The global energy crisis of 2021 is the largest since the 1973 oil embargo. But if the first imbalance in the hydrocarbon market in history was man-made due to the actions of Arab exporters who had tried to fight "world Zionism", then today's one is the dominoes that caused an avalanche.
The USA, China, and the north of the EU became the problem drivers as the largest economies of the planet. But in general, the blame is on the next wave of globalization.
What caused a new crisis
In the south of the States, there was a drought and this led to the minimum generation of electricity from hydroelectric power plants in 10 years. The Americans had to solve the situation at the expense of coal and gas generation, and that created additional pressure on the market. Australia entered a trade war with China—this caused a shortage of coke and thermal coal in the region. Britain and the coast of Germany got about 20-22% of energy from wind-driven generators and solar power stations (SPS), but the last six months have become the most windless over the years.
And the oil products market was in a fever long before the start of the pandemic, although everyone remembers only the minus oil prices when the markets collapsed due to the coronavirus. The causes are on the surface—a chain of lockdowns reduced the consumption of all types of energy by 5%, millions of cars were trapped in parking lots, traffic in cities fell by 15-20%, and the peak loads of electricity on fuel oil for millions of households decreased.
The wells had to be suspended and the inflow of investments into the sector had to be reduced.
And after a major hurricane in the Gulf of Mexico and the closure of oil shale enterprises, it is not so easy to increase production as quickly as the world economy is recovering.
How hydrocarbon affected the crisis
Plus the carbon economy has been branded as the main cause of climate change. China pledged to achieve "carbon neutrality" by 2060—Xi Jinping stated this at the UN General Assembly in the fall of 2020. Considering that the Celestial Empire was the consumer of half of the planet's coal, the solution was simple—reducing investment in coal mining, it could always be purchased elsewhere.
But it turned out except in the fall of 2021. Because Australia allowed itself several sharp statements about human rights in Hong Kong and closed the market for Chinese telecommunication giants—in response, Beijing banned the purchase of coal from Canberra. The United States was catching up with a coal generation failure at a hydroelectric power station, some of the mines in Indonesia were flooded and blocked by landslides, and Ukraine, as a result of the Russian invasion of the East, became an importer. In RSA, there was a major train disaster that blocked the work of Africa's largest coal terminal.
As a result, coal prices in Europe have reached a 20-year maximum, surpassing even premium prices in relation to the EU in Asia.
What the poorest people on the planet began to consume
In Asia, China has begun to kneel up after a severe cold winter—when their coal reserves hit a ten-year low. In addition, millions of the world's poorest households got Covid-19 helicopter money. With the services and tourism market in a coma, money began to be spent on physical goods—food stocks, toys for children, clothing, and critical medicines.
China, as the main factory of the planet, naturally reacted by increasing its energy consumption by 15% compared to last year. Flooding in Shanxi with inundation of 60 mines and a dry summer that had reduced the generation of hydroelectric power plants only added to the problems.
And again, the dominoes avalanche occurred—energy-intensive aluminum production, capacities for processing soybeans (for numerous semi-finished products and sausage industries) stopped, steel consumption decreased by a third, region rationing and rolling blackouts showed up.
What happens to gas prices
And of course, gas in Europe and Asia—passing the short-term bars of $2,000 per 1,000 cubic meters, today the prices exceed $1,000. If wind and water generation, as well as coal combustion is not enough, gas remains. This is a purely speculative price—for example, Gazprom's long-term contracts are currently being performed for $170-230.
But while the tankers of the major players are busy putting out the economic "fire" in China, and there is a 5% deficit on the world market, there will be no other story with the price. The reason for all this madness was not only Covid-19 and the RF actions to curb gas supplies to the EU storage facilities emptied after an extremely cold winter. Moreover, the cream is skimmed not by Gazprom, but by the counterparties.
What were the systemic problems
However, the commodity crisis is the tip of the iceberg. The stagnation after 2008 dragged on for a decade and households around the world were faced with tightening credit limits, decreasing property prices (so far it has not reached those golden times), and slowly increasing wages. All this could not hit the demand for commodities.
The poorest were affected the most—because they most willingly consumed goods as physical things, rather than various services. Capital investments in the sector also decreased—the "old economy" needed a complex supply chain of fuel, consumables and construction materials, "dirty" kilowatts for physical production during working hours, and not when maximum insolation and wind would favor.
Why global economy still needs raw materials
For a decade, the "old economy" was choking without investment as cheap money went to the Big Four IT companies, high-tech startups, renewable energy, and venture capital funds. But "suddenly" it turned out that we are still dependent on coal, fuel oil, and gas combustion as before. That gaining "zero" of the hydrocarbon footprint in the north of the EU is not the same as in Spain and Portugal. That it is necessary to invest in copper mines (price increases to the highest since 2011) and fossil fuels. And constant shocks amid 10-12 years of lack of investment and printing helicopter funny money—surprise-surprise—leads to inflation and higher prices. Whether for real estate or food.
Unfortunately, humanity is still a raw material and agricultural civilization that is not even close to making the most of the energy of the entire planet, no matter how great it would be to earn super profits on cryptocurrency and shares of companies that create mRNA vaccines.
And in the coming months, the planet will face a grueling long run that will hit the poorest hard, especially when the northern provinces of China begin to put pressure on the market during the heating season. The rolling blackouts in Asia and blackouts in Lebanon are perhaps only the first signs of a flaring fire. After all, for example, in Ukraine, 8 large thermal power plants have coal reserves for 10 days, and Slovianska stopped both units.
And problems with the production of fertilizers, vegetables in greenhouses, and the processing of raw materials can have long-term consequences for food safety around the world.