China power cuts, UK petrol woes: Why is there an energy crunch?
Unprecedented power cuts in Northern China left millions without electricity, ground factories to a halt and sent workers to the hospital with carbon monoxide poisoning after ventilators lost power during a blackout.
“Sorry out of use” signs have become ubiquitous at petrol stations in many parts of the United Kingdom this week, while energy firms fold due to skyrocketing natural gas prices.
Energy prices across Europe are breaking records, too. Meanwhile, United States gas and coal producers are struggling to keep up with demand even before the Northern Hemisphere hits its winter period and heating demands skyrocket.
So what’s behind the global energy crunch? And how much worse could it get?
Here’s what you need to know.
First of all, how did we get here? Is the coronavirus pandemic to blame?
Partly, although analysts say the reasons behind the energy shortages are multifold and many of them predate the COVID-19 crisis.
It’s true that consumer and factory demand for energy has come roaring back after plummeting during the early months of the pandemic, leading to supply chain bottlenecks and production chain pain points.
But why the run on fossil fuels? I thought green energy was the future?
Many investors have pivoted to more renewable energy sources over the past five to 10 years as part of a global push to address climate change.
But the reality is that much of the world still relies on traditional sources of energy such as oil, coal and gas — especially as renewable sources get up and running.
And as they do, that has led to a lack of investment in fossil fuels, which is contributing to the current issues, analysts say.
“Gas, coal, oil, metals, mining — you pick — the old economy is significantly underinvested,” Jeff Currie, global head of commodities research at Goldman Sachs Group, explained in an interview with Bloomberg TV Tuesday. “We call it the revenge of the old economy. Poor returns saw capital redirected away from the old economy to the new economy.”
Does that mean we will see more investment in polluting fossil fuels?
Unclear, but the secretary-general of Organization of the Petroleum Exporting Countries (OPEC) warned that halting new investments in fossil fuel production would be “wrongheaded” as oil demand is expected to climb over the next several years even amid a push toward green energy.
Oil prices are currently hovering near $80 per barrel, a three-year high.
What about coal and gas?
Supply shortages in coal, gas and water have all driven energy prices sky-high in Europe. And China is scrambling to lay its hands on enough coal, driving up the price of the world’s dirtiest fossil fuel.
China uses more coal than the rest of the world combined, according to a guide on Chinese climate policy produced by Columbia University’s SIPA Center on Global Energy Policy. It is also the world’s leading coal producer, but the supply crunch has forced it to ration power and curb factory output.
Yikes. What’s causing the energy crunch in China?
There are several factors at play. Electricity prices are regulated in China, so even though coal prices are at record levels, firms can’t pass on the extra costs to consumers or factories. That means some power firms are losing money — and are hesitant to boost production to meet the current demand.
On Wednesday, China’s National Development and Reform Commission announced it would let firms increase prices to “reasonably reflect changes in demand, supply and costs,” Bloomberg News reported, but it’s unclear how high those prices will be allowed to go.
The Chinese government is also said to be considering hiking electricity prices for factories, people familiar with details of the plan told Bloomberg News.
So are higher prices a good thing?
No surprises here — for energy producers and firms, yes. For consumers, absolutely not.
Take the current petrol crisis in the UK, for example. Prices hit 136.50 British pence ($1.83) on average for a litre of unleaded petrol and 138.78 ($1.86) for a litre of diesel as of Tuesday, according to RAC, an automotive services company that tracks petrol prices across the country.
Those prices aren’t far off the record levels hit in April 2012, when a litre of unleaded petrol cost an average of 142.48 pence ($1.91) and diesel hit a record high of 147.93 pence ($1.99).
High prices aren’t the only problem. Motorists have also been lining up to fill their tanks and jerry cans, causing 90 percent of petrol pumps to run dry, the Petrol Retailers Association warned earlier this week. This panic buying is making the crisis worse — but Brexit is also to blame, say analysts.
What does Brexit have to do with it?
One of the reasons fuel isn’t being transported to petrol stations from storage facilities is a lack of lorry drivers. When the UK formally left the European Union, it tightened immigration rules so that EU citizens can no longer work visa-free in Britain.
Many of the nation’s lorry drivers were from other European countries, and a labour shortage has now left firms without the hauliers they need to distribute fuel, as well as a wide range of other goods.
“Undoubtedly, some of this shortage of drivers was caused by Brexit and the pandemic,” Kevin Wright, a lead analyst at Kpler, told Al Jazeera. “Drivers from Eastern Europe, in particular, left the UK in the last two years … The UK government has made it harder for drivers from outside the UK to be employed here.”
What is the British government doing in response?
British Prime Minister Boris Johnson said he would issue temporary visas for up to 10,000 foreign lorry drivers, but this won’t solve the crisis — the country has a dearth of about 100,000 drivers currently, and it will take time to train domestic ones. The temporary foreign visas also expire on Christmas Eve of this year, making it very short-term work.
In the meantime, the British government has put members of the military on standby to drive the trucks.
Can’t oil and gas producers — like the US — simply ramp up production?
The US is likely going to face its own natural gas shortage this winter. That’s in part due to a lack of investment during the pandemic and ongoing labour shortages in the US that has made hiring workers in the oil sector more difficult.
In a report released Wednesday by the Dallas Federal Reserve Bank, 51 percent of the executives from oil and gas support service firms it surveyed said they had difficulty hiring workers. Seventy percent said a lack of qualified applicants was to blame, while 39 percent said workers were looking for more pay than they could offer.
Wow. So what happens next?
That remains to be seen. In China, for example, the demand for current coal-fired electricity continues to come up against emissions cuts that the Chinese government has laid out as part of its ambitious goal of going carbon neutral by 2060.
The push-pull — between meeting energy demands now and investing in renewable energy sources that help the planet long-term — is a big part of the current crisis worldwide.
And no matter where you are in the world, high energy prices are a surefire path to disgruntled citizens — so expect governments to take action within their own frameworks to ease the pinch in any way they can.
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