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News Article

Europe and China’s Growing Energy Crises Might Expand

By Cas Biekmann | Fri, 10/08/2021 - 12:03

Winter is approaching and once it gets here there will be an increased demand for natural gas. This time, it is not quite business as usual, though, since gas supplies are beginning to look uncommonly precarious. The crunch in Europe and China is worsening, leading experts to warn that the issue could snowball into a global crisis, of which Mexico could feel the effects too.

Industries and residential areas around the world are switching away from coal and fuel oil toward natural gas, increasing the demand for the fossil fuel. Amidst the post-pandemic economic reactivation boom and efforts to replenish depleted storage reserves, natural gas demand can hardly be met. Output from major producers like Russia and Norway has been somewhat dreary. Gas prices are currently rising to astronomic levels, already reaching near-records.

In China, citizens are suffering from rolling blackouts as the government scrambles to import as much liquefied natural gas (LNG) it can find. Industry has been hit especially hard, with Goldman Sachs estimating about 44 percent of Chinese industry being affected. And with European coal power plants being phased out and aging nuclear plants under maintenance, renewable energy output is not yet up to scratch to fill the gaps. Electricity bills in Spain have reportedly been tripled since last year, a trend observed in other European countries too.

Though Reuters stresses that there are other issues at play and that they are not necessarily intertwined, these problems compound the crisis further. For instance, OPEC has restricted oil and bottlenecks in global transport are hampering fuel distribution.

The rising energy costs are causing stops in industrial activity. Food supply chains are constricted too. Analysists expect that this could be reflected in commodity and product prices across the world. The possibility of a cold snap is putting energy utilities on red alert.

“If the winter is actually cold, my concern is we will not have enough gas for use for heating in parts of Europe,” said Amos Hochstein, the US State Department’s senior adviser for energy security to Bloomberg in September, adding that a lack of gas “touches everybody’s lives,” because it is needed for heating. American exporters are already working to ship more LNG abroad, at lower prices because US production and reserves are not as precarious as elsewhere. Nevertheless, reserves are lower than they have been in five years and gas producers are not willing to upscale production because it could hamper their business production.

The issue could even spill over to Mexico. Meanwhile, associations are calling on the government to halt exports until reserves are replenished. Since Mexico is largely dependent on US natural gas, it might very well suffer consequences if this comes to pass. On the other side of the equation, Mexico could profit in the future if it manages to become a producer and LNG export hub.

The data used in this article was sourced from:  
Bloomberg News, Reuters
Cas Biekmann Cas Biekmann Journalist and Industry Analyst