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Explainer-Global energy shortage or a coincidence of regional crises?

EconomyOct 01, 2021 09:22AM ET
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3/3 © Reuters. FILE PHOTO: A sign informs customers that fuel has run out at a petrol station in Hemel Hempstead, Britain, September 29, 2021. REUTERS/Matthew Childs/File Photo 2/3

(Reuters) -British gasoline stations running dry, surging power costs in the European Union ahead of winter, forced restrictions on energy use in China and rising oil, natural gas and coal prices.

You could be forgiven for thinking the world had suddenly been hit by an energy shortage, but you would be mostly wrong.

While the squeezes slamming consumers and businesses is acute, the disruptions have less in common than you may think.

Uniting them is an energy demand rebound from lows hit in depths of the coronavirus crisis that has raised prices for oil, gas and coal, ongoing supply restrictions by oil cartel OPEC and global transport bottlenecks complicating fuel distribution.

But the list of what separates them is longer, reflecting that the disruptions may have more to do with local policy choices and regional dynamics than a global supply shortage.

Oil prices broke $80 a barrel this week for the first time in three years, with natural gas and coal also scaling multi-year peaks.

The Organization of the Petroleum Exporting Countries and allied countries will meet next week to decide whether to unleash spare production capacity to help tame prices.

Here is a summary of what is disrupting energy markets:

CHINA CRUNCH

Beijing has begun rationing electricity to energy-hungry businesses because of a crunch in coal supply triggered by stepped-up safety checks at Chinese mines which dragged output below year-ago levels for much of the first half of the year.

The lower coal production in turn fuelled a steep climb in local thermal coal prices, which have scaled successive record highs this year and are up over 80% year-to-date.

Because Beijing sets power prices, coal-fired power plants have been unable to operate economically with such high coal costs, and are shutting down.

Goldman Sachs (NYSE:GS) estimated that as much as 44% of China's industrial activity has been hit by the power shortages.

The China Electricity Council, which represents power suppliers, said on Monday that coal-fired power companies were now "expanding their procurement channels at any cost" in order to guarantee winter heat and electricity supplies.

But coal traders have said finding fresh import sources may be easier said than done, with Russia focusing on serving Europe’s power needs, rains interrupting output from Indonesia, and trucking constraints hindering imports from Mongolia.

EUROPE'S POWER BILLS

The price of keeping the lights on in Spain has tripled, reflecting a broader spike in power bills across the EU in recent weeks. The surge in electricity costs has raised fears of a difficult winter ahead as households demand heat and push consumption to a seasonal peak.

The reason for rising costs in Europe is a confluence of local factors, ranging from low natural gas stockpiles and overseas shipments, lacklustre output from the region’s windmills and solar farms, and maintenance work that has put nuclear generators and other plants offline.

The timing is tough as demand is expected to rise in the coming months, but the return of power plants from maintenance and the startup of the recently completed Nord Stream 2 gas pipeline from Russia to Germany could eventually ease markets.

In the meantime, Spain, Italy, Greece, Britain and other others are planning national measures, ranging from subsidies to price caps, aiming to shield citizens from rising costs as economies recover from the COVID-19 pandemic.

UK PETROL STATIONS RUN DRY

Panic-buying by motorists has left fuel pumps dry across major cities in one of the worst energy disruptions facing Britain in decades. Fights have broken out at filling stations as the government urged calm.

But the problem is not a lack of gasoline, it is a lack of truckers to get it from refineries to retailers – one of the odd side-effects of Britain’s EU exit and a hangover from postponed trucker certification and training during the pandemic.

The fix? Prime Minister Boris Johnson's government has been issuing temporary visas to thousands of foreign truck drivers to get fuel to market, has put the army on standby to help out, and hopes to restore order at the pumps before the holidays.

Explainer-Global energy shortage or a coincidence of regional crises?
 

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Comments (1)
Sadih Gupta
Sadih Gupta Oct 01, 2021 6:06AM ET
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Plenty of fuel here in the uk just nobody delivers...I had today full tank no problem just had to wait a qew.
 
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