Ongoing energy shock continues to pound economies — Issue #11
News of the Week
The ongoing energy shock continues to pound economies.
As reported by Bloomberg, gas prices in the Netherlands are eight times higher than usual, and electricity trading is signalling the crunch may last into next year. “Power for 2023 delivery is changing hands at prices six times higher than the 5-year average in Germany, Europe’s biggest market,” it added.
Things might get even worse. JP Morgan shared its worst-case assessment, saying the price of crude might touch $380. Europe, said IEA, might need to cut gas use by as much as 30% this winter.
As energy prices spike, utilities across the world are bleeding. Countries are not just subsidising power bills; they are taking more radical steps. One response, as Bloomberg reported, is a re-nationalisation of the energy sector. “Governments realise they can’t leave energy security solely in the hands of markets. Berlin is in talks to bail out Uniper SE, France is considering nationalising Electricite de France SA. At the same time, Britain has brought gas and electricity provider Bulb Energy Ltd under its control.”
How is India responding? As this newsletter has said earlier, the country’s oilcos are also struggling.
Last week, worried about domestic stocks being diverted to other countries, India slapped export duties on petrol, diesel and aviation turbine fuel. The country also imposed a Rs 23,250 per tonne tax on crude oil produced domestically. “The export tax is to deter companies such as Reliance Industries and Rosneft-based Nayara Energy from preferring overseas markets over domestic supplies,” reported The Print.
The country has also renewed its push for greater energy self-reliance. During the heatwave, the government auctioned more coal blocks. Now, ONGC has been told to look for oil and gas in the Andaman sea. India also plans to ramp up its washing facilities for raw coking coal, a key input for the steel industry, to reduce its reliance on imports of the commodity. Coal India plans to build nine washeries with a capacity of 30 million tons per annum – up from the current 23 million tons of capacity.
A clutch of companies is struggling as well. Over the last five years, a clutch of Indian companies has turned to external borrowings to fund expansion and operations. Now, as high oil prices drag down the rupee, they are also in trouble. As Business Standard reported, with the rupee touching its lowest against the dollar, it has become more “expensive for the Indian companies already facing the challenge of higher interest rates to service existing foreign debt or sell new bonds in another currency.”
In all, the global food, energy and financial crises unleashed by the war in Ukraine have hit countries already reeling from the pandemic and the climate crisis, reversing what had been a growing convergence between developed and developing countries,
UN Chief António Guterres said.
One way to end all this? Starve Russia of funds. And so, G7 is thinking of creating a price cap for Russian oil – so that the country doesn’t profit from spiking oil prices thanks to its invasion of Ukraine.
Can this work? Or will Putin simply reorient his energy supplies to countries like India and China? India has not only emerged as a conduit for Russian oil to Europe, but Russia, as was also reported, became India's biggest supplier of crude in June. (For a counter-point on this, see The Diplomat article hyperlinked in Climate Long Reads).
Companies have begun paying Russia in Chinese Yuan rather than the US dollar. Indian cement maker Ultratech is one of these companies. It used the Yuan to pay for a shipment of coal. "The increasing use of the yuan to settle payments could help insulate Moscow from the effects of western sanctions imposed on Russia over its invasion of Ukraine and bolster Beijing's push to further internationalise the currency and chip away at the dominance of the US dollar in global trade," wrote Reuters.
In other news, India's controversial battery swapping policy is expected to be announced soon.
The controversy in Sri Lanka on whether the Indian government recommended Adani Green Energy for wind energy projects in Mannar and Pooneryn, refuses to go away. In a clarification to Daily FT, a Sri Lankan business newspaper, the Ceylon Electricity Board backed what its former chairman had told a parliamentary panel: "A proposal from the Adani Green Energy, on the request and recommendation of the government of India, has been considered by the government..
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The news, per usual, has made little ripples in India.
Climate Podcast of the Week
Social Media Threads this Week
Climate Long Reads
The Great European Energy Market Bailout Is Only Getting Started(Bloomberg)
The curious case of Jindal Poly’s INR700 crore investment in Odisha power plants
“Overall, Russia is reorienting its energy exports to China, India, and Asia-Pacific markets at a rapidly accelerating pace due to sanctions, import bans, and self-sanctioning from businesses. But it’s quickly running into the logistical limits of what existing infrastructure can sustain and is doing so in a haphazard, uncoordinated manner,” writes The Diplomat.
Book of the Week
China’s Next Act: How Sustainability and Technology are Reshaping China’s Rise and the World’s Future, by Scott M Moore.
The pace of change in Chinese policies vis-à-vis the environment is enough to make the head spin.
In the last 60 years, the country has paid high environmental costs due to Mao’s great leap forward – superbly captured in Judith Shapiro’s Mao’s War Against Nature. Then came the country’s pivot towards globalisation and manufacturing, both with high environmental costs, all described in Elizabeth Economy’s The River Runs Black. In tandem, a clutch of species went extinct. Here is Sam Turvey’s book on the Baiji, the Yangtze River Dolphin. Also came significant air pollution. In response, the country pivoted to what can only be called authoritarian environmentalism. In China Goes Green, Yifei Li and Judith Shapiro looked at the country’s “coercive environmentalism”.
Now comes another book that touches on China and the global environment. In China’s Next Act, Scott Moore examines China’s role in the world, focusing on sustainability and technology. The book focuses on Chinese work on the environment (clean energy), public health and technology – and how it impacts the world.
Read this interview with the author.