Priced out: how the gas crisis hits the most vulnerable

As Russia turns the gas tap off for European countries, their search for gas alternatives has sent global gas prices through the roof and priced some poorer countries out of the market for Liquefied Natural Gas (LNG).

Gas prices have risen by nearly 40 percent in August and 300 percent since the beginning of the year.

Russia has been cutting its gas deliveries to European countries, which accuse the Kremlin of acting in retaliation for the sanctions the West has imposed over the war in Ukraine. Russia has been citing technical issues to justify supply cuts through the Nord Stream 1 pipeline which connects it to Germany.

European countries have been trying to secure their gas reserves for the winter by buying gas elsewhere, with leaders of the European Union’s largest economies – Germany, France and Italy – visiting major oil producers including Saudi Arabia, Qatar, Egypt and the UAE.

Since the war in Ukraine started, Europe’s LNG imports have reached record levels as European countries also move to boost infrastructure. A new LNG terminal in Groningen, Netherlands is expected to receive its first shipment on September 8.

Skyrocketing gas prices in Europe have had a ripple effect on the Asian market, causing severe shortages in developing nations strapped for foreign currency.

On the Asian spot market, LNG prices were ten times higher in August than the average summer rates – despite the fact they usually peak in the winter. The cost of LNG had already been on an upward trajectory before the war in Ukraine due to high post-pandemic demand.

Pakistan and Bangladesh: climate change and fossil fuel

In Asia, the market that most relies on LNG besides Europe, the crisis has been particularly dire in countries that are simultaneously among the most vulnerable to climate change.

Pakistan is highly dependent on imported fuel. The country’s fuel import bill surged to $23 billion in the financial year ending in July 2022 compared with the previous year. 

The south Asian country has been facing 12-hour power blackouts since June, which have had a significant impact on commercial activity. Key sectors have suffered significant losses, with its textile industry losing $1bn in export orders.

Gas covered 46% of Pakistan's power generation needs in 2019, according to the International Energy Agency.

The government has redirected gas supply from fertilizer makers to power plants, but experts have warned that this could threaten the next harvest and set Pakistan up for a dire food crisis next year, when food prices could further spiral.  

In late August, Pakistan faced devastating floods that killed more than 1,000 people and displaced millions, with economic losses amounting to more than $10bn, according to government ministers. 

Pakistan has been seeking long-term LNG supply contracts, looking at Qatar and the UAE. But these are significantly more expensive than they were a year ago. It also plans to boost its nuclear power plants, following on the footsteps of other Asian countries.

 Bangladesh has also been facing a power crisis and is implementing energy-saving measures that include reducing office hours and closing schools on Saturday.

Gas is used to generate around 80 percent of the country’s electricity. In recent weeks, thousands of people have taken to the streets to protest a hike in the cost of fuel by more than 50 percent, and against the lengthy power cuts it has been facing.

 Bangladesh had recently cancelled plans to boost its coal plant capacity by building ten new plants, but is now going back on its steps. The government argues this is necessary to face the crisis. Alongside Pakistan and Sri Lanka, it’s one of three Asian countries that has asked for an IMF loan.