China's Energy Crisis

[waterbottle]

It seems that China, along with Western Europe, are struggling to deal with rising energy costs brought on by the fact that thermal coal is now at all time highs and gas is in limited supply.
China has had to ration its electricity use, with several industries & homes being asked to limit their use.

China’s power shortage turns dire as traffic lights fail, homes fall dark

Half of China’s provincial jurisdictions mandate rationing of electricity, but poor communication and unclear timeline leave public fearful of further power cuts.

www.scmp.com

China power crunch spreads, shutting factories and dimming growth outlook

Widening power shortages in China have halted production at numerous factories including many supplying Apple and Tesla, while some shops in the northeast operated by candlelight and malls shut early as the economic toll of the squeeze mounted. China is in the grip of a power crunch as a...

finance.yahoo.com

These measures have already had a direct impact on nickel prices. I wouldn't be surprised if other commodities are affected too.

Does anyone have any insights into how long this would be expected to last?

 

[Austwide]

I would expect more upward pressure on coal prices with the northern hemisphere coming into winter

 

[greggles]

Long term, China will increase its nuclear power generation. As of May 2021, China had 17 planned reactors, the highest number in the world. It was due to test a new thorium fulled reactor this month.

The current energy crisis may cause China to fast track new reactors as it seeks to wean itself off coal in order to meet its climate goals. Nuclear will be the fastest way for it to increase capacity.

 

[Smurf1976]

Short term it depends on the weather.

I mean that literally so. Energy consumption in any society is substantially tied to weather in the short term - even in the cave dwelling days they'd have burned more wood when it was cold.

In modern times that applies to both production and consumption.

Production side:

Wind and solar production is directly tied to weather at the time.

Run of river hydro is tied to short term runoff which is itself primarily a function of current and recent past rainfall.

In extreme cases weather may disrupt the operation of fossil fuel, biomass or nuclear power production or transmission, it may disrupt the movement of coal by rail or road. etc.

Consumption side:

Weather directly drives heating and cooling load most obviously.

With a time lag average temperatures affect water heating load.

In more extreme cases, eg snowed in, weather may drive significant changes in consumer behaviour and use of energy.

So that's an attempt to answer it but not really doing so. In any situation where there's an energy supply system on the edge, what happens with weather will determine whether it goes over the edge and falls in a heap or whether it takes a step back and the lights stay on. That goes anywhere from Australia to China to the US.

Ideal situation = mild temperatures, sunny days wherever there's a solar panel, windy wherever there's a wind farm, heavy rain into hydro catchments. But not to the point of being so wet or windy to disrupt anything eg coal mining or railways.

Worst case = winter starts early and bites hard combined with poor wind and solar yields, low runoff into hydro catchments and some level of disruption to power generation, fuel production or transport.

Looking at the longer term it's actually somewhat easier.

China's ultimately recoverable coal reserves are estimated as being in the order of 225 billion tonnes. China being China it's hard to obtain independently audited figures consistent with the approach used in the West but, broadly speaking, most figures (including Chinese government official ones) do put it broadly around that either directly or when the data is reverse engineered. They're all of that order of magnitude.

Coal produced to date = about 90 billion tonnes by most estimates noting there seems to be little disagreement there, most sources give very similar figures noting that most of it has been in the relatively recent past.

Remaining reserves = About 135 billion tonnes. That one's simple maths, 225 - 90 = 135.

Annual extraction at the present rate = about 3.5 billion tonnes give or take a few % in any given year. Chinese government official statistics and various external estimates all put it around that figure +/- 15% so there's no real disagreement on that one.

Putting all that together it's pretty clear that China's rate of coal extraction can't continue too much longer before geological limits, that is the coal resource base itself, becomes a key constraint.

That does not mean China runs out of coal. Rather, it means that the highest quality and most easily accessed coal is gradually used up and what remains is lower quality and/or physically harder to mine. It means that fewer mines operate as one by one individual mines are exhausted and close and, with fewer opportunities to develop new ones, the pace of opening new mines slows to a trickle.

The historic coal production profile of the UK, which is now almost complete (that is, it's almost over) illustrates that pretty clearly:



The harsh truth there is UK coal extraction peaked in 1913, that's decades before anyone had heard of Margaret Thatcher who in the minds of many is heavily associated with the decline of the industry. She may have slightly accelerated the final plunge but it was well and truly past peak by the time she became PM, indeed the peak was 12 years before she was born.

Why?

Because as the technically and economically recoverable resource diminishes, slowly but surely you end up with fewer mines and lower production. It doesn't die overnight, just slowly declines much like the once ubiquitous video rental shops all closed one by one.

Is the same happening now in China? Impossible to answer with certainty but from the figures above it's fair to assume that it's not too far away. Sometime in the next decade or so China's coal production will peak due to resource limits if the figures are anywhere close to accurate. China's mining half the world's coal but with nowhere even remotely close to half the world's reserves it's inherently unsustainable.

By about 2027 China will have mined 50% of its viable coal reserves, and by 2043 at present rates that would be 75%. It would be pretty much impossible to not see production start to decline in the face of such a shrinking resource base.

Now before someone says "but exploration will find more coal" it's important to note that the 225 billion tonnes isn't current proven reserves, it's an estimate of the total recoverable reserves including that not yet properly defined. So future exploration changes it only if substantially more is discovered than has been assumed - that's possible but requires that China's an exception versus international precedent.

Some light reading on the subject here: https://web.cup.edu.cn/peakoil/docs/20130324090311797020.pdf

That being so, if China's to continue to rely heavily on coal beyond the very short term then large scale imports will be required.

For the EU well the issue isn't coal but gas and it's a similar story. Gas production in the UK peaked 20 years ago and has since declined sharply whilst that within the EU peaked last decade and is slowly but surely trending down. Combined with more gas being used for power generation the end result is heavy reliance on imports, especially by pipeline from Russia and in LNG form from elsewhere.

Beyond that it gets into the murky world of politics rather than logistics, economics or engineering.

In short China could import more coal if they really wanted to and they could get at least some increase in domestic production as well by re-opening the mines they've closed which still have coal left in them and there's rather a lot of such mines.

As for the EU and UK well it's a real minefield of politics covering all manner of issues. It's a somewhat bizarre mix of all sorts of ideologies and conflicting objectives from one extreme to the other.

I'll avoid trying to forecast politics.....

I will say however that before anyone gets too excited about China restricting the playing of video games and so on, well I guess that would save a little bit of energy yes. One thing though - an Australian state government briefly did that about 21 years ago. From memory it was in force for about 5 or 6 hours but it did happen. Victoria for the record.

Looking more broadly well here in Australia natural gas is presently trading in the east coast market (which includes SA and Tasmania) at between $7.70 and $8.62 / GJ depending on location. That's current (live) AEMO data as of 1 October 2021.

Where it becomes more alarming is with the Australian Competition and Consumer Commission (ACCC) forecasting of the LNG netback price. In simple terms that's how much gas in the domestic market is worth to an LNG exporter having regard to the cost of processing and international value of it.

The ACCC's forecast LNG netback price for February 2022? Well it's $29.83 / GJ.

Suffice to say there wouldn't be too many people, and I'm referring to financial and senior management sort of people, financial traders and so on, in the Australian energy industry who aren't aware of that. It's a high enough price that most certainly has such people paying very firm attention. Anything much over $10 tends to prompt use of the word "crisis" and here's the ACCC forecasting almost $30.

How that plays out domestically remains to be seen. To some extent the limited capacity of LNG facilities does offer protection, it's not physically possible to send the entire volume of gas production into them, but it does mean they can afford to outbid pretty much anyone on the spot market to obtain supply. As such, the gun is loaded - it just needs any disruption to domestic gas production, even a fairly minor one, and off we go with a price surge.

US is much the same by the way. Price is low but the LNG exporters could pay far more if they needed to for feedstock gas so long as international prices remain sky high. So even if US domestic prices double from here, or even triple, they'll keep exporting flat out. As such, the gun is loaded much like in Australia - just needs something to set it off (eg an abnormally cold winter could do it).

Now what about oil?

There's two main points of relevance to the oil market in all this:

1. Ability to substitute oil in lieu of coal (China) or gas (elsewhere) for industrial fuel, power generation and so on is significant. Either fuel switching in the same facility or by means of changing the priority order of use (eg the oil-fired plant becomes priority and the gas one is the backup whereas normally the reverse would be true).

2. In the specific case of propane and butane, which whilst partly supplied by extraction from natural gas are also produced at oil refineries, it's technically workable to inject either of those gases plus a measured quantity of air to produce a direct substitute for natural gas for supply to consumers.

Both of the above are established practice with numerous facilities to do it sitting there around the world ready to go. It's no coincidence that the ACCC's forecast peak in the LNG netback price just happens to match, on an energy content basis, the price of diesel delivered to what would normally be gas-fired power stations.

In most cases the change of fuel can be done whilst the unit remains in operation and for those where it can't, it's just a case of running gas today and diesel tomorrow if that makes sense financially.

That's already happening in some places: https://www.thehindubusinessline.co...r-fuel-as-lng-prices-bite/article36269208.ece

“LNG (imported) into Pakistan is now about $250 per tonne more expensive than 180-cst (centistoke) HSFO,” a senior Singapore-based fuel oil trader said.

He added that on a forward price basis, spot LNG cargoes are trading above fuel oil prices through the first-quarter of 2022.

“We will see unprecedented switching into first quarter of next year at current prices,” the trader said, noting that fuel switching is already occurring across Asia and the Middle East.

All that said - what happens next literally does depend heavily on the weather in major producing and consuming parts of the world.

 

[Smurf1976]

I'll avoid trying to forecast politics.....

The bit I forgot to mention is the possibility that the situation is political in the first place.

That is, in the case of China, it's at least possible that the problem isn't a physical lack of available generating capacity or fuel to run it with but simply that there's a game being played.

Such things have certainly been done in other countries after all, Australia included, in the past.

 

[qldfrog]

The bit I forgot to mention is the possibility that the situation is political in the first place.

That is, in the case of China, it's at least possible that the problem isn't a physical lack of available generating capacity or fuel to run it with but simply that there's a game being played.

Such things have certainly been done in other countries after all, Australia included, in the past.

https://finance.yahoo.com/news/traders-aim-40-u-natural-151211508.html
To complement and strengthen your point @Smurf1976
Already posted in ooo thread

 

[waterbottle]

China Orders Top Energy Firms to Secure Supplies at All Costs

China’s central government officials ordered the country’s top state-owned energy companies -- from coal to electricity and oil -- to secure supplies for this winter at all costs, according to people familiar with the matter.

www.bloomberg.com

Looks like the energy markets will be in a frenzy for some time

 

[frugal.rock]

The bit I forgot to mention is the possibility that the situation is political in the first place.

That is, in the case of China, it's at least possible that the problem isn't a physical lack of available generating capacity or fuel to run it with but simply that there's a game being played.

My thoughts are the latter...
The word "crisis" is being thrown around willy nilly, imo.

Is it really a crisis when the government has imposed it?
Recent trade deals with Saudi oil suggest all in is hand...not to mention Iranian oil...?

Recent bitcoin mining operations shut down apparently due to energy "crisis", there's always 2 sides to the coin.
The face you see, and then the tales you don't.

China apparently wants to be seen to be meeting greenhouse emissions targets... whilst operating under its own agenda.

This "crisis" is very targeted to a specific few, unfortunately there's always unintended side effects, in this case to regionally affected citizens, but it's the cost of doing business.

 

[waterbottle]

My thoughts are the latter...
The word "crisis" is being thrown around willy nilly, imo.

Is it really a crisis when the government has imposed it?
Recent trade deals with Saudi oil suggest all in is hand...not to mention Iranian oil...?

Recent bitcoin mining operations shut down apparently due to energy "crisis", there's always 2 sides to the coin.
The face you see, and then the tales you don't.

China apparently wants to be seen to be meeting greenhouse emissions targets... whilst operating under its own agenda.

This "crisis" is very targeted to a specific few, unfortunately there's always unintended side effects, in this case to regionally affected citizens, but it's the cost of doing business.

I agree, all the recent policy announcements re: industry, gaming, bitcoin, can be interpreted as measures to limit energy use.

Whether or not it meets the definition of 'crisis' is determined by the reasoning behind those policies.

Did the CCP truly curb bitcoin and gaming to improve the lives of their citizens and stop speculation? Maybe.
But then how does that answer the pause on industry who are providing the economic ammunition to permit societal change?
Or is the more likely scenario that there is a true crisis and the CCP needs to moderate use without scaring society by implementing policies under the guise of social benefit?

I don't think you can ignore the politics when analysing China's economy, in fact, your analysis is incomplete without it.

 

[Smurf1976]

The word "crisis" is being thrown around willy nilly, imo.

Agreed but it always comes up when something goes wrong with energy.

"Energy Crisis" is the term usually used in the media whereas nobody says "Fire Crisis" or even "Pandemic Crisis" for example.

I don't know enough about Chinese politics and society to comment on things within the country beyond what I've already said. Chinese and Western assessments of the country's coal resources do point to a longer term problem. Right now though - anyone's guess as to the detail.

One thing though, they do seem to have quite a bit of water in their hydro schemes, noting that the largest, third largest and sixth largest power stations in the world, of any technology or location, are all hydro stations in China and that hydro is China's second largest source of electricity after coal. So whatever's going on, it doesn't seem to be a problem stemming from hydro.

What can fairly be termed a crisis though is the price of natural gas in places where it has spiked. It's not up a bit, it's up massively:



Screen shot from: https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5188706&span=3

To the extent that situation spreads to other countries, that's the crisis at least in financial terms. 70 retailers in the UK and already 7 have gone bust and, crucially, we're only a third the way through Autumn, a time of year when problems with supply really shouldn't be an issue.

The economic and political fallout from gas prices surging is where an actual crisis is more likely in my view. Serious $ are involved and it's the kind of thing that may well bring political turmoil or at least force governments into "be seen to be doing something" sort of policies. Indeed the UK's already going down that track with talk of (heavily subsidised) nuclear being built.

That said, as per my previous post weather can change everything. Just needs a nice mild winter and strong performance from other energy sources and that'll slash the demand for gas and there ends any concern about shortages. Or a cold winter and the reverse occurs......

Watch the weather and I mean that literally.

 

[qldfrog]

Agreed but it always comes up when something goes wrong with energy.

"Energy Crisis" is the term usually used in the media whereas nobody says "Fire Crisis" or even "Pandemic Crisis" for example.

I don't know enough about Chinese politics and society to comment on things within the country beyond what I've already said. Chinese and Western assessments of the country's coal resources do point to a longer term problem. Right now though - anyone's guess as to the detail.

One thing though, they do seem to have quite a bit of water in their hydro schemes, noting that the largest, third largest and sixth largest power stations in the world, of any technology or location, are all hydro stations in China and that hydro is China's second largest source of electricity after coal. So whatever's going on, it doesn't seem to be a problem stemming from hydro.

What can fairly be termed a crisis though is the price of natural gas in places where it has spiked. It's not up a bit, it's up massively:

View attachment 130940

Screen shot from: https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5188706&span=3

To the extent that situation spreads to other countries, that's the crisis at least in financial terms. 70 retailers in the UK and already 7 have gone bust and, crucially, we're only a third the way through Autumn, a time of year when problems with supply really shouldn't be an issue.

The economic and political fallout from gas prices surging is where an actual crisis is more likely in my view. Serious $ are involved and it's the kind of thing that may well bring political turmoil or at least force governments into "be seen to be doing something" sort of policies. Indeed the UK's already going down that track with talk of (heavily subsidised) nuclear being built.

That said, as per my previous post weather can change everything. Just needs a nice mild winter and strong performance from other energy sources and that'll slash the demand for gas and there ends any concern about shortages. Or a cold winter and the reverse occurs......

Watch the weather and I mean that literally.

I believe we are over complicating the so called problem:
1) China is booming,it is building 100s of mostly coal power stations,but also nuclear. Inc thorium? to try to catchup.
With covid measures destroying the economy in the west,they had a slower demand growth domestically,but this is now over.the energy demand in China is exploding again.
So transitory issue
2) the CO2 emissions narrative and greenwash of western finances/government has reduced new development and exploration outside China which has less overseas resources to tap,and so prices are surging there.we are still one world
3) short and medium term,there is no lack of coal to dig out,but the cold war means China is not going to buy aussie coal,or American/Canadian coal.. that's a sizeable amount of the demand buffer ,the safety net,that is cut out by political will.
So, my view: it is all a simple matter of supply demand gone a bit wrong,and used as an opportunity to: flex muscles internally against crypto (control of currency), video game..social control and a greenwash opportunity toward the west.clever manipulation..no surprise
Then you might add Mr @Smurf1976 weather issues,typhon effects etc.

We d better look at the West energy crisis where we have shut down or are our own energy stream: both extraction,exploration and power plant..while destroying our fiat currency meaning we will need a lot more USD, Euros or AUD ? to buy that oil tanker when competing with gold and Productivity backed Yuan and roubles ...

 

[waterbottle]

Coal surpasses $300/tonne and now CCP threatening coal miners with price caps. Electricity suppliers using fiscal means to target energy intensive industries..... Can't run an economy without lights

Coal price tops $300/t in China as cold wave adds to energy crisis

The most-active contract on the Zhengzhou Commodity Exchange rose as much as 6%.

www.mining.com

 

[Smurf1976]

We d better look at the West energy crisis

It’s coming yes.....

 

[Smurf1976]

A somewhat alarming video about the situation in China.

In short it says coal is now prohibitively expensive for household use as heating fuel and it's cheaper to burn corn or used clothing which people seem to be doing.

If that's true then the corn price is about to go up. Literally burning corn cobs as fuel instead of coal seems to be what's being done. Corn cobs with the corn on them that is, complete.

Politics aside, it seems to be a pretty drastic situation for the ordinary Chinese person just trying to keep warm at home but from a financial perspective well investing in corn might be a goer?

 

[qldfrog]

A somewhat alarming video about the situation in China.

In short it says coal is now prohibitively expensive for household use as heating fuel and it's cheaper to burn corn or used clothing which people seem to be doing.

If that's true then the corn price is about to go up. Literally burning corn cobs as fuel instead of coal seems to be what's being done. Corn cobs with the corn on them that is, complete.

Politics aside, it seems to be a pretty drastic situation for the ordinary Chinese person just trying to keep warm at home but from a financial perspective well investing in corn might be a goer?

A side thought: in "democratic" France and UK, governments have set and cap the energy prices.collapsing businesses
in "communist" China, there is no cap..the irony..
Back on the subject, if it starts affecting people and make them angry enough, the CCP will have to act.
So release gov stocks, ban and cap use.
Will be interesting to follow.
And all that during the media circus at Glasgow with more fossil fuel blaming and restrictions..
One thing for sure,a good billion or so of freezing Chineses are looking forward to global warming this winter,they are keen on a good 5c increase....

 

[againsthegrain]

A side thought: in "democratic" France and UK, governments have set and cap the energy prices.collapsing businesses
in "communist" China, there is no cap..the irony..
Back on the subject, if it starts affecting people and make them angry enough, the CCP will have to act.
So release gov stocks, ban and cap use.
Will be interesting to follow.
And all that during the media circus at Glasgow with more fossil fuel blaming and restrictions..
One thing for sure,a good billion or so of freezing Chineses are looking forward to global warming this winter,they are keen on a good 5c increase....

Then in summer won't have to worry about over population

 

[Dona Ferentes]

"... we know China is by far the world’s worst carbon emitter. The regime knows this can’t continue, but also that it must continue until something else can be arranged.

"So, for the moment, China remains reliant on coal, oil, and natural gas, importing vast quantities of all three. But the government is also planning a gradual transition to cleaner power, which will include not just solar and wind but a massive nuclear power program, amounting to $440 billion over the next 15 years.

"According to Bloomberg, China presently has 51 nuclear plants in operation, with 46 more planned or under construction. The US has 93 operating plants, many of them decades old, and only two under construction. ..."

- from John Mauldin's newsletter

 

[qldfrog]

"... we know China is by far the world’s worst carbon emitter. The regime knows this can’t continue, but also that it must continue until something else can be arranged.

"So, for the moment, China remains reliant on coal, oil, and natural gas, importing vast quantities of all three. But the government is also planning a gradual transition to cleaner power, which will include not just solar and wind but a massive nuclear power program, amounting to $440 billion over the next 15 years.

"According to Bloomberg, China presently has 51 nuclear plants in operation, with 46 more planned or under construction. The US has 93 operating plants, many of them decades old, and only two under construction. ..."

- from John Mauldin's newsletter

If science was clear cut, China would care and act.but it is not whatever we are brainwashed to believe.
Between co2 increase being a cause or a consequence of warming, it is a critical difference
Most probably climate is indeed warming due to human activity, reducing global net energy release on earth by reducing fossil fuel and increase wind solar will help, but sadly nuclear will not.
anyway i will be well dead by the time the next generation realise that, in the meantime we can blame coal.
But never expect for China to follow a flawed narrative if it is not in its interest. So coal burning until not economical to do that

 

[Smurf1976]

Back on the subject, if it starts affecting people and make them angry enough, the CCP will have to act.
So release gov stocks, ban and cap use.
Will be interesting to follow.

I'll avoid any politics and just note there are possible implications for quite a few things financially hence posting it.

Coal markets and price.

China's production of all sorts of manufactured goods with possibly more disruption to come if fuel really is that hard to get hold of.

Implications for the price of other things that burn. Oil would've been obvious but based on the video it seems that corn and indeed anything else that burns also belongs on the list.

 

[waterbottle]

Russia was also absent from climate talks. Today I asked why, and I couldn't help but think global warming would be in my best interest if the majority of my country is frozen for half the year....
I wonder if China had similar thoughts given the video @Smurf1976 posted