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China's Energy Crisis
Episode 30
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Today at a Glance:
China’s energy crisis is best understood through the simple, Econ 101 lens of supply and demand, with a particular focus on the coal market.
Demand-side drivers primarily include a booming recovery from COVID-19 lows and a hotter-than-normal year that increased residential power usage.
Supply-side drivers include coal shortages, import restrictions, utility price fixing, and CCP emissions targets.
Net-net, we have demand up and supply down, leading to widespread shortages, rising costs, and a ripple effect that extends across the globe—the stage is set for what could be a long, cold winter.
China’s Energy Crisis
In last week’s newsletter piece—the aptly named Supply Chain Apocalypse—I made brief reference to China’s burgeoning energy crisis as a supply dislocation further compounding our global supply chain woes.
In the days since that piece was released, China’s energy crisis went from under-the-radar to front page news—hitting “above the fold” in the Wall Street Journal, Reuters, and Bloomberg, among others, as experts bemoaned its potential to hammer our weakened supply chains and derail the global recovery.
I’ve always been fascinated by energy—it is, quite literally, what makes our world work—so yet again, I found myself going down the rabbit hole, exploring the crisis in detail and attempting to distill its key drivers and potential effects.
Here’s a simple breakdown of what I learned.
Spoiler Alert: This may be China’s Energy Crisis, but in an interconnected global economy, nobody is insulated from this disruption.
Background
The growing Chinese energy crisis had (mostly) happened outside the spotlight of the mainstream media.
To be sure, among real energy market observers, it had been a key topic for months, alongside European natural gas price spikes, carbon credit markets, and the normal course OPEC debates—but the narrative accelerated meaningfully on the back of other China woes (Evergrande, supply chain disarray, etc.).
China is most definitely feeling the pain, but we may be in the early innings (sorry, baseball analogies stick with you!), with the contagion likely poised to spread globally.
The Impact
What are the visible impacts of China's energy crisis?
More than half of China's mainland provinces have been forced to limit electricity usage due to shortages. According to a recent Bloomberg article, the Chinese microblogging site Weibo is filled with stories of people sharing how their daily lives are being impacted by the crunch—n
Published on 4 years, 2 months ago