The EU energy crisis and its impact on Ghana

The EU energy crisis and its impact on Ghana
Nana Amoasi VII, Executive Director of the IES

The European Union is bracing itself for an energy crisis this winter, as nations are more reliant than ever on natural gas to heat homes and power industries amid efforts to quit coal and increase the use of cleaner energy sources.

The unfolding EU ENERGY crisis, born out of rising demand for gas due to the cold weather, is likely to impact world liquefied natural gas (LNG) markets.

While cold winters are not new to Europe, this time round there is not enough gas to fuel the post-pandemic recovery and refill depleted stocks before the cold months.

As a result, countries are trying to outbid one another for supplies – while exporters such as Russia and Norway move to keep more natural gas home; and this, many market watchers believe, will worsen the crisis when temperatures eventually drop.

The crisis has led to governments warning of blackouts and factories being forced to shut, and holds negative implications for the rest of the world – including Ghana.

For starters, a rise in world LNG market prices could impact on the cost of power production in Ghana, given that the country has factored LNG in its fuel mix for power generation this year.

This, according to the Institute for Energy Security (IES), is however dependent on whether the Tema LNG regasification project will be operationalised any time soon to contribute in fuelling supply to thermal plants.

This is because the plant will be expected to import LNG from the international market at a much higher cost.

“The EU crisis will have no impact on power plants, since natural gas requirements for the thermal plants are based on supply from Nigeria and Ghana. Presently, there is adequate domestic natural gas supplies from the Jubilee, TEN and Sankofa fields,” said the Executive Director, Nana Amoasi II.

Already, inventories in European storage facilities are at historically low levels for this time of year.

For instance, the Business Standard reports that pipeline flows from Russia and Norway have been limited. That is worrying, as calmer weather has reduced output from wind-turbines while Europe’s aging nuclear plants are being phased-out or are more prone to outages—making gas even more nece­ssary.

Lessons for Ghana and Africa

According to the European Commission President, Ursula von der Leyen, the region is too reliant on gas; and that as gas prices soar to record high levels, members are struggling to keep up with the rising cost.

Von der Leyen has therefore urged EU countries to ease their dependence on natural gas, emphasising the need for a Green Deal.

“A speedy transition to clean energy would also make the bloc a more independent global player,” von der Leyen said.

She told the European Parliament that the bloc is “vulnerable”, as it imports 90 percent of its gas – much of it from Russia.

Europe today is too reliant on gas and too dependent on gas imports. The answer, for the EU President, has to do with “diversifying our suppliers … and, crucially, with speeding up the transition to clean energy”.

The EU’s Green Deal aims to cut greenhouse gas emissions by 55 percent by 2030, and make the bloc carbon neutral by 2050.

Europe’s overreliance on gas has key lessons for Ghana, as the country’s power generation mix is largely thermal. Thermal accounted for 62.7 percent of the generation in 2020, followed by hydro at 37 percent and imports 0.3 percent. The lesson here is that the country will have to take double steps to diversify its mix by hastening the energy transition process.

The availability of renewable energy sources like water, sun and wind offer hope, but political commitment and will are more crucial if Ghana is to avoid the mistakes made by the EU – and the situation in which the bloc finds itself today.

For now, Ghana and the rest of sub-Saharan Africa appear to be safe from the crisis – but they are not completely isolated from it; and the longer gas prices stay up, the sooner their impact will be felt within the continent.

If gas becomes harder to get and more expensive to buy, most European power plants might well turn to liquid fuels to light up their countries; and this would mark the beginning of trouble for African economies. Already, crude prices are on the rise, and a higher demand would spell chaos for the continent’s recovery from the COVID-19 pandemic.

For Ghanaians, especially motorists, a more profound impact will be felt at fuel pumps. This is because the IES expects the EU market crisis to push up fuel prices.

“The traditional link between oil and natural gas prices exists and still stands. Apart from the dominant mechanism for international gas trade remaining oil indexation, a squeeze in natural gas supply in the face of rising demand would force power producers in Europe to fall on oil as a cheaper alternative to fuel plants; thereby increasing its demand and price in the process,” explains Nana Amoasi II. “Rising crude prices will impact on fuel prices at the pump.”

The views of Nana Amoasi II are not in isolation. Vitol and OPEC+ are already forecasting global crude oil demand to increase by between 370,000 and 500,000 barrels per day during the winter; and this will certainly impact on oil prices.

Leave a Reply