Poorer nations face unrest as wealthy countries snap up fuel

KARACHI • Russia's war in Ukraine has led to Europe bracing itself for a tough winter, but the costs are also piling up in emerging nations as governments struggle to keep energy flowing to citizens hit by surging inflation.

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

The crunch comes at a particularly difficult time: The global shift to cleaner energy sources means developed economies are not investing in efforts to boost fossil fuel production, while poorer nations are being pressed to adopt cleaner-burning natural gas.

With fuel 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 cannot compete.

"It doesn't look like there is any way they can outbid the developed countries," said Mr 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."

Fuel deliveries 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 did not buy liquefied natural gas (LNG) cargoes for August after prices surged.

The energy import bills for developed nations are between 2 per cent and 4 per cent of their countries' gross domestic product (GDP), according to Mr 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 petrol and diesel to appease angry citizens still struggling to rebound from the Covid-19 pandemic.

Mexico will spend about US$25 billion (S$35 billion) on fuel and electricity subsidies this year.

In Africa, the World Bank took the unusual step of subsidising bus passengers in Mozambique to mitigate the crisis.

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 United States, while consumption in Japan and South Korea 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.

With LNG rates rallying about 1,300 per cent in the last two years, Pakistan and Bangladesh have not been able to secure a single spot shipment for months. BSRM Steels, Bangladesh's largest steelmaker, cut production by at least 20 per cent due to the nation's power crisis.

"Nobody is insulated from this crisis," said Mr Aameir Alihussain, a managing director at the company.

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