Zhongxin Jingwei, October 12, 2016 Title: "Zhao Wei: The Global Energy Crisis, This Time Is Different?" 》
Author Zhao Wei (Chief Economist, Kaiyuan Securities)
Recently, the energy crisis in Europe and the United States has continued to ferment and begun to spread around the world. Taking history as a mirror, what are the causes of past global energy crises? What kind of enlightenment can it bring to us?
The energy crisis in Europe and the United States intensified and began to spread globally
Since September, the prices of natural gas, thermal coal, crude oil and other energy products in Europe and the United States have risen to historical highs, and the energy crisis has continued to ferment. Judging from market data, the prices of natural gas, thermal coal, crude oil and other energy products in Europe and the United States have shown a "rapid" upward trend since September.
Figure 1 Since September, the prices of natural gas and thermal coal have accelerated
Figure 2 Crude oil prices have accelerated since September
Not only that, the rise in the price of energy products has also greatly pushed up the price of electricity in Europe and the United States, further exacerbating the impact of the energy crisis. As the "fuel" of power generation in Europe and the United States, the soaring prices of natural gas, thermal coal, crude oil and other prices have greatly increased the cost of power generation in Europe and the United States.
Figure 3 Electricity prices in major European economies have risen since 2021
Figure 4 Since 2021, U.S. electricity prices have risen sharply
Under the high integration of the global industrial chain, the energy crisis in Europe and the United States has also accelerated its spread to the world through channels such as rising energy product prices. Since September, emerging economies such as Brazil and India have also been caught up in the "whirlpool" of the energy crisis in Europe and the United States. In Brazil, while the drought has dragged down hydropower generation, the soaring global natural gas and thermal coal prices driven by Europe and the United States have led to a surge in the cost of domestic thermal power generation. Compared with Brazil, India, which is not rich in hydropower resources and has a higher dependence on thermal power, is suffering from rising energy prices. Due to the excessive increase in the price of thermal coal in the international market, some coal-fired power plants in India have suffered a "coal shortage" due to their inability to buy.
As the energy crisis intensifies, the volatility of global capital markets has also been significantly amplified. As one of the lifebloods of economic development, the continuous fermentation of energy issues has greatly increased global market concerns about economic prospects. Judging from market data, since September, the overall central level of the "Panic Index" VIX has risen significantly, and major stock indexes such as the S&P 500 and FTSE 100 have also changed from unilateral rise to wide range shocks or even declines.
Figure 5 Since September, the vix index central level has risen significantly
Figure 6 Since September, the S&P 500, FTSE 100 and other indices have fluctuated significantly
What are the reasons for the outbreak of global energy crises in the past?
Before sorting out the energy crises that have broken out in the past, it is necessary to first clarify the relevant concepts of energy. By definition, energy refers to a resource that can provide energy. Depending on whether it can be obtained directly from nature, energy can be further subdivided into primary energy and secondary energy. Among them, primary energy mainly includes non-renewable energy sources such as coal, oil and natural gas, as well as renewable energy such as wind, hydro and solar energy. As a "product" after primary energy processing, secondary energy is mainly electricity, heat, refined oil and so on.
Looking back at history, there have been many energy crises in the world, lasting for a long time and with different impacts. The three oil crises that broke out in 1973, 1979 and 1990 are relatively well-known energy crises in the market. The three oil crises lasted from 5 months to 30 months. Due to the long duration of the crisis, the industrial production and residents' lives of major economies such as the United States have been significantly impacted, and the United States has once fallen into stagflation. In addition to the three oil crises, past energy crises include the 2012 Japanese power crisis, the 2019 California power crisis, and the 2021 Texas power crisis. Compared with the oil crisis, these three power crises lasted for a shorter period of time and had a relatively limited scope of impact.
The three oil crises that have erupted in history have all been an energy crisis, all of which have been linked to political or military conflicts. As the war dragged down the production and supply of crude oil, global oil prices rose sharply. The three power crises are typical secondary energy crises, and the triggers are extreme weather and natural disasters. Unlike the primary energy crisis represented by the oil crisis, the secondary energy crisis is often triggered by natural factors. Taking the 2012 Japanese power crisis as an example, after the Fukushima nuclear accident caused by the tsunami, Japan suffered a rare power crisis in history from May to July of that year due to the short-term difficulties of thermal power and other thermal power to fill the gap in the decline of nuclear power. Similar to Japan, California and Texas in the United States in 2019 and 2021 respectively, due to natural disasters such as wildfires and severe cold, the power system was paralyzed on a large scale, and the power crisis broke out.
Why did this round of energy crisis break out, and where is the future direction?
The root cause of the outbreak of this round of energy crisis lies in the impact of the epidemic and the low willingness of mining enterprises to spend capital expenditures, and the capacity elasticity of traditional energy products has fallen sharply. After the outbreak of the epidemic in 2020, there was a wave of corporate bankruptcy in traditional energy extraction industries such as natural gas and crude oil, and production capacity once fell to the freezing point. Although the epidemic has subsequently eased and the demand side has gradually picked up, the desperate desire to improve their cash flow and the acceleration of "carbon neutrality" policies in major economies around the world have made the capital expenditure of these traditional energy extraction companies continue to be low. Affected by this, whether it is natural gas, crude oil, or thermal coal, the elasticity of production capacity has declined sharply, and the gap between supply and demand has continued to widen.
Figure 7 Low willingness of oil and gas producers to spend capital affects natural gas production
Figure 8 Since 2021, global natural gas production capacity has continued to decline
The trigger for the outbreak of this round of energy crisis is that extreme weather has seriously dragged down green energy power generation, resulting in a surge in demand for traditional energy products, and the gap between supply and demand in the latter has expanded sharply. In Europe, since the beginning of the year, due to the long period of ultra-high pressure weather, the wind speed at sea has dropped sharply, and the wind power generation has plummeted. Like Europe, the United States has suffered extreme climate disturbances. Year-to-date, the United States has suffered from drought weather that has not been seen in a century due to the continuous fermentation of the La Niña phenomenon. Dragged down by this, hydroelectric power generation in the United States has fallen sharply. The absence of wind power and hydropower has led to a surge in demand for alternative thermal power in Europe and the United States. Demand has grown sharply, and the elasticity of superimposed supply has been severely limited, which eventually pushed the prices of natural gas, thermal coal and oil to rise sharply, which in turn was transmitted to the electricity price side.
Compared with the previous energy crises, this round of energy crises has the characteristics of both primary energy crises and secondary energy crises. The three oil crises in history are an energy crisis and have not significantly affected secondary energy sources such as electricity. At the same time, the three power crises are all secondary energy crises, and the overall performance of primary energy prices during the crisis is stable. Compared with these previous energy crises, the current energy crisis has seen soaring prices of primary and secondary energy (electricity) at the same time, and the scope and extent of impact are significantly larger and deeper.
In the short term, with the arrival of winter, the overall seasonal recovery of electricity consumption, superimposed traditional energy supply is difficult to expand significantly, and the global energy crisis may be further fermented. Experience shows that after the arrival of the winter heating season, the overall demand for electricity, especially the demand for thermal power generation (hydropower generation generally plummets in winter), often ushers in a significant seasonal recovery. Considering that the supply of traditional energy products is difficult to increase in the short term, the arrival of cold winter may further exacerbate the global energy crisis.
In the medium and long term, under the background of global "carbon neutrality", the outbreak of energy crises may become more frequent under the influence of the intertwining of shrinking traditional energy production capacity and large fluctuations in the supply of green new energy. Although wind power and hydropower have the advantages of green environmental protection and low cost, there are also disadvantages that are more susceptible to meteorological factors and have large fluctuations. For the world, the instability of green new energy supply may make the outbreak of energy crises similar to those in 2021 more frequent. Of course, if energy storage equipment is put into use on a large scale, the risk of an energy crisis will decrease. However, considering the high cost of energy storage equipment, it will take a long time before it is put into use on a large scale or it will take a long time. (Zhongxin Jingwei APP)
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