Is there a massive global energy crisis in the offing?

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Highlights

  • The sudden surge in the energy demand after lows hit during the pandemic has increased the prices of oil, gas, and coal all over the world.
  • The ongoing supply restrictions from OPEC countries and global transport bottlenecks have complicated the energy supply.
  • Last week, wholesale gas prices surged by 37% to a record high in the UK.

The world could be staring at a massive energy crisis at a global level due to stressed supply of natural gas, coal, and other energy sources. Gasoline stations are running dry in the UK, as oil, gas and coal costs are heading north in Europe ahead of winter months. Several factories in China are not operational due to power crisis, mainly due to low coal supply. Even Indian power plants have reported shortage due to stressed coal stocks.

The global energy crisis first increased due to sudden spike in demand. Now with winter around, it is getting worse as more power is required to light and heat homes. The energy bills around the world are surging as the demand is increasing. However, governments around the world are trying to address the impact on consumers. In November, the world leaders are preparing for a critical climate summit to address the situation.

What led to the crisis?

The sudden increase in the energy demand after lows hit during the pandemic has surged the prices of oil, gas, and coal. Secondly, the producers, who saw a downturn in 2020 due to sudden lockdown due to Covid-19, have been slow to hike output to meet the energy demand.

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Besides, the ongoing supply restrictions from OPEC countries and global transport bottlenecks have further complicated the situation.

The natural gas price in Europe is six times higher than in 2020. In Europe, gas prices hit US $230 per barrel, up by more than 30% since the beginning of September.

Since the beginning of September, the prices of natural gas have surged by 85% in East Asia, hitting around US $204 per barrel. The anxiety to secure gas is also affecting the prices of coal, gases, and oil, which can be used as a substitute.  In India, of the 135 coal-fired power plants, 63 are left with two days or less of supplies. As the world economies are trying to recover from the Covid-19, another major concern is increasing inflation and the increase in energy demands in winters.

Also read: US natural gas futures hit seven-year highs

Tough months ahead

In Europe, unusual long and cold winter this year affected stocks of natural gas and increasing demand for energy has delayed the restocking process, which usually happens in summer and spring months.

China’s increasing demand for Liquefied natural gas, means LNG market can’t fill the gap and decline in gas export from Russia has worsen the situation. Also in the US, the gas prices have surged by 47% since August beginning.

The struggle for coal is also surging the prices as many European businesses have to pay carbon credits so they can burn fossil fuels.

Further, in the US, the energy prices hit seven-year high this week to support oil prices. Recently, Bank of America predicted that winter could lead to a surge in prices of Brent crude past US $100 per barrel.

Also read: What happens when an energy supplier goes bust

 

European problems

In European countries, the prices of power shot up in recent weeks and it reflected the fears of difficult winter this year as the households demand would increase and push the consumption to a seasonal peak.

The reason behind the rising prices of power in Europe are low natural gas stockpiles, delay in overseas shipments, confluence of local factors, maintenance work that has put nuclear generators and other plants offline, and lackluster output from the region’s renewable sources such as windmills and solar farms.

The situation can be eased by the return of power plants from maintenance and the startup of the recently completed Nord Stream two gas pipelines to Germany from Russia.

Countries such as Italy, the UK, Spain. and Greece are also planning national measures including ranging from subsidies to price caps, planning national measures and aiming to shield citizens from rising costs as economies recover.

Last week, wholesale gas prices surged by 37% to a record high but rolled back after Russian premier Vladimir Putin said Russia can support European countries to meet the quick requirements.

The UK too has lack of storage capacity and is dealing with the fallout from a broken power line with France. The Boris Johnson government may ask businesses to reduce output and gas consumption to ensure seamless supply to households.

According to the Organization for Economic Cooperation and Development, energy prices in developed nations increased by 18% in August the fastest pace since 2008.

Bottomline

Energy supplies will remain stressed for some time now as producers have said they would gradually boost their output despite global pressure. The situation may worsen further in November and December. A lot will depend on how the Boris Johnson government deals with the crisis.

Also in near future, countries could see a backlash against renewable energy. It is a common fact that renewable energy sources, especially wind and solar energy, are unreliable especially during winter months, and countries are forced to rely on traditional fossil fuels and countries may chalk out an advanced energy policy to deal with the situation. Businesses could also get affected as if they are asked to reduce production, it may affect hurt the economic recovery.  

Also read: Copper dips on the second consecutive day over China’s power crisis



 


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