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Why Is Everyone Talking About a Global Power Shortage?

Updated on September 28, 12:52 AM EDT

What You Need To Know

There is a worrying shortage of energy from Europe to Asia, caused by supply restraints from the world’s top producers, and that’s poised to shutter factories and boost power bills. While there is no single reason for the shortage — things like customer demand, technical problems and a lack of investment are all playing a part — the crisis is threatening to spread to more nations and upend the global economic recovery.

The price of natural gas and coal, used to power factories and heat homes, has surged to multi-year highs as the post-pandemic rebound collides with supply constraints in the run-up to the Northern Hemisphere winter.

The crisis has forced some fertilizer producers in Europe to reduce output, while Chinese power grids are rationing supplies to factories, which will curb production. What’s worrying is that it isn’t even cold yet. Energy consumption usually peaks when frigid temperatures boost demand for heating.

Already, China is looking to adopt measures to try to cool sky-high coal prices and ease its own power shortage, while utilities around the world are working tirelessly to try to secure more fuel supplies.

By The Numbers

  • 1,300% The surge in European benchmark natural gas futures since May 2020
  • $100 per million British thermal units Natural gas in Asia and Europe could surge to this price in the event of a particularly cold winter, or roughly a four-fold increase from current levels, according to Citigroup
  • 2017 The year China’s seasonal coal inventories were last at such a low level, according to Morgan Stanley

Why It Matters

Even a normally cold winter in the Northern Hemisphere is expected to exacerbate the shortage and drive up energy prices across the world. Since the world runs on fuel and electricity, the energy crisis threatens to touch every corner of the global economy, squeezing supply chains and even increasing food prices, all of which means a jump in inflation.

In a worst case scenario, Europe could face blackouts and China’s industrial users, including chip makers and aluminum smelters, may shut factories, with repercussions echoing around the globe. Economies that can’t afford the fuel — such as Pakistan or Bangladesh — could simply grind to a halt.

A crisis that’s largely playing out in industries could soon spread to the political arena, as higher utility bills and the price of goods could trigger public unrest. Lower hydroelectric power output in Brazil, for example, has forced the nation to increase dependence of pricey natural gas, boosting power bills for households, which could hurt President Jair Bolsonaro’s chances in next year’s election.

    Maybe it would help to stop making the same mistakes over and over again and speed up the green transition.