Energy transition not a panacea for fuelimporters
Atradius Economic Research – April 2023
Summary•••

The energy crisis that has sent energy prices soaring in 2022 may act as a catalyst for accelerating of underlying
trends in the energy mix towards cleaner energy provisioning. We expect oil and gas prices to continue declining
over the coming decade, with price risks to the downside subject to the intensity of policies.
The energy transition should offer relief to energy-importing economies. It reduces their dependence on fossil fuelimports in the medium term via significantly lower global energy prices and through greater energy selfsufficiency as imported fossil fuels are increasingly replaced by home-grown renewable energy supply.
Our modelling confirms these benefits from declining fuel import bills, but the persistent current account deficits ofenergy-importing countries will not be completely eliminated and the debt problems they face will not be resolved.

The world is facing a global energy crisis ofunprecedented depth and complexity. Extreme pricevolatility and supply insecurity, on top of increasingly
dire climate change concerns, are ushering in a new eraof policymaking – both public and private – to speed up
the transition to renewable energy sources. The resulting
downward pressure on oil and gas prices could help
those emerging market economies that are dependent onenergy imports to increase self-sufficiency and reduce
their import bills. This should reduce country risk andeven potentially offer investment and growth
opportunities. But it will be a bumpy road. Broadeconomic structural reforms are equally as important toreduce deep-seated financial vulnerabilities and thedecline of fossil fuels is likely to follow a volatile path.
In this research note, we present our outlook for the oiland gas markets over the coming ten years and what itmeans for country risk for energy-importing countries.
We expect oil and gas prices to be significantly lower in
2032 compared to 2022, with downside risk based on thetrajectory of government policies towards net zero goals.
Taking the International Energy Agency’s price forecasts

from their latest World Energy Outlook, we model what
the impact would be on energy-importing countries.
While it offers meaningful reductions to current accountdeficits, the energy transition alone will not be sufficient
to resolve external imbalances or public finance woes.

Oil and gas prices to continue declining
over coming decade
Our baseline outlook is based on the International
Energy Agency’s ‘Announced Pledges Scenario’ (APS).
This scenario models the impact of the alreadyimplemented and announced climate policies on theglobal energy mix over the coming decades. It assumes
that governments will meet all current climate policy
commitments, however vague, in full and on time.
Considering the increasing urgency of the energy
transition and popular support, we think governments
will meet their self-imposed goals. Moreover, theannounced targets are still insufficient to meet climate
goals so the chance of heavier-handed action mayincrease. Therefore we look to the Net Zero Emissions(NZE) scenario to understand the impacts of more

aggressive climate policies and the sharp fall in demand
for fossil fuels that accompanies them.
As the energy mix increasingly favours renewables, theoutlook for both oil and gas prices is downwards.
Already seeing some relief from the extreme tightness
observed in 2022, we expect prices for both commodities
to continue gradually declining over the coming decade.
In the oil market, we anticipate global oil demand will
peak already next year as government policies,
particularly in the US and Europe, prioritise reducing
fossil-fuel demand. Lower demand translates to lower
market prices, favouring lower-cost, conventionalproduction. As such, OPEC’s market share will continue
to grow at the expense of US producers in particular.
Under the APS, the price of oil will fall to USD 63 perbarrel of Brent crude in 2032, from USD 100 in 2022
(figure 1). Under the NZE scenario, this drop will be evenmore pronounced due to significantly more aggressive
energy transition policies. In this scenario, demand foroil never recovers to 2019 levels, dragging prices down
more than twice as far to USD 26 per barrel Brent in2032.
Figure 1 Fossil fuel prices to drop in coming decade

The gas market is still subject to high volatility in thenear term. Gas prices rose sharply in 2022, mostly as aresult of reduced Russian supplies to the European
market and strong gas storage injections through higher
LNG imports. The energy shortages experienced inEurope had a ripple effect particularly in the Asianmarket, which traditionally is highly dependent on LNG.
In recent months, however, there has been some easing
in market conditions as the mild winter and lower
storage injections have lowered the European gas price.
We expect global gas demand to peak in the comingyears. In the near term, gas prices are likely to remain
elevated as the EU still needs to attract non-Russian gas.
This has knock-on effects on prices in other importing
regions, such as Asia. In the medium term, we expectthat the gas price will trend down in all three major
markets – the US, Europe and Asia – as the push for1

We realize this is not an all-encompassing indicator of energy
self-sufficiency as fossil fuels are also used in industries other thanthe power sector. It also does not necessarily reflect capacity

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renewables is likely to lead to easing demand, while
additional LNG facilities add to supply. Under the NZE
scenario, the decline in gas consumption is stronger thanunder APS, leading to even lower medium-term
equilibrium gas prices.

Energy importers become more selfsufficient
The energy transition clearly favours energy-importing
economies, in comparison to hydrocarbon exporters.
Significantly lower global energy prices envisaged inboth the APS and NZE scenario offer relief to energyimporting economies by reducing their import bills. It
will also make them less dependent on fossil fuel imports
in the medium term, as imported fossil fuels areincreasingly being replaced by home-grown renewableenergy supply. The process of increasing energy selfsufficiency has already started. Based on a 6-year
moving average of the 50 heaviest net fuel-importing
emerging economies, the net fuel import bill has on
average dropped from 8.4% of GDP in 2015 to 6.2% ofGDP in 2021.
The scatterplot (figure 2) shows that a decline in theimport share of fuel is generally accompanied byrenewable energy development. The indicator usedreflects the renewable electricity capacity that has been
installed (not generated), which we see as the first andmost important step in the energy transition1. For theaverage energy-importing country, the share ofrenewables in the power mix has increased by about 10
percentage points over the past decade. The current
share of 37% in terms of installed capacity is roughly
equal to the global average. An acceleration of thedevelopment of renewable energy sources is expected inboth the APS and NZE scenario. This will help to further
improve the external position of importers and reduce
their country risk.
Figure 2 Fuel import dependence declines as renewable energy
development picks up

Countries that have ambitious renewable energy targets
that are backed up by a comprehensive policy
framework have the best chances for success. The World

actually used, as it is not uncommon for a country’s power
generation to lag behind and be considerably smaller.

Bank Regulatory Indicators for Sustainable Energy(RISE) is a useful tool in this regard. Their renewableenergy composite indicator provides insight into thequality of the legal framework, planning, incentives andnetwork connection, and various other elements thatfacilitate the development of renewable energy (figure3). It shows improvements in the renewable energy
policy framework in recent years, with some of theenergy-importing countries – such as Morocco, Jordan
and Tunisia – approaching the median score ofadvanced/ OECD countries. However, the lack offinancial resources to invest in renewable energy
development remains a major obstacle. Not all of the top
performers in terms of policy have therefore yet madestrong progress in installing renewable power capacity
in practice. Tunisia and Lebanon, for instance, only
managed to marginally increase their shares ofrenewable energy in the electrical capacity mix to 7% and
11% respectively by 2021, which is still far from theirtargets of 30% target for 2030. Jordan and Morocco standout positively in that they combine a relatively strong
renewable energy policy framework with impressive
increases in the share of renewable energy in electricity
capacity to 34% and 37% respectively.

price related liquidity shocks. Of course, current accountdeficits cannot be entirely attributed to bad policies. Partis simply inherent in the fact that heavy energy
importers are primarily emerging market economies
that require relatively high imports of capital goods toinvest in their economic potential to catch up withadvanced economies.
To gauge better the impact of the energy transition on
country risk, we conduct our own scenario analysis
using the Global Economic Model of Oxford Economics.
The oil and gas price paths envisaged in the APS and theNZE scenario are imposed on this model. First, we look atwhat happens to the current account balance, a main
driver of macroeconomic imbalances and then at theexternal debt levels. Of the limited number of energyimporting countries available in the model, all show
significant improvements in current account balances by2032 – the end of the forecast horizon – in both energy
transition scenarios (figure 4). The greatest changes arenaturally achieved in the NZE scenario.
Figure 4 External balances to improve for fuel importers

Figure 3 Fuel importers have room for further improvement inrenewable energy policy frameworks

Renewables not a panacea
For energy-importing countries, renewable energy
development is improving energy self-sufficiency, but it
will not make them shockproof and will not solve their
persistent current account deficits. The magnitude ofenergy price shocks can still be significant. Higher prices
in 2022 caused a median deterioration in the current
account deficit of about 2% of GDP, although higher foodprices were of course also to blame. Moreover, due tovarious structural problems and weak policymaking,energy importers often run persistent twin (currentaccount and budget) deficits, which persist even in timesof low oil prices. This in turn has prevented them frombuilding up financial buffers to protect them from oil

Atradius Economic Research 3Although current account deficits will narrowsignificantly during the energy transition, they will inmost cases not be eliminated, at least not in the coming
ten years. Positive exceptions are those fuel-importing
countries such as Thailand that currently already have
low current account deficits or even small surpluses,
often due to mitigating factors like strong inflows ofworker remittances or a strong export base. However, formost of them, the current account deficit is larger than
the net fuel import share in terms of GDP. And as we do
not expect that the net fuel import bill will be reduced tozero by 2032, part of the deficit is expected to remain.
Ongoing import dependence for other commodities
including food will also drive those deficits.
The expected boost in renewable energy development
could initially contribute to current account deficits via
higher import demand for capital goods associated withthe energy transition, such as solar panels and windturbines. This assumption of significantly higher
investments in renewable energy capacity in line withthe energy transition scenarios of the IEA has not been
included in the model. However, additional
improvements in energy self-sufficiency will eventually
pay for themselves by further reducing future fuelimports.

Net zero is not zero country risk

Figure 5 Debt problems remain unresolved

The energy transition does not solve the existing debt
problems of energy-importing countries either. While
benefitting financially from lower oil and gas prices andgreater energy self-sufficiency, current accounts remain
largely in deficit and as such do not lead to externaldeleveraging. Moreover, since they lack financial buffers,
investment in renewables will also have to be largely
debt-financed.
While the model confirms that the energy transition will
not propel energy-importing countries out of their
existing debt problems, it also shows that the downtrend
in oil and gas prices will at least help to stabilise external
debt at current levels in terms of GDP.2 Unfortunately,
those levels are high for Namibia and Tunisia, above 70%
of GDP, as well as for a number of other fuel-importing
countries not included in the model output (figure 5).
Thailand is one of the few energy-importing countries
not hampered by a persistent twin deficit and will
therefore be able to further reduce its already limited
debt burden. Due to the often equally persistent budget
deficits, public debt of many of these countries, including
Morocco and Mauritius, will also remain high, andcontinue to exceed the IMF’s critical threshold for
emerging market economies of 70% of GDP.

So, the energy transition may offer some relief toemerging market economies that are dependent onhydrocarbon imports by reducing the costs of energy
imports and, perhaps more importantly, substituting
imported fossil fuels with home-grown renewableenergy supplies. This will make energy importers lesssensitive to global energy price shocks. However, theirmacroeconomic imbalances are typically deep-seated
and will not easily disappear without broad economic
structural reforms.

Niels de Hoog, senior economist
niels.dehoog@atradius.com+31 20 553 2407
Dana Bodnar, economist
dana.bodnar@atradius.com+31 20 553 3165
Theo Smid, senior economist
theo.smid@atradius.com+31 20 553 2169

2If current account deficits are low enough, financing them will
generally not drive up the external debt ratio, as long as theAtradius Economic Research 4

denominator (GDP) grows faster.

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