China is suffering one of the worst coal shortages in history at the same time the U.S. and Europe are facing steep oil price rises and supply shortages. It would appear a global energy crisis is not far away.
China is in the unenviable position of seeing power outages and shutdowns due to the current coal shortage. Pressure is mounting to ramp up coal imports and ensure supplies to keep lights on, factories open and water flowing as a severe power crunch rolls through the northeastern industrial heartland.
The electricity shortages, caused by coal shortages, are crippling large sections of industry. The governor of Jilin province, one of the hardest hit in the world’s no.2 economy, supported the need for a surge in coal imports, while a power company association said supply was being expanded “at any cost.”
Reports suggest the blackout is affecting everything in the northeast from traffic lights, residential elevators, 3G mobile phone coverage as well as triggering factory shutdowns. In an effort to reassure a distressed public, the main state grid operator said they would work to guarantee coal supply and strictly control power use by high-energy consuming and polluting sectors, and ensure power supply to residents during the October holidays and winter heating season. Whether this promise is achievable remains to be seen.
China’s electricity problem explained in the 🧵 below, do ‘re-tweet’ & help us educate more investors
China has orders some industries to shut down & some to operate 2-4 days a week, as power cuts become a daily routine (1/12)
— Kirtan A Shah, CFP® (@KirtanShahCFP) September 29, 2021
Cities seemingly worst affected are Shenyang and Dalian, home to more than 13 million people. However, the damage is not localised, with disruptions also being recorded at factories owned by suppliers to global companies like Apple and Tesla. Jilin is one of more than 10 provinces forced to ration power as the rising price of coal is not being passed on to the consumers.
It would appear the energy crisis is spreading through America and Europe just as rapidly. Fuel shortages are rampant in Britain while oil and gas are the problem in the U.S. and Europe.
According to reports in The New York Times, oil prices have leapt by about a quarter over the last month and have on Tuesday reached $80 a barrel, the lowest in three years. Meanwhile, European energy markets from natural gas to carbon permits jumped to record highs, signaling that the supply shortage will get worse just as the winter season starts.
Crude Oil soars today as the #BidenInflationSpike sends Gasoline prices surging. Biden's war on American Energy causes pain at the pump + exposure to foreign energy sources again.
As depicted on this chart, Crude Oil was $40.82/barrel at Election Day 2020, rallied 84% since. pic.twitter.com/IihtEtuyYh
— Steve Cortes (@CortesSteve) September 27, 2021
Analysts say outages caused by Hurricane Ida, which damaged oil platforms and infrastructure in the Gulf of Mexico in late August, have overtaken the slight increases in output agreed by the Organization of the Petroleum Exporting Countries (OPEC) in July.
The OPEC is due to meet via teleconference on Monday and it stands to reason that they will face pressure to speed up their plans for a supply increase. Biden’s administration has already publicly criticised the group as they believe they failed to cushion the blow of the price increase, which is now likely to result in people facing financial hardship because of the sudden climb as opposed to a steady increase.
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Europe is also facing an epidemic of shortages, with everything dwindling from gas to coal and Norwegian water for electricity production.
“Europe’s supply-demand balance will remain unusually tight heading into the winter, adding further price pressure to a market already at record highs,” BloombergNEF analysts wrote on Tuesday.
The damage is happening quickly and, in some cases, irreversibly. This week has seen several of the U.K.’s smaller energy suppliers go out of business while some French electricity retailers are struggling to supply clients and are also at risk of folding.
Reports are coming out that Dutch front-month natural gas futures, and the equivalent contract in the U.K., both surged as much as 12%. German electricity for next year also climbed to new highs while Northwest European coal prices reached their highest levels since the 2008 financial crisis.
It is expected the surge in energy prices will be addressed by European leaders when they meet in Brussels for a summit on October 21-22, according to a draft of the meeting’s agenda seen by Bloomberg.
One aspect undeniably affecting the energy shortages is climate change. Norwegian grid operator Statnett SF said electricity supplies in the southwest of the country are “pressed” because of low inflows and falling stockpiles. “There is now a very low amount of water, for this time of year, in many of the reservoirs here,” Statnett said.
However, their shortage could affect exports to other markets. That part of the country is a hub for power shipments abroad: the U.K., Germany and Denmark are all connected to the Norwegian grid via long cables on the seabed.
Marcon Saalfrank, head of continental Europe Merchant Trading at Swiss Utility Axpo Holding AG, said, “It’s very difficult to make forecasts. Currently the gas market is extremely tight. It depends very much on what the winter will be like, if it’s a cold winter then we will probably see the gas price continue to spike.”
While it may look different in China, America or Europe, it is beyond doubt that the energy crisis has gone global. All we can do at this point is wait and watch the prices. As world leaders are consulted on their next steps, is the world headed for a blackout or can we keep the lights on a little longer?
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com. — Featured Photo: A thermal power plant in Lengshuijiang, Hunan, China. Photo Credit: Wikimedia Commons.
