From Brazil to Europe to China, a confluence of events is wreaking havoc on businesses and consumers alike.
In China, power shortages are causing lamps to go out and enterprises to close. In Brazil, the poor must choose between paying for food and paying for power. German maize and wheat growers are unable to obtain natural gas-based fertilizer. And worries are growing that if the winter is very cold, Europe may be forced to restrict electricity.
The globe is in the throes of an energy crisis, with a severe shortage of natural gas, oil, and other fuels needed to keep the global economy going and the lights and heat on in homes. This has resulted in increased electricity bills, more expensive items, and rising anxiety over how energy-hungry Europe and China will recover from the COVID-19 epidemic as winter approaches.
Businesses and consumers are already feeling the pain of increased pricing due to supply chain and labor limitations, and rising energy costs are adding to the pressure.
The largest strain is on natural gas in Europe, which imports 90% of its supply — mostly from Russia — and where costs have climbed fivefold since the beginning of the year, to 95 euros ($136 Cdn) per megawatt hour from about 19 euros ($27).
‘We’re starting to feel a lot of pain.’
It’s wreaking havoc on the Italian food supply chain, with methane costs likely to skyrocket, pushing up the cost of drying wheat by a factor of six. This might ultimately boost the price of bread and pasta in shops, but cattle and dairy producers are more vulnerable, since they are obliged to pay more for grain to feed their animals and pass the cost on to customers.
“We’ve been suffering a lot since October,” said Valentino Miotto, president of the AIRES organization, which represents the grain business.
The gas shortage is being blamed on a series of factors, according to analysts: As the economy recovered from the epidemic, demand soared. A chilly winter reduced supplies, and the summer was less windy than typical, resulting in wind turbines producing less electricity than planned. Russia’s Gazprom, Europe’s main supplier, withheld extra summer deliveries beyond its long-term commitments in order to build up winter stockpiles at home. China’s electrical demand has resurfaced, squeezing limited supplies of liquefied natural gas, which is transported by ship rather than pipeline. Natural gas export facilities from the United States are similarly restricted.
Because certain power generators in Asia can convert from gas to oil-based goods, higher natural gas costs have driven up oil prices. With oil cartel OPEC and partner countries wary of reinstating production cutbacks set during the epidemic, U.S. crude is above $83 per barrel, the most in seven years, while worldwide benchmark Brent is near $85.
Crunch is expected to be short-lived, but the duration is uncertain.
According to Claudia Kemfert, an energy economist at the German Institute for Economic Research in Berlin, the squeeze is likely to be short-lived, but it’s impossible to predict how long higher fossil fuel costs will remain.
“The long-term response that has to come out of this,” she added, “is to invest in renewables and energy conservation.”
Last week, the European Union’s executive commission encouraged member countries to expedite permits for renewable energy projects such as wind and solar, claiming that the “clean energy transition is the best insurance against future price shocks and has to be expedited.”
Meanwhile, several European businesses that rely on gas are reducing production. BASF and SKW Piesteritz, two German chemical firms, have reduced output of ammonia, a crucial component in fertilizer.
‘Without a product, there is no price.’
When Hermann Greif, a farmer in the German community of Pinzberg in southern Bavaria, sought to purchase fertilizer for the next year, he came up empty-handed.
He stated, “There is no product, no price, and no contract.” “We’ve never seen anything like this before.” “If I don’t provide the crops the food they require, they react with lesser yields,” says one farmer.
According to Greif, who produces maize to fuel a bioenergy power station that feeds emission-free energy into the power grid, high energy prices are already affecting the region’s farmers, who rely on diesel to operate machinery and heat to keep livestock warm.
According to the grain organization, the cost of energy to process wheat and corn in Italy is anticipated to increase by more than 600% in the three months ending Dec. 31.
For the coming year, expect a lot of volatility.
The unpredictability and high costs, according to Giampietro Scusato, an energy consultant who negotiates contracts with the AIRES organization and others, are expected to continue in the coming year.
High energy prices permeate into bread and pasta manufacturing through transportation expenses and electrical consumption, affecting retail pricing in the long run. Because prices are currently low, producers may be compelled to pass along the greater cost of animal feed to customers in the dairy and meat departments.
People all across the globe are expecting higher electricity bills this winter, notably in the United States, where regulators have warned that home heating costs might rise by up to 54%. The governments of Spain, France, Italy, and Greece have announced plans to assist low-income families, while the European Union has called for similar assistance.
Much is determined by the weather. Europe’s gas supplies, which are normally replenished in the summer, are extremely low.
Europe’s stockpiles might be depleted to zero in the next winter.
According to Massimo Di Odoardo of research firm Wood Mackenzie, “a harsh winter in both Europe and Asia would risk European storage stocks plummeting to zero.”
As a result, Europe would be reliant on extra natural gas from a recently built Russian pipeline or on Russia’s readiness to transfer more through Ukraine’s pipes. However, the new Nord Stream 2 pipeline has yet to receive European regulatory clearance, and it may not begin supplying gas until next year.
Outages have occurred in China as a result of high coal and gas prices, when electric firms power down due to restrictions on passing costs on to customers or government instructions to keep below pollution levels.
Deliveries may be delayed in the run-up to Christmas.
In mid-September, factories in Jiangsu province, northwest of Shanghai, and Zhejiang province, southeast of Shanghai, shut down, and scores of companies warned that supplies would be delayed ahead of the Christmas shopping season.
The Chenchen Jewelry Factory in Dongyang, Zhejiang, experienced a 10-day power outage, according to general manager Joanna Lan. Hairbands, stationery, and promotional gifts are among the products produced by the business, which exports 80 percent to 90 percent of its output to the United States, Europe, and other countries.
Deliveries were “at least a week late,” according to Lan. “We needed to purchase generators.”
Shenyang, the largest city in the northeast, turned off lighting and elevators, as well as cutting electricity to restaurants and stores for a few hours each day.
‘I’m not sure what we’re going to do,’ she says.
Higher gas and oil costs in Brazil have been exacerbated by the country’s worst drought in 91 years, which has left hydropower facilities unable to provide energy, resulting in higher bills.
Rosa Benta, a 67-year-old from a working-class neighborhood in Sao Paulo, is concerned that she will no longer be able to support her unemployed children and grandchildren.
“I’m not sure what we’ll do with our life,” she said.