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Electricity shortages hit street lights and shut down factories in China. The poor in Brazil choose between food and electricity. German corn and wheat farmers cannot find any fertilizer made with natural gas. And there are growing fears that Europe will have to ration electricity during a cold winter.
The world is being gripped by an energy crisis – severe pressure on some of the key markets for natural gas, oil and other fuels that keep the global economy going and power home lighting and heating. At the start of winter, it meant higher electricity bills, more expensive products and growing concerns about how energy-consuming Europe and China will recover from the COVID-19 pandemic.
The biggest bottleneck is for natural gas in Europe, which imports 90% of its supply – mostly from Russia – and where prices have risen from around 19 euros per megawatt hour to five times the beginning of the year to 95 euros.
The Italian food chain is hit hard as methane prices are projected to increase sixfold and the cost of drying grain soaring. This could eventually increase the prices of bread and pasta in supermarkets, but meat and dairy aisles are more vulnerable as beef and dairy farmers are forced to pay more for grain to feed their animals and pass the cost on to customers.
“From October onwards we will suffer a lot,” said Valentino Miotto from the AIRES association, which represents the grain sector.
Analysts blame a confluence of events for the gas crisis: demand rose sharply as the economy recovered from the pandemic, while a cold winter drained reserves. Europe’s main supplier, Russian Gazprom, withheld additional summer supplies beyond its long-term contracts in order to replenish domestic reserves for the winter. China’s electricity demand has returned, sucking up limited supplies of liquefied natural gas, which is shipped by ship rather than pipeline. There are also limited opportunities to export natural gas from the United States.
More expensive natural gas has even pushed oil prices higher because some power producers in Asia are able to switch from using gas to oil-based products. U.S. crude oil is above $ 83 a barrel, its highest in seven years, while the international Brent benchmark is around $ 85, with the oil cartel OPEC and allies cautious about restoring production cuts made during the pandemic.
The crisis is likely to be short-term, but it is difficult to say how long the higher prices for fossil fuels will last, said Claudia Kemfert, an energy expert at the German Institute for Economic Research in Berlin.
But “the long-term answer to be drawn from this is investment in renewable energy and energy savings,” she said.
The European Union Executive Commission last week called on member states to speed up approvals for renewable energy projects such as wind and solar power.
Some gas-dependent European industries are now reducing production. The German chemical groups BASF and SKW Piesteritz have reduced the production of ammonia, an important component of fertilizers.
Hermann Greif, a farmer in Pinzberg in southern Bavaria, unexpectedly came away empty-handed when he tried to order fertilizer for the next year.
“There is no product, no price, not even a contract,” he said. “It’s a situation we’ve never seen before.” One thing is certain: “If I don’t give the plants the nourishment they need, they will react with lower yields. As simple as that.”
The farmers in the region, who need diesel to operate machines and heat to keep the animals warm, would already be affected by high energy prices, said Greif, who grows corn to feed a bioenergy power plant that feeds emission-free energy into the power grid.
In Italy, too, the energy costs for processing wheat and maize are expected to rise by more than 600% for the three months to December 31, according to the Grain Association. This includes processing wheat into flour and corn into feed for cows and pigs.
Giampietro Scusato, an energy consultant who negotiates contracts for the AIRES association and others, expects the volatility and high prices to continue for the coming year.
High energy prices also infiltrate bread and pasta production through transport costs and electricity consumption, which could ultimately affect store prices. Dairy and meat departments are particularly exposed as prices are now low and farmers may be forced to pass the higher cost of animal feed on to buyers.
People around the world are also facing rising utility bills this winter, including the US, where officials have warned that home heating bills could rise by up to 54%. Governments in Spain, France, Italy and Greece have announced measures to help low-income households, while the European Union is pushing for similar aid.
Much depends on the weather. Europe’s gas reserves, which are normally replenished in summer, are at an unusually low level.
“A cold winter in both Europe and Asia would mean that European inventories would drop to zero,” says Massimo Di Odoardo of the research company Wood Mackenzie.
That would make Europe dependent on additional natural gas from a recently completed Russian pipeline or on Russia’s willingness to pipeline more through Ukraine. But the new Nord Stream 2 pipeline has failed regulatory approval in Europe and may not deliver gas until next year.
The decision by Russian suppliers to sell less gas on the spot markets reflects “the intention to put pressure on the early certification of Nord Stream 2,” said energy industry expert Kemfert.
In China, outages followed high coal and gas prices as electricity companies shut down due to restrictions on passing costs on to customers or government orders to meet emission thresholds.
Factories in Jiangsu Province, northwest of Shanghai and Zhejiang in the southeast, closed in mid-September, and dozens of deliveries have been warned of the Christmas shopping season.
The Chenchen jewelry factory in Dongyang, a city in Zhejiang, was faced with power outages for over 10 days, said general manager Joanna Lan. The factory makes headbands, stationery and freebies, and exports 80 to 90% of its goods to the US, Europe and other markets.
Deliveries were delayed “by at least a week,” Lan said. “We had to buy generators.”
The largest city in the northeast, Shenyang, turned off streetlights and elevators and turned off electricity for restaurants and shops for a few hours a day.
China’s gas imports have skyrocketed, but rising demand in Japan, South Korea, and Taiwan also helped drive global prices soar, said Jenny Yang, research director for the gas, power, and energy futures team for China IHS Markit.
In Brazil, higher gas and oil prices were compounded by the worst drought in 91 years, which left hydropower plants unable to provide electricity and bills more expensive.
Rosa Benta, a 67-year-old from a working-class neighborhood in Sao Paulo, fears that she will no longer be able to look after her unemployed children and grandchildren.
“Enel called me several times and said I was in debt. I told them, ‘I’m not going to stop feeding my son to pay you,’ ”Benta said in front of her concrete house on a steep, narrow street. “If you want to turn off the electricity, you can come.”
Benta lives on 1,400 reais (about $ 250) a month and says she often has to choose between buying gasoline to cook with or buying rice and beans.
“I don’t know what we’re going to do with our lives,” she said.
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McHugh reported from Frankfurt, Barry from Milan, McDonald from Beijing and Pollastri from Sao Paulo.
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