An energy crisis is gripping the world, with potentially grave consequences

Source: By Will Englund, Washington Post • Posted: Sunday, October 10, 2021

How China and Europe are catching the brunt of it

The cooling towers at the coal-fired NTPC Ltd. Dadri Power Plant in Uttar Pradesh, India. The country, which relies on coal for about 70 percent of electricity generation, has already seen signs of power shortages. (Anindito Mukherjee/Bloomberg News)

As the global economy recovers and global leaders prepare to gather for a landmark conference on climate change, the sudden energy crunch hitting the world is threatening already stressed supply chains, stirring geopolitical tensions and raising questions about whether the world is ready for the green energy revolution when it’s having trouble powering itself right now.

The economic recovery from the pandemic recession lies behind the crisis, coming after a year of retrenchment in coal, oil and gas extraction. Other factors include an unusually cold winter in Europe that drained reserves, a series of hurricanes that forced shutdowns of Gulf oil refineries, a turn for the worse in relations between China and Australia that led Beijing to stop importing coal from Down Under, and a protracted calm spell over the North Sea that has sharply curtailed the output of electricity-generating wind turbines.

“It radiates from one energy market to another,” said Daniel Yergin, author of “The New Map: Energy, Climate, and the Clash of Nations.”

“Governments are scrambling to get subsidies in place to avoid a tremendous political backlash,” Yergin said. “There’s a pervasive anxiety about what may or may not happen this winter, because of something we have no control over, which is the weather.”

As global leaders prepare to gather in Glasgow, Scotland, at the end of the month for a climate conference, advocates for renewable energy say the crisis shows the need to move further away from coal, gas and oil as prices for those commodities spike. Their critics contend just the opposite — that wind and solar have been tested and came up lacking. Analysts also worry that the shortages and high prices worldwide will severely crimp the economic recovery.

In the United States, which as an energy producer has been spared the worst consequences of the crisis even as gasoline prices have hit their highest mark since 2014, Energy Secretary Jennifer Granholm suggested Wednesday that the Biden administration might sell off part of the country’s Strategic Oil Reserve or ban exports of crude oil.

Energy analysts warned that such moves could be self-defeating, and on Thursday the department backpedaled.

“DOE continues to monitor global energy market supply and will work with our agency partners to determine if and when actions are needed,” a department statement said. “All tools in the Tool Box are always under consideration to protect the American people. Consistent with what the secretary said, there is no immediate plan to take those actions at this time.”

One leader who appears to see an opportunity in the crisis is Russian President Vladimir Putin, whose vast energy reserves the country often taps as leverage during times of energy stress. On Wednesday, Putin suggested that Russia’s European customers could solve their problem if they imported more Russian gas.

Analysts doubt it would make much of a difference right away, because at the moment Russia does not have a great deal to spare, but Deputy Prime Minister Alexander Novak said that even a small additional amount of exported gas could dampen what Moscow characterizes as a speculative frenzy in Europe.

This seemingly minor nudge comes against the background of sharp disagreements within the European Union over a response to the crisis. Leaders are looking to the E.U. as either scapegoat or savior, with some premiers asking the bloc for a standardized solution to the crisis and others blaming the price hikes on its sweeping policies to combat climate change and reduce emissions.

Hungarian Prime Minister Viktor Orban, who has friendly relations with Putin, said Wednesday that the E.U. was partly to fault for the increases and that the bloc “must change its policy.” That same day, E.U. climate chief Frans Timmermans said those who blame the bloc’s Green Deal are doing so for “ideological reasons” and that the transition away from fossil fuels will help end price crises, not exacerbate them.

“The wrong response to this would be to slow down the transition to renewable energy,” Timmermans said at a meeting of environmental ministers. “The right response is to keep the momentum and perhaps even look for ways to increase the momentum.”

Energy analysts argue that Europe moved too quickly away from fossil-fueled power, before ensuring that sufficient renewable sources could take up the slack in an emergency. Caught halfway in a transition that should take decades, they say, Europe is now scrambling to find coal and gas to burn in its remaining traditional plants.

As winter approaches, European fuel stocks are at a relative low point.

An important factor is the new Nordstream 2 pipeline, which connects Russia and Germany by way of the Baltic Sea but has yet to go into operation. Russian officials have urged Germany to speed up its regulatory approval, suggesting that it would provide a long-term solution to the country’s energy problems.

But politicians from Germany’s Greens, the environmentally conscious party currently in discussions to become part of a new coalition government following elections in late September, have accused Russia of manipulating the price of gas to create a sense of urgency around the pipeline.

If the Russian energy giant Gazprom does not adhere to regulatory requirements without “any ifs or buts” it is “a further indication that power politics is being pursued with gas,” Oliver Krischer, deputy head of the Greens parliamentary group, told German outlet RND on Wednesday.

And those regulatory hurdles might not be overcome before cold weather sets in, Klaus-Dieter Maubach, the chief executive of Uniper, Germany’s largest gas importer, told reporters in Düsseldorf last week. “It will probably not be able to help us out this winter.”

The new pipeline enables Russia to send gas to the West while bypassing Ukraine, and officials in Kyiv have long seen it as a weapon aimed at them. They argue that once the pipeline is in operation, Moscow will use gas as a cudgel to force European countries to do its bidding. But closer to home, they worry that with Ukraine no longer a transit country for Russian gas, Kyiv will lose one of its few levers of influence over Moscow — and that this poses the danger that the Kremlin could escalate the seven-year-old war in Ukraine’s east.

“The Kremlin is doing this on purpose,” Yuriy Vitrenko, head of Ukraine’s energy company Naftogaz, wrote on Facebook in regard to bypassing Ukraine. “It’s not even saber rattling — it’s the obvious use of gas as a weapon.”

When the coronavirus pandemic first swept the world in early 2020, gas reserves were abundant and the price was at rock bottom. But production of both gas and oil was sharply curtailed as economies shattered, and reserves were eaten up by the unusually cold weather in Europe last winter.

The energy crisis first emerged in China, the world’s manufacturer, as global demand for its products suddenly and unexpectedly shot upward this year. Coal stocks were low, and an unofficial Chinese ban on Australian lignite meant they couldn’t quickly be replenished. Power companies turned to the spot market for liquefied natural gas (LNG) instead, and its price soared.

In Asia, the spot price, measured in a million British thermal units, went from less than $5 in September 2020 to more than $56 this October.

As a result curbs on power consumption have been implemented across two-thirds of China, disrupting factory production and daily life.

Some factories have shut down altogether. China’s power cuts will further disrupt international supply chains already stretched by the pandemic. Factories have had to reduce production at a time when they are usually ramping up for the December holiday season.

In Guangdong, China’s most populous province, authorities have banned the use of elevators in office buildings for the third floor and below, encouraged residents to use natural light as much as possible, and asked for air conditioners to be adjusted to higher temperatures. Beijing and Shanghai canceled annual light shows during the Golden Week holiday that spanned the first week of October.

The energy shortage has been exacerbated by continued severe weather. In northern Shanxi province, 27 coal mines were closed last week due to flooding. In China’s southern Yunnan province, hydropower has been crimped for much of the year by drought — much as it has in California.

China’s chief economic planning agency, the National Development and Reform Commission, warned last week that curbs on power usage will remain into next year.

A similar power crunch is unfolding in India, which saw a glut of electricity supply earlier this year when a devastating coronavirus surge left factories idle and streets empty. Since then, economic activity in the world’s second fastest-growing major economy — and its thirst for electricity — have bounced back faster than expected.

Now, India is staring at the reverse prospect: power shortages and potential blackouts hitting its rebounding manufacturing sector and households during the festive season beginning this month.

Power plants have failed to secure coal shipments and are reluctant to buy imports now because of the high price, according to Indian officials who have been urging utilities to purchase what they need. The country’s Central Electricity Authority warned Tuesday that nearly half of India’s coal power plants — 63 out of 135 — have two days or less of coal supplies, while stocks have been exhausted at 17 facilities.

Rahul Tongia, an expert on energy and sustainability at the Brookings Institution, said the coal shortage was likely to extend for five months and the Indian government would soon face difficult choices. Already, Indian aluminum producers have complained about power shortages bringing smelters to a halt.

“Are you going to shut down power for a bunch of people, a.k.a. voters? Or are you going to shut down industry?” Tongia said. “My money,” he said, is on a government decision that “they will not depress industry because it’s so critical in a post-covid recovery.”

In India, a country that has come under mounting international pressure and criticism for its refusal to commit to carbon emissions reduction targets, some officials and analysts have argued that the coal shortage has highlighted the enduring importance of a dirty but essential energy source. Even as India embarks on an ambitious project to deploy 450 gigawatts of renewable energy by 2030, its officials have talked up the necessity of accelerating, rather than slashing, coal production.

As coal supplies dwindled last month, India’s coal ministry chastised executives at Coal India, the state-owned company that is the world’s largest coal miner by output, for not meeting production targets and reiterated India’s target of mining 700 million tons of coal this year and 1 billion tons by 2024.

Karthik Ganesan, a researcher at the Council on Energy, Environment and Water, an independent think tank that advises the government, urged Indian officials not to overreact to what he called a short-term shortage of coal due to weather and poor planning by power companies.

“This situation in itself is not an indicator of any long-term threats to coal availability and doesn’t need a policy response that augments mining or opens up new areas for mining,” he said. “This crisis shouldn’t result in us getting on a higher coal-use path.”

In Europe, where energy prices are hitting record levels, leaders are acutely aware of the potential for instability that comes with soaring costs.

Desperate to avoid a repeat of the “yellow vests” protest movement that was sparked in 2018 amid rising fuel prices and a proposed gas tax, the French government last month announced a “price shield” that will block further increases to the price of gas and electricity.

In Spain, the government has also approved emergency measures, seeking to help poor families pay their electricity bills and curbing what Prime Minister Pedro Sánchez described as “extraordinary profits” of energy companies.

The crisis “is hurting our citizens and in particular the most vulnerable households, weakening competitiveness and adding to inflationary pressure,” European Commissioner for Energy Kadri Simson told the European Parliament on Wednesday. “If left unchecked, it risks compromising Europe’s recovery as it takes hold.”

In the United Kingdom, shortages at the pump have led to long lines for gasoline, as well as high prices. Fuel companies have said they lack enough delivery drivers, because a significant number came from other European countries and went home after Britain left the E.U.

Eva Dou, Loveday Morris in Berlin, Gerry Shih in New Delhi, Reis Thebault in Brussels, and David L. Stern in Kyiv contributed to this report.