On 3 coming crises: Energy, food and debt; Adani in Sri Lanka, and Klimat! - Issue #9
The Big Picture
South Asia’s energy crisis just went from bad to worse.
In the middle of last week, Russia further slashed gas supplies to Europe.
The country had already halted gas supplies to Poland, Bulgaria, Finland and the Netherlands. Now, announcing surprise maintenance on the Nord Stream pipeline from Russia to Germany, it slashed gas supplies to Italy by 50%, to Germany by 60%, and stopped gas supplies to France altogether.
This is huge. “For the entire Cold War and the decades since, Russia was a stable supplier of gas to Europe,” Bloomberg’s Stephen Stapczynski wrote on Twitter. “That changed this week as Russia slashed exports.”
While Russia offsets those losses by selling more crude to countries like India and China, countries in Europe face shortages. Italy, for instance, used to get 40% of its imported gas from Russia; for France, 17%. Compounding matters, last week also saw an explosion at Freeport’s LNG plant, which accounts for as much as 20% of the US LNG exports, with 80% of those going to Europe.
The explosion further reduced gas supplies to Europe and added to the spike in global gas prices.
As Europe hoovers up Gas supplies, spot Asia LNG rates are now three times higher than usual for this time of year. In tandem, as Stapczynski wrote, Pakistan (which relies on imported gas to generate power and run industries) slipped deeper into trouble. Even before last week, the country was struggling – it was seeing large blackouts, and the government had reverted to a five-day week. Things have dramatically worsened now – and look set to get even worse once China and Europe start competing for winter supplies of gas.
Sri Lanka is facing energy shortages as well. Ride-hailing apps are unable to allocate drivers; there are fewer buses on roads; people queue for fuel for days; fishermen are unable to set out to sea. In that country, too, chickens are coming home to roost. Given economic mismanagement by the Rajapaksas, further compounded by Covid, the country had slipped into an economic crisis.
Now, even as Lanka struggles to recover, the global rally in fuel prices is exacting a price.
The country is also sailing into a food shortage. The Rajapaksas’ ill-considered fertiliser ban – a knee-jerk attempt to reduce the country’s import bill – has pushed up the cost of farming, resulting in most farmers leaving their fields fallow. The country needs to import food when Russia’s invasion of Ukraine is pushing grain and fertiliser prices.
Similar trends are visible in India. With crude prices rising -- and the Indian government unwilling to hike petrol and diesel prices – oilcos are losing as much as Rs 20-25/litre on diesel; Rs 14-18/litre on petrol. To minimise losses, they tried closing outlets, but the government invoked the Universal Service Obligation for outlets in remote areas. With no word on how they will be compensated, oilcos might have to run these, even at a loss.
This is unsustainable. Firms can sustain losses only so long. And so, given India’s straitened economy plus the weakening Rupee, one wonders if India too will see petrol and diesel shortages.
Gas is a similar tale. Ignoring concerns about imported gas not being competitive, the ruling BJP government had decided to amp up the share of imported gas in the country’s energy mix. Today, when India’s economy is struggling, the currency is weakening, and an unknown proportion of the country’s households has slipped back into poverty, gas prices are surging. The outcome? A rising number of families are again using firewood and cow dung for cooking.
In tandem, as the media has reported, the heatwave is expected to lower farm output this year.
Much of this is the story worldover. Remember too Timothy Snyder’s warning.
Will this triumvirate – energy and food shortages coupled with weaker economies, especially in the global south – create ugly feedback loops?
Given high food and energy costs, not to mention the fear of ballooning debt, nations might want to burn the fuels they have at hand. Germany is already thinking of restarting its coal plants. India, too might want to use coal longer – by burning it directly or mediating it through technologies like gasification.
As Moody’s said last week, India needs $225-250 billion to meet its 2030 renewable energy targets.
Now, given Russia, India might move more funds into older fuels. Emissions might rise. The clean energy transition might slow.
📰 News of the Week
India lost a $111 million appeal over Panna-Mukta and Tapti oil and gas fields.
The Coal Ministry is setting up a just transition cell to draft mine closure plans.
An RBI paper listed Bihar, Kerala, Punjab, Rajasthan, and West Bengal as India’s most fiscally vulnerable states.
Apart from these, explosive news from Sri Lanka. Its electricity authority head informed a parliamentary panel he was told by President Gotabaya Rajapaksa that PM Narendra Modi had insisted a 500-megawatt wind power project be given to the Adani group. Two days later, the bureaucrat resigned.
Per usual, the disclosure made more headlines in Sri Lanka than in India.
The group made headlines for other reasons as well. Total Energies is picking up a 25% stake in Adani New Industries. The two companies, said the press note, will develop “the world’s biggest green hydrogen ecosystem”
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In yet other news, climate crises continued in India. North East India continues to see torrential rain. As the Guardian reported, millions are stranded in India and Bangladesh. Critical road links are underwater.
EV Launch of the Week
Harley Davidson’s electric motorcycle is here.
🎙️ Climate Podcast of the Week
Himal Southasian talks about rising climate volatility in South Asia.
📖 Climate Long-Reads
Oil vs human rights: Biden’s controversial mission to Saudi Arabia (Financial Times).
‘That’s a scam’: Indian firm’s REDD+ carbon deal in the DRC raises concern (Mongabay).
Also see this thread of books on environmental change.
📚 Book of the Week
This week’s book recco is one we are yet to read – but are eager to. Klimat: Russia in the Age of Climate Change, by Thane Gustafson.
Gustafson, a professor of political science at Georgetown University, USA, has a bunch of energy books to his name. Among others, he wrote The Bridge: Natural Gas in a Redivided Europe on whether dense energy ties can bring Europe and Russia closer – or if geopolitical considerations will prevail again. He also wrote Wheel of Fortune: The Battle for Oil and Power in Russia, an account of the messy rise of Russia’s oil industry after the collapse of the USSR.
He is now out with Klimat. As the book’s description says, Russia heavily depends on hydrocarbon exports. Over the next 30 years, however, as climate change intensifies -- melting permafrost in Russia’s north, bringing droughts and floods to the country’s south; and reducing fossil fuel usage – the country will be one of the worst affected by climate change. In tandem, the world will lessen its dependence on fossil fuels. How will all this reshape Russia?
Very few books take stock of a country’s prospects in front of climate change.
The book looks like a must-read. Here is a review.