A harsh winter for Europe, a test of resilience for India's economy
India, along with other emerging economies, is unlikely to escape unscathed from the heightened uncertainty in European markets following Russia's sharp reduction in gas supplies.
The latest flashpoint is the rupture in the Nord Stream 1 pipeline which supplies around 35% of all the gas to Europe from Russia. Moscow and the West have traded charges on what is believed to be a suspected act of sabotage.
Nord Stream 1 runs under the Baltic sea and is a key supply link of Russian gas to Europe.
The Russian gas giant, Gazprom, reduced gas deliveries via Nord Stream to just 20% of the pipeline’s capacity from mid-June. It halted the supplies completely by the beginning of September. The West has accused Russia of weaponising energy.
The International Energy Agency (IEA), in its latest report, said that the market tightness is expected to continue well into 2023 on the back of higher international gas prices impacting trade flows and putting acute pressure on emerging economies. ..
“Russia’s invasion of Ukraine and sharp reductions in natural gas supplies to Europe are causing significant harm to consumers, businesses and entire economies – not just in Europe but also in emerging and developing economies,” said Keisuke Sadamori, the IEA’s Director of Energy Markets and Security.
Europe has sharply increased its LNG imports in the wake of curtailment by Russia. The LNG demand is up 65% in the first eight months of 2022 from a year earlier. This has resulted in turmoil in international markets as emerging economies also draw their gas requirements from the same pool.
Prices have skyrocketed and that has hurt demand across sectors using gas as an input. Power generation in emerging economies was also hit. This has also led to a shift to other fuel sources like coal.
"India’s gas burn for power generation dropped by nearly 30% in the first eight months of 2022 amid rising spot LNG prices, with much of the gap filled by coal-fired power plants," the IEA report said.
India, which imports around half of its LNG requirements, has seen the impact of the spurt in international gas prices. The government revised the gas prices upwards by 40% from October 1 to March 31. The government revises gas prices twice annually - from April 1 to September 30 and October 1 to March 31.
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