The Impact of the European Energy Crisis on Emerging Economies and Lessons for the Energy Transition
Despite earlier concerns about supply shortages, Europe has managed to secure enough energy for the winter albeit with inflated prices. The brunt of the global energy shortage may be faced by countries who import a high proportion of their energy needs from spot markets and now find themselves facing inflated prices.
Russia and Europe
Prior to the beginning of the war between Russia and Ukraine, Russia supplied a significant amount of the EU’s fuel imports: 53% (i) of its gas and 29% of oil (ii). One year on, this has fallen to less than 20% (iii) of gas imports and 15% (iv) of oil.
To find alternative sources of energy, European countries entered spot markets where oil and gas is available for short-term delivery. Rather than the pipeline gas previously purchased from Russia, countries instead purchased shipments of liquified natural gas from sources like the US and Qatar.
However, liquified natural gas has 10x more greenhouse gas emissions than pipeline gas, largely due to the energy needed to cool it to -160°C for transport (v). According to a 2020 North Sea Transition Authority (NSTA) analysis the 2019 average emissions intensity for gas imported to the UK via pipeline was 18 KgCO2e/boe whereas the average emissions intensity from LNG imports was 59 KgCO2e/boe (xiv). European countries replacing gas imported via pipeline with LNG imports are accepting higher emissions entities to maintain energy security and supply.
The Impact on Pakistan
The European energy crises has had global knock on effects. Emerging economies on other continents are facing inflated prices for oil, gas and coal; or being priced out of the market altogether as they have to compete with countries like Germany for the same resources (viii). An example is Pakistan, who are facing both climate and energy challenges.
Pakistan relies on imports for almost 1/3 of its energy resources (vi). Fossil fuels make up 59% of their energy mix while the remained is comprised of hydropower (25%) (vii), Nuclear (9%), wind or solar (6% ) and 1% bagasse (a fibrous material left after sugarcane harvesting, which can be burnt to release energy).
Due to the compounding factors of a strong US dollar and inflated prices, it has been difficult for Pakistan to secure the energy it needs. Attempts to sign long term contracts to combat short term shortages have been unsuccessful. Pakistan ‘was unable to close a six-year deal that would have started next year,’ after no short term purchase agreements could be made. Liquid natural gas suppliers ‘have stopped bidding to sell fuel to Pakistan’ because they no longer have confidence in Pakistan’s ability to make payments (viii).
In response the government has implemented energy saving measures: closing markets at 8:30pm, restaurants by 10pm and ordering 30% electricity savings in public departments. Much of the country, including the capital Islamabad, have suffered blackouts.
In late January 2023 the government shut down power generation overnight and encountered major problems attempting restarts, leaving the entire country without power for 15 hours (ix).
This is not an isolated incident, following more frequent smaller blackouts and a large blackout in 2021. Power outages leave citizens unable to meet the basic standards of quality of life. Millions were left without safe drinking water as the pumps they rely on run on electricity.
Pakistan’s energy problems are compounded by climate change related adverse weather. Their hydro power is sourced from the Indus River system. Climate change has made regional weather patterns more extreme, with fluctuations between prolonged drought and deluging monsoon seasons having been observed (x).
Similar trends have also been observed in Europe, with summer droughts and reduced winter snow fall leaving hydropower generation less reliable than it has been previously (xv).
As imports and hydro become less reliable, Pakistan plans to use more of its domestic coal reserves, mainly found in the Thar region. Its domestic oil extraction is constrained by technical and financial limitations and natural gas is scarce. Coal power plants have been heavily reliant on imports, however new domestic infrastructure is coming online.
Pakistan’s Energy Minister Khurram Dastgir Khan said in an interview with Reuters: “We have some of the world’s most efficient regasified LNG-based power plants. But we don’t have the gas to run them” (xvi). In response to the current LNG shortages, Pakistan has changed its’s focus to domestic coal, planning to increase its domestic coal power capacity from 2.31 GW currently to 10 GW in the future. If Pakistan’s energy output from liquified natural gas is to be replaced by burning coal, the country’s annual emissions could increase by 33% (xi).
What Can We Learn?
The European Energy crisis has shown that a reduction in oil and gas supply doesn’t necessarily lead to a global reduction in greenhouse gas emissions. If the transition is not managed with sufficient energy to meet society's essential needs, fossil fuels will not necessarily be replaced by lower greenhouse gas emission intensity alternatives. Europe has replaced pipeline gas with higher emission intensity LNG imports, while Pakistan has plans to increase its coal fired power plant capacity to try and maintain energy security after not being able to meet its own energy needs through LNG imports.
A reduction in gas from Russia has led to a global knock on effect that has contributed to the increase in emissions intensities in both Europe and Pakistan, with other countries similarly affected. When faced with the energy trilemma, countries may choose energy security over the environment. This indicates that care must be taken when planning the energy transition to ensure that global emissions decrease rather than increase in response to a drop in oil and gas supply.
Turning off the taps tomorrow may not lead to a drop in global emissions, in fact it could lead to an increase.
We are grateful to our guest author, Jamie Miller, who researched and wrote this article for us to include in our blog.
i. European Council (2023) Where does the EU's gas come from?, Consilium. Available at: https://www.consilium.europa.eu/en/infographics/eu-gas-supply/#:~:text=In%20August%202022%2C%20Russia's%20share,the%20US%2C%20Qatar%20and%20Nigeria. (Accessed: February 6, 2023). Statistic is for the second half of 2021.
ii. Eurostat (no date) From where do we import energy ?, Shedding light on energy in the EU. Available at: https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c.html (Accessed: February 6, 2023). Statistic is for imports in the year 2020.
iii. European Council (2023) Where does the EU's gas come from?, Consilium. Available at: https://www.consilium.europa.eu/en/infographics/eu-gas-supply/#:~:text=In%20August%202022%2C%20Russia's%20share,the%20US%2C%20Qatar%20and%20Nigeria. (Accessed: February 6, 2023). Statistic is for the second half of 2021.
iv. Eurostat (2022) Statistics explained, Statistics Explained. Available at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=EU_imports_of_energy_products_-_recent_developments#Overview (Accessed: February 6, 2023).
v. McGrath, M. (2022) Climate change: Hidden emissions in liquid gas imports threaten targets, BBC News. BBC. Available at: https://www.bbc.co.uk/news/science-environment-63457377 (Accessed: February 7, 2023).Quoting Patrick King from Rystad Energy.
vi. Malik, S., M. Qasim, H. Saeed, Y. Chang, and F. Taghizadeh-Hesary (2019) Energy Security in Pakistan: A Quantitative Approach to a Sustainable Energy Policy. ADBI Working Paper 1024. Tokyo: Asian Development Bank Institute. Available: https://www.adb.org/publications/energy-security-pakistan-sustainable-energy-policy (Accessed February 7, 2023).
vii. Pakistan Ministry of Finance (no date) Pakistan Economic Survey 2021-22, Ministry of Finance Government of Pakistan, Chapter 14 ‘Energy’. Available at: https://www.finance.gov.pk/survey_2022.html (Accessed: February 7, 2023).
viii. Stapczynski, S., Shiryaevskaya, A. and Mangi, F. (2022) EU Energy Crisis sparked by Ukraine War to create blackouts in poor countries, Bloomberg.com. Bloomberg. Available at: https://www.bloomberg.com/news/articles/2022-11-08/eu-energy-crisis-sparked-by-ukraine-war-to-create-blackouts-in-poor-countries?leadSource=uverify+wall (Accessed: February 7, 2023).
ix. Zaremba, H. (2023) Europe's energy crisis leaves almost all of Pakistan without power, OilPrice.com. Available at: https://oilprice.com/Energy/Energy-General/Europes-Energy-Crisis-Leaves-Almost-All-Of-Pakistan-Without-Power.html (Accessed: February 7, 2023).
x. Hersher, R. (2022) Climate change likely helped cause deadly Pakistan floods, scientists find, NPR. NPR. Available at: https://www.npr.org/2022/09/19/1123798981/climate-change-likely-helped-cause-deadly-pakistan-floods-scientists-find (Accessed: February 10, 2023).
xi. Energy mix values taken from Pakistan Ministry of Finance (no date) Pakistan Economic Survey 2021-22, Ministry of Finance Government of Pakistan, Chapter 14 ‘Energy’. Available at: https://www.finance.gov.pk/survey_2022.html (Accessed: February 7, 2023).
xii. Emissions calculator found at Avoided emissions calculator (no date) IRENA. Available at: https://www.irena.org/Data/View-data-by-topic/Climate-Change/Avoided-Emissions-Calculator (Accessed: February 9, 2023).
xiv. NSTA (2020) Natural gas carbon footprint analysis. Available at: https://www.nstauthority.co.uk/the-move-to-net-zero/net-zero-benchmarking-and-analysis/natural-gas-carbon-footprint-analysis/
xv. SPG Global (2022) Droughts rattle Europe’s hydropower market, intensifying energy crises. Available at: https://www.spglobal.com/commodityinsights/en/market-insights/podcasts/focus/022223-oil-gas-russia-ukraine-war-markets-sanctions-supply-energy-security-price-volatility-production
xvi. Peshimam, G N (2023) Exclusive: Pakistan plans to quadruple domestic coal-fired power, move away from gas. Available at: https://www.reuters.com/business/energy/pakistan-plans-quadruple-domestic-coal-fired-power-move-away-gas-2023-02-13