China is starved for power. Fuel shortages have upended China’s industrial sector, the effects of which can be felt globally. As top officials in China make drastic policy changes for the country’s industrial operations in hopes to reach a new energy equilibrium, the situation highlights the threats associated with energy security.
China’s energy squeeze became global news in early October, but the origin of trouble to come began with the pandemic and China’s national response. As pandemic restrictions started to loosen globally, China planned to reinvigorate its economic recovery through massive industrial capital investments. These investments drove a major increase in power demand, which was met by coal. According to the Chinese government, coal demand rose by 11 percent in the first half of 2021. Though demand rose, the Chinese government, which can control commodity prices within the state, refused to raise the price of coal, leaving many mines operating at break-even or a loss, even while global coal prices began to rise. In lieu of importing expensive coal from other exporting nations, China’s energy generators began using up reserves.
Now, China is running out of coal and does not have many prospects for importing more. In an attempt to control some aspects of the crisis, the Chinese government has imposed energy use restrictions on industry, temporarily shut down factories, and implemented blackouts in many regions of the country. This has caused significant disruptions in manufacturing and other industrial operations and put even more pressure on global supply chains. Companies such as Apple and Tesla, which rely on Chinese manufacturing for their products, have been left with no choice but to periodically halt operations in Chinese factories to reduce their power demand. China recently lifted an unofficial embargo on Austrialian coal in an attempt to ease the tightening crunch between supply and demand. Though the Australian supply does help, it is not the cure for China's current issue.
The effects can be seen in the global energy markets as well. Domestic natural gas prices have rocketed, as demand for fuel in foreign markets rose in response to the crisis. The price of one million British thermal units of natural gas at the Henry Hub increased by 11.7 percent to $5.898, a turnaround from the previously declining gas prices. However, there are still concerns about supplies of both coal and natural gas globally for the coming winter months.
China’s energy crisis illuminates the fragility of the world’s energy systems and highlights the importance of energy security. A report by the Brookings Institute in 2011 discussed how China’s dependence on foreign fuel supplies could lead to a similar crisis in the future. While the pandemic certainly accelerated and magnified such vulnerabilities, it is clear that there are also other issues that are contributing, including coordination problems between nations, and a large emphasis on moving to renewable energy sources in Europe.
The U.S. has long emphasized energy security. The development of an abundant natural gas supply through unconventional oil and gas well technology has resulted in the country now being a net exporter of energy. While prices for gasoline, heating fuel, and other energy-related items have risen in the U.S. and may continue to rise over the cold winter months, this country is positioned to largely avoid the crisis that is unfolding in other parts of the world.