Russia advocates certifying Nord Stream 2 gas pipeline 0:59
London (CNN Business) -
Astronomical increases in natural gas prices.
Coal costs skyrocket.
Oil price predictions at $ 100.
The global energy crisis triggered by the weather and rising demand is worsening, setting off alarms for winter, when more energy will be needed to light and heat homes.
Governments around the world are trying to limit the impact on consumers, but they recognize that they will not be able to prevent bills from skyrocketing.
Pressure on governments to accelerate the transition to cleaner energy is mounting as world leaders prepare for a major climate summit in November.
In China, blackouts for residents have already begun, while in India power plants are scrambling for coal.
China's energy crisis threatens the global chain 0:48
Consumer advocates in Europe are calling for disconnections to be banned if customers cannot quickly pay what they owe.
"This price shock is an unexpected crisis at a critical juncture," European Union energy chief Kadri Simson said on Wednesday, confirming that the bloc will outline its long-term policy response next week.
"The immediate priority must be to mitigate the social impact and protect vulnerable households."
In Europe, natural gas is now priced at the equivalent of US $ 230 per barrel, in terms of oil, an increase of more than 130% since the beginning of September and more than eight times more than at the same point of the year past, according to data from Independent Commodity Intelligence Services.
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In East Asia, the cost of natural gas has increased 85% since the beginning of September, reaching about US $ 204 per barrel in terms of oil.
Prices remain much lower in the United States, a net exporter of natural gas, but they have still soared to their highest levels in 13 years.
"Much of this is fueled by fear of what winter will be like," said Nikos Tsafos, an energy and geopolitics expert at the Center for Strategic and International Studies, a Washington-based think tank.
Tsafos believes that anxiety has caused the market to shift away from the fundamentals of supply and demand.
Steam comes out of the cooling towers of a coal-fired power plant in Nanjing, China.
The frenzy for natural gas is also driving up the price of coal and oil, which can be used as substitutes in some cases, but are even worse for the climate.
India, which remains extremely dependent on coal, said this week that up to 63 of its 135 coal-fired power plants have two days or less of supply.
The circumstances worry central banks and investors.
Rising energy prices are contributing to inflation, which was already a major concern at a time when the global economy is trying to shake off the lingering effects of COVID-19.
The dynamics during the winter could make things worse.
There is no easy solution
The crisis stems from increased energy demand as the economic recovery from the pandemic consolidates, and from a carefully calibrated system that is easily affected by weather events or mechanical problems.
An unusually long and cold winter earlier this year depleted Europe's natural gas reserves.
Increased demand for energy has impeded the replenishment process, which usually occurs during spring and summer.
China's growing appetite for liquefied natural gas has made LNG markets unable to fill the gap.
Declining Russian gas exports and unusually calm winds have compounded the problem.
As natural gas prices skyrocket, people are considering alternatives to heating their homes.
This is what you should know
"The current rise in energy prices in Europe is truly unique," energy analysts at Société Générale bank told their clients this week.
"Never before have energy prices risen so much and so fast. And it's only been a few days into the fall - temperatures are still mild."
The dynamics reverberate around the world.
In the United States, natural gas prices have risen 47% since the beginning of August.
The race for coal is also causing a spike in the price that many European companies have to pay for carbon credits in order to burn fossil fuels.
In addition, energy shortages are supporting oil prices, which this week hit seven-year highs in the United States.
Bank of America recently predicted that a cold winter could send the price of Brent crude, the world benchmark, above $ 100 a barrel.
Prices haven't been this high since 2014.
Jim Burkhard, who leads IHS Markit's research on crude oil, energy and mobility, said "it is not expected to improve anytime soon."
"There is no Saudi Arabia for gas," he said, referring to a single supplier that can rapidly increase natural gas production.
"It looks like this is going to last through the winter in the northern hemisphere."
In theory, Russia could take a step forward.
Société Générale noted that faster approval by German authorities of the politically sensitive Nord Stream 2 gas pipeline, which would bring gas directly from Russia to Europe, would ease significant tension.
Russia advocates certifying Nord Stream 2 gas pipeline 0:59
On Wednesday, Russian President Vladimir Putin suggested that Russia could increase its production, saying that state-owned gas producer giant Gazprom has never "refused to increase supplies to its consumers if they come up with adequate offers."
But Neil Chapman, ExxonMobil's senior vice president, stressed the short-term constraints at an industry conference this week.
"Of course there is great concern," Chapman told the Virtual Energy Intelligence Forum.
"In our industry, being capital intensive, you can't just turn on supply."
Costly crisis
The best scenario, according to Burkhard, is that a winter with average temperatures allows the pressure to rise in the second quarter of 2022.
But inclement weather in the coming months would create enormous stress, especially in countries that rely heavily on natural gas for energy production, such as Italy and the United Kingdom.
The UK is in a particularly difficult situation because it lacks storage capacity and is dealing with the consequences of a power line failure with France.
Liquefied natural gas (LNG) storage tanks in South East England.
Henning Gloystein, director of the Energy, Climate and Resources team at the consultancy Eurasia Group, affirms in a note to his clients that "the United Kingdom is, without a doubt, the economy most exposed to a shortage of supply in winter".
"If this were to happen, the government would probably require factories to reduce gas production and consumption to guarantee household supply."
The huge increase in energy costs, which shows no signs of abating, is stoking inflation fears, which had already forced lawmakers to carefully consider their next steps.
Energy prices in developed countries rose 18% in August, the fastest pace since 2008, according to data released Tuesday by the Organization for Economic Cooperation and Development (OECD).
And that was before the situation deteriorated significantly in recent weeks.
Rising energy bills could curb consumer spending on clothing or activities such as dining out, hurting the recovery from the pandemic.
If companies are asked to reduce their activity to conserve energy, that could also hurt the economy.
The impact of the cost of heating: increases the price of natural gas by 180%
"There is concern that rising gas prices will jeopardize Europe's economic recovery from the pandemic," Gloystein said.
There are also concerns that price volatility could fuel public opinion skepticism about financing the energy transition, according to Gloystein, should consumers demand more investment in oil and gas to limit future fluctuations.
Governments that have committed to reducing emissions are trying to send a strong message proactively: This strengthens, not undermines, the case for investing in a broader mix of energy sources.
"It is very clear that with energy, in the long term, it is important to invest in renewables," said the president of the European Commission, Ursula von der Leyen on Wednesday.
"That gives us stable prices and more independence, because 90% of the gas from the European Union is imported."
- James Frater, Laura He, Katharina Krebs and Diksha Madhok contributed to this report.
Power consumption crisis