Energy prices are causing chaos in Asia. The rest of the world should be worried

These are just some of the more eye-catching scenes playing out in the Asia Pacific region, where various countries are facing their worst energy crisis in years — and grappling with the growing discontent and instability caused by knock-on increases in the cost of living.

In Sri Lanka and Pakistan, the sense of crisis is palpable. Public anger has already caused a wave of ministers to resign in Colombo and contributed to Imran Khan’s downfall as prime minister in Islamabad.

Elsewhere in the region, the signs of trouble may be less obvious but could yet have far reaching consequences. Even in comparatively rich countries, such as Australia, economic concerns are beginning to emerge as consumers feel the pinch of higher energy bills.

Wholesale electricity prices in the first quarter of 2022 were up 141% from last year; households are being urged to cut down usage and on June 15 — for the first time — the Australian government suspended indefinitely the national electricity market in a bid to bring prices down, ease pressure on the energy supply chain and prevent blackouts.

But it is the experience of India, where power demand recently hit record highs, that illustrates most clearly why this is a global — rather than regional — crisis.

Having suffered through widespread outages amid record temperatures, the world’s third-largest carbon emitter announced on May 28 that state-run Coal India will import coal for the first time since 2015.

South Kolkata District Congress members join a demonstration against rising fuel prices in Kolkata, India on June 2.

What’s causing the problem?

While each of these countries faces a unique set of circumstances, all have been hit by the twin effects of the coronavirus pandemic and Russia’s war in Ukraine — two unforeseeable events that have turned on their heads previously reasonable assumptions about supply lines and regional security and in the process plunged the world of economic planning into chaos.

At root, experts say, the problem lies in a growing mismatch between supply and demand.

Over the past couple of years, the pandemic kept demand for energy unusually low, with global electricity consumption dropping by more than 3% in the first quarter of 2020 as lockdowns and other restrictions kept workers at home, cars off the road, and ships stuck in ports.

But now, as nations begin to put the pandemic behind them, demand for fuel is spiking — and the sudden competition is pushing the prices of coal, oil and gas to record highs.

Turbo-charging this trend is the invasion of Ukraine by Russia, the world’s third largest oil producer and second largest crude oil exporter. With the United States and many of its allies sanctioning Russian oil and gas, many countries have been left scrambling to find alternative sources — heating up the competition for limited supplies even further.

“Energy demand has rebounded quite quickly from the coronavirus and more quickly than supply,” said Samantha Gross, director of the Brookings Institute’s Energy Security and Climate Initiative.

“So we saw high prices even before Russia’s invasion of Ukraine (but then there was) really a shock to energy supply. Various actions taken in response to that are really a challenge for energy supply globally.”

Why Asia?

While the price of energy imports has risen dramatically across the world, with international coal prices five times higher than a year ago and natural gas prices up to 10 times higher than last year, experts say there are reasons some Asian economies — particularly import-reliant, developing ones — have been hit hardest.

“If you’re a country, especially an emerging economy like a Sri Lanka that has to buy those commodities, has to buy oil, has to buy natural gas, this is a real struggle,” said Mark Zandi, chief economist at Moody’s Analytics.

“You’re paying a lot more for the things you need but the things you sell haven’t gone up in price. So you’re shelling out a lot more money to try to buy the same things to keep your economy running.”

Poorer countries that are still developing or newly industrialized are simply less able to compete with more deep pocketed rivals — and the more they need to import, the bigger their problem will be, said Antoine Halff, adjunct senior research scholar at Columbia University’s Center on Global Energy Policy.

“So Pakistan certainly fits there. Sri Lanka I think fits there as well,” he said. “They’re taking the price hit but they’re also taking the supply hit. They have to pay more for their energy supplies and in some countries like Pakistan, they actually have a hard time sourcing energy.”

Canaries in the coal mine

This dynamic is behind the increasingly chaotic scenes playing out in those countries.

As recently as a week ago, Sri Lanka’s power and energy minister said it was a matter of days before the country ran out of fuel. That bleak warning came as lines at fuel…

Read More: Energy prices are causing chaos in Asia. The rest of the world should be worried

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