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

September 29, 2021

(Reuters) – Gasoline stations running dry in Britain. Power costs surging in the European Union ahead of winter. Forced restrictions on energy use in China. And rising prices for oil, natural gas and coal.

You would be forgiven if these events made you believe the world had suddenly been stricken by a global energy shortage. But you would also be mostly wrong.

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

What unites them is a broad-based rebound in energy demand from lows hit during the depths of the coronavirus pandemic that has raised prices for oil, gas and coal; ongoing supply restrictions by oil cartel OPEC; and global transport bottlenecks that have complicated 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 general shortage in global energy supply.

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 their spare production capacity to help tame prices.

Here is a brief summary of what is disrupting energy markets in Britain, Europe and China:

CHINA CRUNCH

China’s government has begun rationing electricity to energy-hungry businesses because of a crunch in coal supply. Because Beijing sets power prices, coal plants struggling with higher coal costs have been unable to operate economically and are shutting down.

Goldman Sachs estimated that as much as 44% of China’s industrial activity has been hit by the power shortages, which could hit its GDP.

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 up in power bills across the European Union 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 the rising costs in Europe is a confluence of local factors, ranging from low natural gas stockpiles and overseas shipments, lackluster 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 only expected to rise in the coming weeks and 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 Britain in one of the worst energy disruptions facing the country in decades. Fights have broken out at filling stations as the government urged calm.

But the problem wracking Britain is not a lack of gasoline, it is a lack of truckers to distribute the fuel from refineries to retailers – one of the odd side-effects of Britain’s exit from the European Union, 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.

(Writing by Richard Valdmanis; Editing by Marguerita Choy)

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