As Europe attempts to pivot away from its reliance on Russian gas, a newfound hunger for Liquefied Natural Gas (LNG) is gripping the continent. New import terminals in Germany and the Netherlands are just part of the story. But Europe’s strategic manoeuvring to source its gas from various corners of the world isn’t happening in a vacuum; it’s creating ripple effects that are being felt miles away. Pakistan, a developing market with already fragile energy dynamics, finds itself on the losing end of Europe’s new-found energy enthusiasm.
Steve Hill, executive vice president at Shell Plc, neatly summed it up when he said, “Europe is sucking LNG” from the global market. Nowhere is this vacuum’s effect felt more than in Pakistan. The South Asian country has seen its ability to compete in the spot markets diminish significantly as wealthy European buyers offer top dollar for every available cargo of LNG.
This tussle over resources has brought to light the vulnerabilities of having fixed, long-term contracts for LNG supply. Pakistan had already secured such contracts with companies like Italy’s Eni SpA and trading house Gunvor Group Ltd. However, the price surge in European markets has led these companies to default on multiple shipments to Pakistan between October 2021 and June 2022. Financial calculus now favours selling to European buyers, even after accounting for penalties incurred for breaking contracts with Pakistan.
Pakistan’s energy situation was already tenuous, but the contractual defaults and the global energy crisis have plunged the country into an economic maelstrom. The nation now faces worsening blackouts, and a debt crisis seems to be just around the corner. With soaring prices in the Asian spot LNG market, Pakistan finds itself in a rather unenviable position.
Interestingly, Europe’s LNG boon has been to the detriment of Pakistan but has alleviated its own gas shortage. It’s almost a zero-sum game where Europe’s gain is Pakistan’s pain. Suppliers who would typically deliver to Pakistan are now diverting their shipments to meet the ravenous demand in Europe. This diversion isn’t just a logistical shift; it represents a higher price fetched by suppliers, incentivising them even further to snub Pakistan in favour of Europe.
While Europe may be scoring a win in the short term, this situation could have long-term geopolitical implications that might not be so rosy for the continent. As Pakistan grapples with its energy dilemma, it may start to look towards alternative sources, potentially forming new alliances with countries not in Europe’s favour. Russia, the very supplier Europe is trying to move away from, could come into the picture, presenting a paradox that undermines Europe’s original strategy.
Europe’s diversification of energy resources, led by the uptake in LNG, is having unintended consequences. Pakistan’s energy crisis is worsening, even as Europe manages to alleviate its gas shortages. But these are not isolated events; they are interconnected pieces of a larger puzzle that could impact the geopolitical landscape in the years to come. Only time will tell if Europe’s short-term wins translate into long-term gains, or if they sow the seeds of future complications.
