The energy crises roiling Europe and China — and beyond

Energy crises in Europe and China are spilling into economic forecasts, supply chains and beyond.

Driving the news: Europe has for weeks been facing sky-high natural gas and power prices, while China — the world’s second-largest economy — is facing electricity shortages that are hobbling factories.

Here are a few takeaways on the big, multi-continental energy crunches:

1. They defy simple narratives. There are many reasons behind both regions’ woes.

• Via the NYT, in China, they include growing demand on the country’s power-hungry factories as the global COVID recovery continues — including the need for energy-intensive metals.
• That has pushed up coal prices, the piece notes, yet regulators have not allowed power companies to raise rates, so “utilities have been slow” to boost operations.
• That story and others also point to Chinese officials’ efforts to curb energy consumption and its emissions are also playing a role.
• In Europe, where natural gas prices are tethered to both regional and global forces, it’s a perfect storm ranging from higher gas demand due to the cold winter and then summer heat in multiple regions; but also EU carbon permit policies; lighter winds; constrained Russian supply and more.

2. They are making supply chain problems even worse. There’s a lot of reporting on interrupted output from Chinese factories that make all sorts of things.

• For example, this detailed WSJ piece notes that over 10 semiconductor-related facilities have announced temporary closures.
• That story and others also say multiple Apple suppliers have been affected. More broadly, the shutdowns are coming at a time when global supply chains are already facing problems.
• AP warns of “possible shortages of smartphones and other goods” ahead of Christmas. In Europe, meanwhile, high gas prices have cut the output of fertilizer and other goods.

3. Analysts see significant economic impact. Per CNBC, Goldman Sachs has reduced its forecast for China’s GDP growth this year to 7.8% from 8.2%. Nomura analysts, among others, reached largely the same conclusion.

4. Conventional wisdom can be wrong. Commentary from the Center for Strategic and International Studies’ Nikos Tsafos delves into Europe’s problems — and the limits of the common idea that U.S. LNG can help Europe counter Russian gas disruption or limits.

• That’s wrong in the short term, Tsafos notes, because “U.S. LNG, like other LNG, responds to market forces, and if other markets are willing to pay more than Europe, Europe has no immediate remedy.” (It does provide a bargaining tool to limit gas prices in the medium and long term, he adds.)

5. Winter is coming. “Even a normally cold winter in the Northern Hemisphere is expected to drive up natural gas prices further across much of the world,” Bloomberg reports.

6. So is the UN climate summit. A key thing to watch in Glasgow in just a month is whether the crises boost momentum for speeding up energy transition, or show that national initiatives that raise costs — through carbon taxes or other policies — lack political support.