst pay growth in 210 years.
That staggering static has only been made worse by the pandemic, and with energy prices set to increase by a whopping 50 percent in the UK over the next few months – living standards are likely to only further erode.
One of Britain’s largest energy companies recently warned the country that people should prepare for even higher energy prices for at least two more years.
As Europe’s energy crisis has grown starker, the French government asked its biggest utility company to take an $8.8 billion hit to protect consumers. The French President Emmanuel Macron, who faces an election this year, is determined not to lose votes.
Meanwhile, Germany, Europe’s largest economy, has been closing all its nuclear reactors resulting in the country demanding more energy.
The energy crisis has been further exacerbated by geopolitical tensions between the US and Russia over Ukraine.
Germany has been looking to expand the amount of energy it sources from Russia through the Nord Stream II pipeline – which would undercut Ukraine while linking the two countries directly.
Russia accounts for around 40 percent of Europe’s energy needs, and while analysts believe that the country is meeting its contractual obligations – it is not working to meet the additional demand – resulting in prices increasing.
The head of the IEA, Fatih Birol, has accused Russia of exacerbating the continent’s energy crises, a claim Russia refutes.
Following the collapse of US-Russian talks earlier this week, gas prices jumped – with Moscow warning that Washington has failed to address the country’s security concerns leaving the option of military action in Ukraine on the table.
In a note to investors, Bank of America believed that for the average consumer in the EU, their energy bills are set to skyrocket in 2022 to $2,095, up from $1370 in 2020.
The biggest increases will be in Italy and the UK, where bills will jump by about $1,000.
Ukraine, for its part, is also experiencing an energy crisis of its own, in part, due to geopolitical tensions – as Russia tightens the screws and makes it harder for the country to purchase additional energy. Moreover, the country’s lack of planning for the winter months and internal political factionalism has only exacerbated the crises.
While in Europe, the energy crisis is picking up steam and is set to erode the living standards of citizens and potentially drive millions into poverty, in other countries, it could topple governments.
One of the most visible signs of what the energy crises could do in some countries unfolded in Kazakhstan, where protests were triggered by a 100 percent gas price hike on liquefied petroleum gas (LPG), widely used by citizens to run their cars, resulting in widespread protests across the country.
In Tajikistan, another central Asian state, there have been rolling power blackouts since November, leaving many of the country’s citizens outside of major cities without power.
Similarly, Uzbekistan has been experiencing power blackouts, which authorities have blamed on the weather.
Even in Turkmenistan, a country that boasts the fourth-largest reserves of natural gas in the world, there have been reports of regular power outages.
What makes the situation particularly febrile in these states is that rising energy prices against the backdrop of high reserves of resources has left many wondering what the country’s political elites have been spending their money on.
The global energy crisis has not spared the world’s second-largest economy either.
Since September last year, high coal prices in China have left millions across the country facing energy blackouts and forced local governments to close some energy-intensive industries.
Owing to the integrated nature of global energy supplies, Chinese demand for power is also pushing prices up in other parts of the world, in turn increasing competition for energy resulting in ever-higher prices.
China’s energy crises at home stem in part from the government, which has ordered coal-powered power plants to shut down – a policy it has been forced to re-evaluate.
In a bid to head off blackouts at home as energy prices have soared, Indonesia, one of the largest suppliers of coal to China in the world, shocked everyone at the turn of this year by halting exports, a move it has only relaxed somewhat.
The impact of rising coal prices will be most acutely felt in India, which is the world’s second largest importer of coal, and home to the fourth largest coal reserves in the world.
In a country where 70 percent of the energy emanates from coal, rising prices and booming energy demand is leaving the country facing a precipitous energy crisis which threatens millions with poverty and an economic slowdown.
India’s neighbour, Pakistan, is not faring much better but rather than coal it faces a gas crunch, with higher global prices and not enough reserves creating a perfect storm for the country.