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. “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.
