Energy crunch hits global recovery as winter approaches: Report

Power shortages are turning out streetlights and shutting down factories in China. The poor in Brazil are choosing between paying for food or electricity. German corn and wheat farmers can’t find fertiliser, made using natural gas. And fears are rising that Europe will have to ration electricity if it’s a cold winter. The world is gripped by an energy crunch — a fierce squeeze on some of the key markets for natural gas, oil and other fuels that keep the global economy running and the lights and heat on in homes. Heading into winter, that has meant higher utility bills, more expensive products and growing concern about how energy-consuming Europe and China will recover from the Covid-19 pandemic. The biggest squeeze is on natural gas in Europe, which imports 90 per cent of its supply — largely from Russia — and where prices have risen to five times what they were at the start of the year, to ^95 euros from about ^19 per megawatt hour. It’s hitting the Italian food chain hard, with methane prices expected to increase sixfold and push up the cost of drying grains. “From October we are starting to suffer a lot,” said Valentino Miotto of the AIRES association that represents the grain sector. Analysts blame a confluence of events for the gas crunch: Demand rose sharply as the economy rebounded from the pandemic, while a cold winter depleted reserves.

Europe’s chief supplier, Russia’s Gazprom, held back extra summer supplies beyond its long-term contracts to fill reserves at home for winter. China’s electricity demand has come roaring back, vacuuming up limited supplies of liquid natural gas, which moves by ship, not pipeline. There also are limited facilities to export natural gas from the United States. Costlier natural gas has even pushed up oil prices because some power generators in Asia can switch from using gas to oil-based products. US crude is over $83 per barrel, the highest in seven years, while international benchmark Brent is around $85, with oil cartel Opec and allied countries cautious about restoring production cuts made during the pandemic. The crunch is likely short term but it’s difficult to say how long higher fossil fuel prices will last, said Claudia Kemfert, an energy economics expert at the German Institute for Economic Research in Berlin.

In India, coal back in vogue

In India, April 2020 marked the lowest point of coal consumption in many years as an economic slowdown in the second half of 2019, was followed by the Covid lockdown. The economic recovery since led to a continuous rebound of coal consumption, with a 6% increase in the fourth quarter of 2020. Higher coal demand was also driven by a decline in generation from hydro, following 2019’s exceptionally high output. IEA’s estimate for India coal consumption assumes a strong economic rebound in 2021, pushing Indian GDP firmly above 2019 levels and driving up coal demand by almost 9% to 1.4% above 2019 levels.

Yet to match 2019 levels

The improving economic environment will support a rebound in global oil demand of 5.4 mb/d, or 6% above 2020 levels. Despite the rebound, demand across 2021 is expected to remain 3.2% below 2019 levels

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