How close are we to an energy crisis? Short of a cold winter

A global energy crisis has begun,  many parts of the world are suffering this winter.

U.S. WTI crude topped $80 a barrel, a level last seen in 2014. European gas prices have jumped 80%  last year's lows. In China, more than 20 provinces  cities have experienced sudden power blackouts because of an upside-down price for coal. The energy issue is attracting worldwide attention  poses huge uncertainties to the economy, people's livelihood  the market.

The past year has seen a series of spikes in gas, oil  coal prices. The supply  demand relationship behind these three kinds of energy has its own logic,  the price rises are also different. However, its core characteristic is energy,  there is a substitute between each other, so the price correlation is quite high.

There are several major reasons for this wave of energy price increase, such as economic restart, speculation caused by excess liquidity, etc. However, in my opinion, the bigger reason is that countries are turning to clean energy together, vigorously eliminating  restricting coal power generation  nuclear power generation, hoping to replace them with clean energy such as wind power  photoelectric power. Such policy thinking is good  long-term, but perhaps humanity is  ready for it. These alternative-energy generation capacities are highly volatile,  the storage infrastructure is failing to keep up, leaving large gaps in energy supplies.

Germany, for example, shut down its nuclear plants  coal mines in one go, but failed to deliver on its promised wind power. It had to massively increase its gas generation  heating, but Russia, the main gas supplier, tried to force the EU to approve Nord Stream 2 as soon as possible. Norway has increased its gas supplies to the EU, but If Russia does  cooperate, Europe will suffer this winter. A global energy crisis has begun. Many parts of the world will have a hard time this winter. I hope there will  be a cold winter.

The crisis has long been foreshadowed. Europe is the world's leader in the pursuit of decarbonization. Its energy policies are heavily tilted toward wind  solar power,  there are strict restrictions on investment in fossil fuels. Environmental policies force the closure of coal-fired power stations  nuclear power stations, actively blocking backup power generation capacity. Such courage has been embarrassed by the failure of storage technology  infrastructure to keep up. On days when the wind is  blowing  the sun is  shining, the gap between power supply  demand is huge. Electricity prices in almost all European countries have at least doubled this year  are rising every month.

At the other end of Eurasia, Asia is scrambling desperately to hoard liquefied natural gas. The Us National Oceanic  Atmospheric Administration (NOAA) is forecasting a "la Nina" phenomenon this winter, which could bring cold weather to the western Pacific Ocean. The price per tonne of Australia's exported coal has skyrocketed this year, reaching ten times last year's lows. Coke supply  demand gap is very large, inventory is at a historical low.

Similarly, blackouts  brownouts are spreading rapidly in China. China's power rationing is caused by a number of factors, of which the price of coal power is the core in the author's eyes. Market-oriented coal prices  planned management of electricity prices lead to dislocation of interests in energy output,  only blocked coal supply, power stations will also lose money when they generate electricity, so a large number of power stations maintenance wonders in peak season.

Governments around the world are jointly implementing carbon neutral policies, which is correct  necessary to combat climate change, but it will also raise energy costs  change the pattern  structure of energy production  consumption. It is normal to see all kinds of disruptions during the transition period,  it is  uncommon to see a gap between vision  reality.

In addition to the imbalance between supply  demand, there is also a flood of liquidity. Central banks have dramatically eased monetary policy  the Federal Reserve's balance sheet has more than doubled, creating a rush of hot money into limited assets that has driven up energy prices.

Oil prices jumped after the recent OPEC+ meeting decided  to increase crude production. I think the current supply  demand of crude oil is roughly balanced, there is no shortage of oil in the market. The world consumed 99.7 million barrels of crude oil per day in 2019,  the INTERNATIONAL Energy Organization expects demand to reach 96.5 million barrels per day in 2022. So oil demand has  yet recovered to pre-pandemic levels,  prices are already reflecting the recovery in demand as the global economy restarts. However, if there is a cold winter this year, natural gas is scarce  too expensive,  there is a high probability that oil will be used as an alternative to power generation  heating, that is a whole new story, a whole new scenario.

Global gas supplies are certainly inadequate, oil supplies are almost adequate  coal supplies are structurally misaligned. How close are we to a global energy crisis? Short of a cold winter.

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Source: International Gas Network