Column: Global energy shortage manifests in soaring coal, gas and oil prices
LONDON, Sep 24 (Reuters) – Record gas and electricity prices in Europe, record coal prices in China, gas prices at multi-year highs in the United States and oil prices well above their real long-term average are all manifestations of the same global energy scarcity.
In the aftermath of the coronavirus recession, energy production has failed to keep pace with the rapid growth in consumption as energy producers struggle to increase production as demand rebounded rapidly.
The downturn in the business cycle and falling energy prices caused by the pandemic, and before that, the trade dispute between the United States and China, depressed investment in the entire energy sector in 2019/2020.
Since then, the global economy has experienced an unusually rapid cyclical recovery, aided by low interest rates, bond purchases and massive government spending, which has focused on energy-intensive goods rather than services, increasing energy consumption at extraordinary rates.
The result is a severe cyclical shortage of energy, evident in below-average stocks, and soaring prices for coal, gas and oil in all major consuming regions of the world.
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Unusual weather conditions compounded the shortages, including a cold winter in the northern hemisphere in 2020/21, a late winter storm in Texas in February 2021, weak winds in Europe in August-September 2021 and a disruption in the production of oil related to hurricanes in the Gulf of Mexico.
In recent months, China has reported low stocks of coal in power plants and the government has urged major producing regions to increase production urgently; coal futures prices have more than doubled over the past year.
In the gas market, stocks are 5% lower than the seasonal average before the pandemic in the United States and 15% lower than the average in Europe.
Gas futures prices at the start of the month rose 140% in the United States, more than 500% in Europe and more than 600% in Northeast Asia, compared to the same period last year .
On the oil side, commercial oil stocks in the United States are 5% below the pre-pandemic seasonal average, and OECD-wide commercial stocks are also around 5% below the average. seasonal average 2015-2019.
Benchmark Brent futures have been trading at the 70th percentile in real terms since 1990, while the six-month calendar spread is at the 98th percentile, indicating traders expect stocks to become even tighter.
The energy industries have always exhibited strongly cyclical behavior.
The greater the initial disruption of production, consumption, stocks and prices, the greater the immediate response and the greater the subsequent reaction.
In this case, the low stocks and high prices of coal, gas and oil are a direct consequence of the high stocks and low prices around the same time last year caused by the first wave of the pandemic.
After an unusually rapid economic rebound, global industrial production and global trade volumes are both down less than 1% from their pre-pandemic and pre-trade war trends.
Global spare capacity is limited, especially in goods-producing industries, which are much more energy-intensive than service-producing industries.
As a result, global energy consumption is very close to its long-term trend, with a few exceptions, the most important of which is a sharp decline in the use of jet fuel for international passenger aviation.
With large swathes of the global economy operating near full capacity, the energy system is struggling to meet growing demand and prices are accelerating as a result.
John Kemp is a market analyst at Reuters. The opinions expressed are his own.
– Gas prices in Europe are soaring but who will reduce consumption? (Reuters, September 23)
– UK energy fragility exposed by soaring global gas prices (Reuters, September 22)
– Rising gas prices in Europe to lower demand before winter (Reuters, September 14)
– Chinese coal futures record signals need to increase production (Reuters, September 7)
Editing by Matthew Lewis
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