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by EOS Intelligence EOS Intelligence No Comments

Commentary: Europe’s Energy Woes – The Way Forward

Europe is struggling to build up energy supply ahead of anticipated growth in demand due to economic rebound after pandemic outbreak and the winter months. Considering the knock-on effect of the energy crisis on industrial growth and consumer confidence, the prime focus for Europe is not only to respond to the mounting energy issues in the short term, but to also establish energy sustainability and security for the future.

In October 2021, the European Commission published an advisory for the member states to take some immediate steps to ease the effect of the energy crisis. Governments were urged to extend direct financial support to the most vulnerable households and businesses. Other recommended ways of intervention included targeted tax reductions, temporary deferral of utilities bill payments, and capping of energy prices. About 20 member states indicated that they would implement the suggestions outlined by the European Commission at a national level. While these measures may aid the most vulnerable user segment, there is not much that can be done to safeguard the wider population from the energy price shocks.

Energy security and sustainability is the key

While a magical quick-fix for Europe’s energy crisis does not seem to exist, the ongoing scenario has exposed the region’s vulnerabilities and serves as a wake-up call to move towards energy security and self-sufficiency.

Diversify energy mix

In general, petroleum products and natural gas contribute significantly to Europe’s energy mix, respectively accounting for about 35% and 22% of the total energy consumed in the EU. The remaining energy needs are fulfilled by renewable sources (~15%), nuclear (~13%), and solid fossil fuels (~12%).

The high dependence on fossil fuels is one of the main reasons behind Europe’s ongoing energy crisis. In order to mitigate this dependency, Europe has made concerted effort in the development of renewable energy production capabilities. In 2018, the European Commission set a target to achieve 32% of the energy mix from renewables by 2030, but in July 2021, the target was increased to 40%, clearly indicating the region’s inclination towards renewables.

Expediting renewable energy projects could help Europe to get closer to energy self-sufficiency, although the intermittency issue must also be accounted for. This is where nuclear energy can play a critical role.

After Fukushima disaster in 2011, many countries in Europe pledged to phase-out nuclear energy production. France, Germany, Spain, and Belgium planned to shut down 32 nuclear reactors with a cumulative production capacity of 31.9 gigawatts by 2035. However, in the wake of the current crisis, there is a renewed interest in nuclear power. In October 2021, nine EU countries (Czechia, Bulgaria, Croatia, Finland, Hungary, Poland, Romania, Slovakia, and Slovenia) released a joint statement asserting the expansion of nuclear energy production to achieve energy self-sufficiency. France, which generates about three-fourth of its electricity through nuclear plants, is further increasing investment in nuclear energy. In October 2021, the French government pledged an investment of EUR 1 billion (~US$1.2 billion) in nuclear power over the period of 10 years.

Look beyond Russia

More than 60% of EU’s energy needs were met by imports in 2019. Russia is the major partner for energy supply – in 2019, it accounted for 27% of crude oil imports, 41% of natural gas imports, and 47% of solid fossil fuels imports. While Europe is accelerating the development of renewable energy production, fossil fuels still remain an important source of energy for the region. In the face of escalating political differences with Russia, there is a need to reduce energy reliance on this country and to build long-term partnerships with other countries to ensure a steady supply.

EU has many options to explore, especially in natural gas imports. One of them is natural gas reserves in Central Asia. The supply link is already established as Azerbaijan started exporting natural gas to Europe via Trans-Adriatic Pipeline (TAP), operational since December 31, 2020. In the first nine months, Azerbaijan exported 3.9 billion cubic meters of gas to Italy, 501.7 million cubic meters to Greece, and 166 million cubic meters to Bulgaria. Trans-Caspian Pipeline (TCP) is a proposed undersea pipeline to transport gas from Turkmenistan to Azerbaijan. This pipeline can connect Europe with Turkmenistan (the country with the world’s fourth-largest natural gas reserves) via Azerbaijan. As a result, Europe has heightened its interest in the development of this pipeline.

Eastern Mediterranean gas reserve can also prove to be greatly beneficial for the EU. In January 2020, Greece, Cyprus, and Israel signed a deal to construct a 1,900 km subsea pipeline to transport natural gas from the eastern Mediterranean gas fields to Europe. This pipeline, expected to be completed by 2025, would enable the supply of 10 billion cubic meters of gas per year from Israel and Cyprus to European countries via Greece.

Africa is another continent where the EU should try to strengthen ties for the imports of natural gas. Algeria is an important trade partner for Europe, having supplied 8% of natural gas in 2019. Medgaz pipeline connects Algeria directly to Spain. This pipeline currently has the capacity to transport 8 billion cubic meters of gas per year, and the ongoing expansion work is expected to increase the capacity to 10.7 billion cubic meters per year by the end of 2021. In addition to this, Nigeria is planning the development of a Trans-Sahara pipeline which would enable the transport of natural gas through Nigeria to Algeria. This will potentially open access for Europe to gas reserves in West Africa, via Algeria. Further, as African Continental Free Trade Agreement came in to effect in January 2021, the natural gas trade within countries across Africa received a boost. Consequently, liquefied natural gas projects across Africa, including Mozambique’s 13.1 million tons per annum LNG plant, Senegal’s 10 million tons per annum Greater Tortue Ahmeyim project, and Tanzania’s 10 million tons per annum LNG project, could help Europe to enhance its gas supply.

Business to strive to achieve energy independence

While governments are taking steps to reduce the impact of the energy crisis on end consumers, this might not be enough to save businesses highly reliant on power and energy. Therefore, businesses should take the onus on themselves to achieve energy independence and to take better control of their operations and costs.

Some of the largest European companies have already taken several initiatives in this direction. Swedish retailer IKEA, for instance, has invested extensively in wind and solar power assets across the world, and in 2020, the retailer produced more energy than it consumed.

There has also been growing effort to harness energy from own business operations. In 2020, Thames Water, a UK-based water management company, generated about 150 gigawatt hours of renewable energy through biogas obtained from its own sewage management operations.

However, a lot more needs to be done to change the situation. Companies not having any means to produce energy on their own premises should consider investing in and partnering with renewable energy projects, thereby boosting overall renewable energy production capacity.

Energy crisis is likely to have repercussions on all types of businesses in every industry. Larger entities with adequate financial resources could use several hedging strategies to offset the effect of fluctuating energy prices or energy supply shortage, but small and medium enterprises might not be able to whither the storm.

Economist Daniel Lacalle Fernández indicated that energy represents about a third of operating costs for small and medium enterprises in Europe, and as a result, the ongoing energy crisis can trigger the collapse of up to 25% of small and medium enterprises in the region. Small and medium enterprises need to actively participate in government-supported community energy initiatives, which allow small companies, public establishments, and residents to invest collectively in distributed renewable energy projects. By early 2021, this initiative gained wide acceptance in Germany with 1,750 projects, followed by Denmark and the Netherlands with 700 and 500 projects, respectively.

EOS Perspective

Europe must continue to chase after its green energy goals while developing alternative low-carbon sources to address renewables’ intermittency issue. This would help the region to achieve energy independence and security in the long term. In the end, the transition towards green energy should be viable and should not come at a significant cost to the end consumers.

On the other hand, immediate measures proposed so far do not seem adequate to contain the ongoing energy meltdown. Further, energy turmoil is likely to continue through the winter, and, in the worst-case scenario, it might result in blackouts across Europe. If the issue of supply shortages remains difficult to resolve in the short term, a planned reduction in consumption could be the way forward.

In view of this, Europe would need to actively encourage energy conservation among the residential as well as industrial sectors. Bruegel, a Brussels-based policy research think tank, suggested that the European governments could either force households to turn down their thermostats by one degree during the winter to reduce energy consumption while not compromising much on comfort, or provide financial incentives to households who undertake notable energy saving initiatives.

This is perhaps a critical time to start promoting energy conservation among the masses through behavioral campaigns. Like businesses, it is necessary to enhance consumers’ participation in the energy market and they should be encouraged to generate their own electricity or join energy communities. The need of the hour is to harness as well as conserve energy in any way possible. Because, till the time Europe achieves self-sufficiency or drastically strengthens the supply chain, the energy crunch is here to stay.

by EOS Intelligence EOS Intelligence No Comments

Driving Growth in Kazakh and Uzbek Passenger Vehicles Markets

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The past two years have brought a mixed bag of experience for both Kazakh and Uzbek automotive industries. Passenger vehicles sales volumes witnessed growth, however at a varied rate, affected by internal as well as external macroeconomic disruptions and regional developments. Amid these conditions, 2016 is likely to be an uncertain year for the automotive industries in both countries. Although growth is likely to be challenging, by re-thinking its current focus along with the help of the right government policies, growth prospects over the long term are promising.

While the Kazakh and Uzbek economic and automotive industries scenarios differ to quite an extent, and both countries have witnessed a varied growth in recent years, their macroeconomic and sector dynamics have continued to remain under a strong impact of the global slump in oil prices, volatile economic and political environment in neighboring regions, as well as currency devaluations. While Kazakhstan automotive industry, with sales volume CAGR of 67.8% during 2010-2014, was one of the fastest growing auto markets worldwide, the country’s GDP was witnessing a fluctuating y-o-y growth ranging from 7.5% in 2011 to 4.4% in 2014. At the same time, while Uzbek’s economy posted strong and steady GDP growth at around 8% annually between 2011 and 2014, its car sales volume grew at a mere CAGR of 1.4% during 2010-2014.

1-Fluctuating Economic & Automotive Industry Growth

Uzbekistan’s automotive industry is currently around twice the size of the industry in Kazakhstan, however its sales volume growth has recently stalled putting a question mark on Uzbek industry future growth dynamics. Kazakhstan might soon be seen to be catching up, with more than healthy sales volume growth rate, much of it supported by recent government reforms to boost local production and sales.

2-Automotive Industry Landscape

3-Industry Challenges & Opportunities

4-Industry Challenges & Opportunities


EOS Perspective

With Russia’s economy still struggling to recover amid Western sanctions, banking on vehicle exports is unlikely to take Kazakhstan and Uzbekistan any further. Passenger vehicles sales and production figures in most likelihood will continue to be impacted by internal as well as external macro-economic factors in 2016. In order to grow in the current environment, OEMs will have to look beyond their status-quo. Automakers will have to start focusing on domestic markets, which are still underserved with rapidly increasing demand for new cars.

The governments will have to work together with industry participants to create consistent as well as comprehensive industry policies that can attract more investments and stimulate growth. Measures such as financial incentives, special land allotment, creating SEZs, and various other schemes can significantly boost investor (both local and foreign) confidence. At the same time, reforms such as increasing local content requirement will drive more local producers to enter the industry. This might be a great help to the overall vehicle manufacturing and auto components industry in its development and growth trajectory.

5-What Can Drive Growth

With automakers trying to scale down their operations in Russia and Ukraine, growth opportunities are ripe for region’s manufacturers to capture and fill the market gaps in neighboring regions such as EEU and CIS. By leveraging their strategic location and proximity to European, CIS, and Asian markets, Uzbekistan and Kazakhstan could potentially attempt to reinvent themselves as the region’s next automotive export hub.

by EOS Intelligence EOS Intelligence No Comments

Central Asia – A Region of Uneven Growth and Investment Potential

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Although all Central Asian countries have been performing well on the overall economic growth front over the past several years, this good performance cannot be assumed to imply an investment growth (especially FDI-related growth)registered by all these countries. Despite government efforts and certain industries playing a critical role in bolstering growth of each Central Asian economy, various factors are standing in the way for these countries to realize their full growth and investment potential. Frequently, FDI-driven investment is hindered by unfavorable government policies, among other reasons. Central Asia remains a region of uneven development, with a need for a holistic approach to boost both economic and investment growth.

Projected to record a positive GDP CAGR in medium term with the aid of governments’ initiatives to boost both growth and investment, Central Asia’s economic progress can be characterized as unique in nature. Unlike in most cases where a country’s overall prosperity goes hand-in-hand with, say, FDI growth (such as in case of Kazakhstan, Kyrgyzstan, and Tajikistan), Turkmenistan and Uzbekistan are gearing towards around 10% GDP CAGR during 2013-2020 with negative FDI growth rates recorded in the period of 2010-2013 (which can be attributed to factors such as restrictive visa regime and constrained access to foreign currency).

While certain industries such as oil and gas, construction, and agriculture are playing an important role in driving Central Asian economies’ growth and investments, weakening Russian economy, among other challenges, is expected to have an adverse effect on the overall growth in the region.

Growth and Investment

GDP and FDI Growth



Key Government Initiatives to Boost Growth and Investment
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Chief Industries Driving Growth and Investment in Central Asia Region
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While these Central Asian countries show good growth and investment performance, aided by government initiatives to propel development and selected industries that continue to fuel economy growth, still an unequal growth and investment potential prevails in Central Asian countries.

Uneven Growth and Investment Potential in Central Asia Region
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Growth Challenges and Proposed Solutions
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EOS Perspective

To remain competitive in the global market, Central Asian countries will be required to overcome, or at least considerably minimize the growth hurdles. All of these countries rely on Russia in varying degrees, thus deteriorating Russian economy is likely to have an adverse effect on these countries in different ways, e.g. as inflated poverty rates primarily due to reduced remittances. Since Russia’s growth projections are almost negligible in short term, it might make sense for these countries to strengthen their trade relationship with the Eurozone countries which have started to experience nascent recovery.

Cases of Central Asian countries such as Kazakhstan (equipped with the maximum investment potential and minimum growth potential) and Turkmenistan (holding the minimum investment potential and maximum growth potential), indicate the fact that the region has an uneven growth and investment potential. In order to reduce the level of unevenness, reforms which encourage investment driven growth need to be implemented. It is of utmost importance for Central Asian countries to make their economies resilient (to a larger extent) to prevailing harmful extrinsic factors as well as to overcome intrinsic challenges. Also, it would be beneficial if the countries created a more suitable environment for private sector growth, improve quality of workforce, promote inclusive growth through better access to finance for SMEs, and create a dynamic non-oil tradable sector to diversify economies.

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