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  • Rovindu Ambagolla

Monday Market Musings >>> The Global Energy Crisis - What Should We Be Prepared For?

Picture Credit: Maxim Zhgulev

As the world slowly starts recovering from the Covid-19 pandemic, we have now hit a new barrier which hinders our ability to recover the global economy to pre-covid levels. A worldwide shortage of natural gas.

Global energy prices are experiencing record breaking highs and many governments around the world are struggling to meet the demand of consumers. China for example is already facing blackouts in some parts of the country and Indian power stations are scrambling to get supplies of coal. In East Asia, the price of natural gas has gone up by almost 85%.

Europe was also severely affected by the global power crunch. In Europe the price of a single barrel of natural gas has risen to $230 per barrel, which is a price hike of almost 130% in comparison to September, and a shocking eight times more in comparison to the same time last year. The EU’s Energy Chief Kadri Simson comments “This price shock is an unexpected crisis at a critical juncture. The immediate priority should be to mitigate social impacts and protect vulnerable households”.

The dash by governments worldwide to get ahold of a supply of natural gas has pushed up prices for coal and oil as well. India and China are both struggling with a lack of coal to power their coal-based power plants. India, which is extremely dependent on coal for energy, has stated that 63 of its 135 coal power plants only have enough supply to last the next two days or less.

Picture Credit: Andreas Felske

This whole situation stems from the sharp decline of demand that the world experienced last year at the peak of the pandemic, when almost all economic activity had come to a sudden halt. This decline in demand had forced producers of natural gas to slow down production. However, when economic activity slowly started booming again this year, producers were not able to keep up with the exponential rise in demand, forcing global price hikes and shortages.

With winter coming, there doesn't seem to be an immediate end to the supply shortages in sight. “There is no Saudi Arabia for gas” commented Jim Burkhard who leads IHS Markit’s research on energy. “This looks like it’s going to endure for the winter in the Northern Hemisphere.” However, Russia could potentially supply Europe with natural gas which would ease the stress in the region, but this will require Europe to be further dependent on Russia and the use of the controversial Nord Stream 2 Pipeline, which the US is heavily against.

Overall, the global shortage of natural gas will be a persistent problem over the following months, with countries who depend heavily on it like Italy and the UK at most risk.

October 11th 2021 | 12:30 PM

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