21st Century Business Herald reporter Shu Xiaoting intern Zhang Yahan reported that on the afternoon of October 19, China's National Development and Reform Commission organized a symposium on coal for the energy supply guarantee work mechanism this winter and next spring. According to the meeting, the National Development and Reform Commission will make full use of all necessary means stipulated in the Price Law to promote the return of coal prices to a reasonable range and ensure the safe and stable supply of energy.
Recently, the problem of global energy shortages has become increasingly prominent. Two of the world's largest coal consumers, China and India, have low inventories of coal-fired power plants, with natural gas, coal and electricity prices rising to their highest levels in decades, with international coal prices rising to about $240/ton from about $56/ton a year ago. In Europe, natural gas prices have risen more than 350 percent so far this year, and wholesale electricity prices have risen 200 percent in the first nine months of this year.
Zhong Meiyan, director of energy and chemical industry at Everbright Futures, pointed out to the 21st Century Business Herald reporter that the recent market linkage, from domestic coal to international natural gas and even crude oil, has shown a trend of repeatedly breaking new prices, which is rooted in the structural mismatch between supply and demand.
Zhong Meiyan explained that this year's climate factors have led to a strong trend in energy demand. At the same time, since the outbreak of the new crown epidemic last year, the supply of raw materials in the upstream has been slow to recover; the implementation of the "double carbon" target has led to a certain tightening of the traditional energy supply.
"Although the jump in energy prices will have a certain impact on the economy, it has not formed a crisis in terms of aggregates, so the key to solving the problem lies in whether the supply can be allocated in time." Zhong Meiyan pointed out that the biggest uncertainty at present is the winter temperature. Expectations for a cold winter are now strong, and structural shortages in coal supply are likely to continue into November or even December. From the perspective of the whole energy, special attention needs to be paid to the power crisis, and if the power as a whole is stable, the energy crisis is less likely to deepen.
The current high international coal prices are not good news for India, which is facing a coal shortage. As the world's second-largest coal producer and fourth-largest coal reserve, the country relies on coal for about 70% of its electricity generation, and its power plant coal reserves have fallen to extremely low levels, pushing it to the brink of an electricity crisis.
According to official data, at the end of March, the average coal reserve held by Indian power generation companies could be maintained for 28 days. In July, coal demand began to accelerate, and power companies consumed faster than supply replenishment, and coal inventories fell sharply; at the end of August, the average coal inventory of power plants fell to 7 days, and at the end of September, it fell to October 4. India's Central Power Authority (CEA) requires power plants to maintain inventories for at least 15-30 days.
Vibhuti Garg, an energy economist at the Institute for Energy Economics and Financial Analysis, said no one expected the recovery and energy demand to grow so rapidly, with the devastation caused by heavy rains exacerbating supply shortages.
India's Central Electricity Authority (CEA) said earlier this month that the two major problems of stagnant domestic coal production and soaring coal import costs meant India's coal shortage could last throughout the winter.
Liu Zongyi, secretary general of the China-South Asia Cooperation Research Center of the Shanghai Institute of International Studies, told the 21st Century Business Herald that in the context of tight domestic coal supply and high international coal prices, India's coal shortage will continue for a period of time, but it will not form a long-term state. "In fact, due to india's relatively weak infrastructure, the country has been in a state of power shortage for a long time, and the problem of coal shortages and power crises has become more prominent due to factors such as the suspension of work and production by small and medium-sized enterprises since the outbreak of the epidemic, and the recent economic recovery growth."
<h4>India's coal shortages could last for months</h4>
India's coal shortage has affected the normal functioning of electricity and non-coal-dependent non-power industries such as cement, steel and aluminum. As many as 14 power plants supplying 4,520MW of electricity have been temporarily shut down in Uttar Pradesh, and many states have had alternating power outages since early October, with residents of States such as Bihar, Rajasthan and Kalkender at one point for up to 14 hours a day. Indian aluminum producers "complained" about power shortages causing smelters to shut down.
Liu Zongyi believes that there are four main reasons for India's coal shortage and power shortage.
First, after experiencing the second wave of COVID-19, India is currently in a phase of economic recovery, with demand for industrial electricity surging and a recovery in economic activity pushing up coal consumption. According to data from the Indian Electricity Sector, Electricity Demand in India in August and September increased by almost 17% compared to the same period in 2019. During the period, india's share of coal power generation rose from 61.91% in the same period of 2019 to 66.35%, and the total coal consumption increased by 18% over the same period in 2019.
Secondly, since the outbreak of the new crown epidemic to June this year, India's electricity demand has been relatively weak, and India's power plants have reduced coal procurement and have not established sufficient coal reserves. In the past two months, the coal consumption rate of power companies has exceeded the rate of supply replenishment, and coal stocks have fallen sharply, and the coal stocks of 135 coal-fired power plants in India have dropped from an average of 12 days to 4 days. Of these, nearly three-fifths of power plants have coal stocks that are only enough to last for 3 days or less.
In addition, this year's strong monsoon rains have hampered mining and coal transportation in India's central and eastern states, widening the gap between supply and demand. Coal production is affected by seasonal factors, generally peaking in March, the monsoon season in June and July began to decline, and the production rate rebounded after the end of the monsoon. However, rains that lasted this year into September delayed the normal recovery of coal supplies.
In addition, the quality of coal produced in India is not high, the heating efficiency is insufficient, and some power plants import high-quality coal from Indonesia, Australia, South Africa, etc., but the current high international coal prices have dampened the production enthusiasm of related power plants.
According to some analysts, international coal prices are mainly boosted by the following factors: Indonesia and Australia, the world's two largest coal exporters, have reduced production due to non-seasonal rains and the new crown epidemic; China, which consumes nearly one-half of the world's coal production, has increased coal imports due to rising demand for electricity. Coal prices in Indonesia rose from about $86.68/ton in April to about $162/ton in October.
43% of India's coal imports come from Indonesia and 26% from Australia. India's imported coal prices rose an unprecedented 200 percent between March and September, and imported supplies shrank by 44 percent between August and September alone, adding an additional burden of nearly 17 million tonnes of coal to domestic producers.
Swati DSouza, head of research at the National Foundation for India, said imported coal prices are currently about 2-3 times the price of domestic coal, making it difficult for India to rely on external sources of coal.
India's "hopes" of alleviating coal shortages are pressed against Indian coal companies, which supply nearly 80 percent of the country's coal. Coal inventories at Indian power plants fell to around 8.1 million tonnes at the end of September, down about 76 percent year-on-year, according to official figures. Coal India is ramping up coal supplies to coal-fired power plants, increasing daily supplies from about 1.5 million tonnes to about 1.62 million tonnes in the past week, while coal inventories at power plants rose from about 7.23 million tonnes in the previous week to about 7.51 million tonnes last week.
It will take some time for coal supply and demand to reach a new equilibrium. India's electricity minister, Raj Kumar Singh, said earlier this month that India could have to deal with a supply shortage of up to six months; Rahul Tongia, an energy and sustainability expert at the Brookings Institution, also expected India's coal shortage to last five months.
<h4>China has promoted the work of ensuring energy supply and stabilizing prices</h4>
In Asia, in addition to India, China, which relies on coal for about 65% of its electricity, has also recently experienced a shortage of electricity supply, but the situation is gradually easing. According to data released by the National Bureau of Statistics of China on October 18, China's electricity production accelerated in September, generating 675.1 billion kWh in the month, an increase of 4.9% year-on-year, a growth rate of 4.7 percentage points faster than the previous month, and an increase of 10.5% over the same period in 2019.
"The decline in the operating rate of finished products caused by China's power rationing will promote the destocking of finished products to some extent, which will bring about price repair." Zhong Meiyan said that from the perspective of the industrial chain, when the price rises one level at a time, it will eventually return to a question, who will pay the bill? Who can afford it?
From the perspective of global price levels, China's goods have a certain comparative advantage. Under the current level of spreads, Through China's control of product inventories or the decline in the operating load at the upstream end, the export volume may remain stable and the price rises, and the overall export volume is relatively optimistic.
However, for China's domestic market, many products are mainly domestic demand, and it may be that downstream enterprises refuse to accept orders in order to avoid production losses, forming a negative feedback on the slowdown in upstream raw material procurement. Therefore, in the long run, the rise in energy prices has a bearish impact on economic activity as a whole.
Since October, China's coal mine production has gradually resumed. On October 19, China's National Development and Reform Commission held a symposium on supply and price stability for key enterprises in coal, electricity, oil and gas transportation, and put forward clear requirements for the next step of supply and price stability, including steadily increasing coal production and striving to achieve a daily coal output of more than 12 million tons.
The meeting pointed out that since the end of September, a number of production coal mines have been added, and the average daily output has increased by more than 1.2 million tons compared with September, and the daily output on October 18 has exceeded 11.6 million tons, a new high this year. Recently, the new market transaction prices in Jiangsu, Shandong, Hubei, Shanxi and other places have achieved an increase of nearly 20% according to the price policy.
A week ago, China's National Development and Reform Commission issued the Notice on Further Deepening the Market-oriented Reform of Feed-in Tariffs for Coal-fired Power Generation, proposing to expand the range of fluctuations in the market transaction price, and to expand the floating range of the transaction price of coal-fired power generation market from the current floating range of no more than 10% and the downward floating principle to no more than 20% in principle, and the market transaction price of high-energy-consuming enterprises is not subject to the 20% increase limit。
Cui Cheng, an associate researcher at the Institute of Energy of China's National Development and Reform Commission, pointed out to the 21st Century Business Herald reporter that China's coal mine production capacity is sufficient, and the key lies in loosening the "tight curse" of coal production a little and opening up the transportation link, and the price of coal will naturally fall under the action of the market mechanism. Moreover, the power crisis also provides a good opportunity for China to further strengthen the market-oriented reform of the energy and power industries.
<h4>The bottleneck in global energy supply and demand is in maritime transport</h4>
Due to the difficulty of eliminating bottlenecks in the global supply chain in the short term and the resonance of factors such as the linkage of international and domestic energy prices, the short-term global energy shortage problem is less likely to be alleviated.
Jin lianchuang crude oil analyst Han Zhengji told the 21st Century Business Herald reporter that since July this year, the problem of insufficient energy supply such as natural gas, coal, crude oil has emerged, and the signs of supply shortage after entering September are more obvious, and the products involved are currently widespread, even affecting more than 30 countries and regions around the world.
Cui Cheng, an associate researcher at the Institute of Energy of China's National Development and Reform Commission, believes that there are three main reasons for the shortage of energy supply in many countries around the world.
First of all, from the supply side, in the context of global "carbon neutrality", energy companies are under pressure in traditional energy production, and related investment has decreased in recent years, while the economic recovery progress of various countries under the impact of the new crown epidemic is uneven, and the assessment of demand recovery expectations on the production side is insufficient. As far as China is concerned, due to the good progress of epidemic prevention and control and economic recovery, export demand has grown rapidly, and domestic electricity demand has risen significantly more than expected, but coal supply has been too tight in the short-term implementation of the "double carbon" target.
Secondly, due to the continuous and repeated impact of the new crown epidemic, the international maritime transport pressure is serious, and the virtuous cycle of energy transportation is blocked, which is the key factor that causes the mismatch between energy supply and demand in the current production cycle of coal and natural gas.
In addition, the ultra-loose fiscal and monetary policies of developed economies such as the United States, Japan, and the European Union have continued to boost international commodity prices. Due to rising costs, power plants are not so much short of coal as they are reluctant to generate electricity in order to avoid losses. If energy prices continue to soar and inflation exceeds expectations, the Fed will most likely tighten monetary policy in advance.
<h4>The transformation of the energy structure has a long way to go</h4>
Currently, oil, gas and coal account for about 84 per cent of the world's energy use. The recent tight global energy supply and soaring energy prices have cast a shadow over COP26, the United Nations climate change conference in Glasgow, Scotland, in late October, highlighting the long way to go for energy transition.
In 2015, more than 190 parties reached the Paris Agreement at the United Nations Climate Change Conference. According to the Paris Agreement, the world will peak greenhouse gas emissions as soon as possible, achieving net zero greenhouse gas emissions in the second half of this century.
In the context of the global climate crisis, many countries have begun to transition from fossil fuels to green and clean energy. Investment in oil and gas in the United States and Europe showed a downward trend. According to data released by Rystad Energy, new investments by U.S. and European oil companies in oil and gas field development have fallen by more than one-second since 2015.
At the same time, governments have not found the right pace in expanding the scale of clean energy and upgrading clean energy technologies, and have failed to fill the gaps in the energy transition process.
As far as India is concerned, the country is the world's third largest emitter of greenhouse gases, Indian Prime Minister Narendra Modi at the policy level tends to encourage the development of hydrogen-based energy generation and expand the proportion of renewable energy, but due to India's backward power technology, the supply of new energy sources such as solar energy and wind energy is not stable at this stage after being connected to the grid.
Jinlianchuang crude oil analyst Han Zhengji pointed out that from the current general results, the energy transition is difficult to achieve quickly, and it is still difficult to maintain the stable output of some renewable energy.
Cui Cheng said that from the perspective of technological progress, the market share of a breakthrough technology will achieve explosive growth when it reaches 3%-5%, and in the late "14th Five-Year Plan", photovoltaics, wind power, electric vehicles, etc. will cross this critical point, when energy storage technology, the key and biggest bottleneck of energy transformation, will be more prominent, so before making a major technological breakthrough, the strategy of first loosening and then tightening will be the best choice.
In the long run, under the "double carbon" goal, from the national to local government level, there is a problem of inaccurate policy on energy conservation and emission reduction and energy consumption control. In this regard, Zhong Meiyan put forward two views.
First, the timing period of the institutional fixation of global "double carbon" implementation needs to be considered. If the long-term goal is implemented in a short-term time frame, it may bring periodic disturbances to the market.
Second, under the trend of replacing traditional energy with new energy, investment in traditional energy will slow down. In the face of climate change and frequent occurrence of extreme weather, the equipment related to the entire industrial chain of new energy is not so perfect, and it takes time for the replacement effectiveness of traditional energy. Therefore, it may highlight the problem of rising traditional energy costs in the process of energy transformation, which is also a situation that will inevitably be faced during the painful period of transformation.
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