Global energy crisis: There is no easy way out

Global energy crisis: There is no easy way out


A global energy crisis - caused by a combination of factors including adverse weather and a strong resurgence in demand - is becoming increasingly stressful and causing great concern as the Northern Hemisphere is about to enter the world. in the winter months, when countries need more energy for lighting and heating.

Governments around the world are trying to limit the impact of energy scarcity on consumers, but authorities must also admit that they may not be able to stop the bloated bills. fuel.


According to CNN Business, the global energy picture is further complicated by the added factor of increasing pressure on countries to transition to clean energy, especially as world leaders prepare to for a climate summit in November.

In China, rotating power cuts for households have been implemented. In India, thermal power plants are turning to coal. Consumer groups in Europe are calling for a regulation to ban energy cuts if consumers cannot pay their bills immediately.

“This price shock is a completely unexpected crisis and comes at a very difficult time,” said the European Union's (EU) Energy Director, Kadri Simson. a few days ago and confirmed the bloc would draw up a long-term policy response plan this week. “The immediate priority will be to reduce social impact and protect vulnerable households.”

In Europe, natural gas is trading at the equivalent of $230 a barrel of oil, up more than 130% since the beginning of September and more than eight times higher than in the same period last year, according to data. from D Independent Commodity Intelligence Services.

In East Asia, the price of natural gas has increased by 85% since the beginning of September, reaching the equivalent of nearly $204 per barrel of oil. In the US - a net exporter of gas, gas prices are lower now but have also reached a 13-year high.

“Information like this raises concerns about how things will turn out in the winter,” said energy and geopolitics expert Nikos Tsafos of the Center for Strategic and International Studies (CSIS) in Washington. identify. Mr. Tsafos said that the insecurity has caused the market to move beyond the basic factors of supply and demand.

The fact that countries compete to buy natural gas is contributing to the increase in coal and oil prices, because these two fuels can be used as an alternative to coal in some cases but cause more pollution to the environment. . India, which is still heavily dependent on coal, said last week that 63 of its 135 coal-fired power plants had only enough coal for two days or less.

This situation worries central banks and investors. Escalating fuel prices "fuel" inflation, while rising prices are inherently a big concern when the global economy recovers from the shock caused by the Covid-19 pandemic. Winter events could make the situation worse.


The energy crisis facing the world is caused by a surge in demand as the economy recovers, plus adverse weather and technical events that disrupted supply in some places. Earlier this year, unseasonably cold weather had almost exhausted Europe's natural gas reserves. The strong demand has hindered the process of filling gas reserves, which usually take place during spring and summer.

China's growing demand for liquefied natural gas (LNG) means that the LNG market cannot make up the shortfall. Falling Russian gas exports and an unusually weak wind season make the situation worse.

“The current energy price hike in Europe is truly exceptional,” said a recent report by Societe Generale. “Never before has energy prices increased so sharply and so quickly. But now that autumn has just begun, the temperature has not dropped deeply yet."

The drivers of energy price increases are spreading globally. The price of natural gas in the US has increased 47% since the beginning of August. The demand to switch to coal has also boosted the price many companies in Europe have to pay to buy carbon credits to be able to use the fuel. fossils.

Last week, WTI crude oil futures in New York hit a seven-year high. Bank of America recently forecast a cold winter that could push the price of Brent oil futures in the London market - the reference price of the global energy market - above $100 a barrel. The last time Brent was at $100 a barrel was in 2014.

Jim Burkhard, head of energy market research at IHS Markit, said that "immediately, there is no way out" for the world in this energy crisis.

"In terms of gas, there's no country like Saudi Arabia in the oil market," Burkhard said, noting that no single country has been able to rapidly ramp up natural gas production as much as Saudi Arabia. can do with oil output. "The current state of affairs looks likely to persist through this winter in the Northern Hemisphere."

In theory, Russia could increase gas production. Societe Generale analysts argue that if the German government approves faster Nord Stream 2 - the pipeline that brings gas directly from Russia to Europe and is a politically sensitive project - pressure will be relieved a lot.

Last week, Russian President Vladimir Putin signaled that Russia could increase gas output, saying that Russia's state-owned gas company Gazprom has never "rejected to increase supply to customers if they offer an offer price." reasonable purchase”.


However, at an oil and gas industry conference last week, ExxonMobil's senior vice president, Neil Chapman, emphasized the short-term bottlenecks. “Of course there are big concerns. In our industry, investment is huge, so it's not easy to quickly increase supply," Chapman said.

According to Mr. Burkhard, the best-case scenario is a winter with average temperatures not too low, which will help pressure on energy supply to ease in the second quarter of 2022. However, if conditions in the coming months are severe, tensions in energy markets will increase further, particularly in countries with a high degree of dependence on natural gas sources for power generation, such as Italy and England. Britain is in a particularly disadvantaged position because of its lack of natural gas storage capacity and is reeling from power interruptions with France.

“It is clear that the UK is in the most risky position among the major European economies in terms of energy supply shortages this winter,” said Henning Gloystein, director of energy. of the Eurasia Group, said in a report last week. "If that happens, the UK government will probably have to ask factories to reduce production and reduce gas consumption to ensure supply for households."

With energy prices continuing to climb and showing no signs of slowing down anytime soon, global inflationary pressures will only intensify. Energy prices in the developed world rose 18 percent in August, the strongest increase since 2008, according to data released last week by the Organization for Economic Co-operation and Development (OECD). That was before the situation deteriorated much in recent weeks.

High energy prices can force consumers to "tighten their belts" in other expenses such as clothing, eating at restaurants, etc., posing obstacles to the economic recovery after the pandemic. If businesses are forced to cut operations to reduce electricity consumption, the economy will also suffer.

"There are concerns that higher gas prices will put the economic recovery from the pandemic in Europe at risk," Gloystein said.

According to Gloystein, fluctuations in energy prices can also increase public skepticism about the strategy to shift to clean energy sources. Most likely, consumers will demand more investment in oil and gas exploration to limit the possibility of future price spikes like this.

However, governments with pledges to cut emissions are trying to send a "pre-emptive" message that this energy crisis will only strengthen, not weaken, strategic investments in renewable energy. diverse energy sources.

“It is clear that in the long term it is important to invest in renewable energy,” European Commission (EC) President Ursula von der Leyen said last week. “That would give us more stable prices and greater independence, because 90% of the gas the EU consumes comes from imports.”

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