Chinese energy shortages may be local, but consequences are global!

Chinese energy shortages and oil price

 

Although the price of crude oil went slightly down this week, having reached a seven-year-high value, analysts do not anticipate a precipitous fall in the coming weeks, especially when the winter is on the horizon as far as many industrialized nations are concerned.

As of 18:00 GMT on Friday, the two main benchmarks, WTI and Brent, stood at $84 and $84 respectively, slightly lower than what they were, a week ago.

The seed for the sudden occurrence of an energy crunch was the cumulative global anxiety over the supply of fuel for power plants. As the wind turbines could not provide the power expected of them in ‘windless’ summer, power companies started to run helter-skelter in search of substitutes to generate power.

During the pandemonium, there was not enough coal in stock, having been pilloried as the worst of all fossil fuels. Since the demand far outweighed supply, power companies turned to gas as an alternative that in turn caused a massive rise in gas prices, with the gap between demand and supply widening alarmingly.

When the calamitous spectacle of coal and gas shortages played out in the markets, analysts feared the worst – lack of fossil fuels to power up generators, across the world. In these circumstances, as exactly anticipated, the inevitable happened with the price of crude oil hitting a record high.

The energy mystery, meanwhile, kept deepening when all that took place in the midst of crude inventories of the world’s top consumer, the US, consistently grew, defying the forecasts of seasoned analysts.

Then, all of a sudden the price of crude oil, along with other commodities, fell at the news that China, the world’s second largest consumer of crude oil, started coming down hard on speculators of coal futures. Not only did China resort to clamping down what it calls, commodity manipulators, but also raided coal storage facilities to catch those who hoard.

As far as the Chinese officials are concerned, it worked in their favour: the price of coal substantially fell in the Chinese markets, before spilling over to the other regions too; in addition, the coal inventories have grown substantially in recent days, in some power plants the figure exceeding 100 million tons at present.

Although China managed the coal crisis successfully with the strong arm tactics, the sudden demand for the commodity has inadvertently created yet another headache for the authorities.

With the growth of coal inventories, the demand for the commodity has resulted in a boom for the transport companies. As a result, certain fuel stations in North China have run out of diesel; the tendency of manufactures turning to diesel in order to generate power has not been conducive in diffusing the crisis.

The power crisis that China faced in the last few weeks appears to be much more serious than what the West estimated, in terms of its scope and potential consequences.

The reported shortage of magnesium is a case in point; magnesium, a metal widely used in a number of vital industries, is in short supply at present owing to global supply chain disruptions; China produces about 75% of global aluminium supply and 90% of European needs come from China, according to some Chinese media.

The same media sources blame it on the power shortages and recently-announced carbon emission targets. The production process of the metal is said to be consuming a lot of power per ton.

The shortage of magnesium emerged when electronic sectors across the world suffer from acute shortage of silicon chips; most car plants in the world are unable to function in full capacity due to the lingering problem.

With the debate over carbon-emissions under an intense global spot light, the power producers have been forced to walk the tight rope without letting the world plunge into darkness.

The ordinary consumers, meanwhile, are paying the price for the combination of years of policy miscalculations and unrealistic targets, as a colder winter sets its sight on those who live in the northern hemisphere.

In these circumstances, the policy makers will be compelled to emulate the pendulum of net zero target that currently oscillates between 2050 and 2060, instead of staying static – reacting to the ground realities rather than sticking to rigid energy policies.  

 

 

 

 

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