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It’s shocking how quickly this has spiraled out of control
At the moment, it’s tough to even keep on top of all the energy problems in the world. This is a crisis that I saw building but I’m continually surprised at how hard it’s hitting.
Back on September 13 — just two weeks ago — I listened to Lagarde and was shocked that she was talking about energy prices as transitory, referring only to gasoline/diesel when it was already clear to me that power and natural gas were the story:
Since then, it has certainly gone mainstream.
The UK gasoline shortage, which may be nothing more than a driver shortage has driven that home. But one of the real surprises is how many ripple effects are popping up from tangentially-related decisions like Brexit or hard-to-see side effects of the pandemic.
Some topics:
1) Blackouts are hitting China
There are reports of traffic jams due to traffic lights being turned off due to power outages, particularly in northern provinces. The weather is already getting cold in parts of China but now there are reports of problems in the south in Guangdong as well. It appears that a shortage of coal supply is at work.
2) India is about to feel the pain
Coal inventories in India are at the lowest levels since 2017 and on a steep downward trend.
3) Coal is soaring
Prices of coal in Newcastle are nearing $200 ton from $50 during the pandemic and $120 in 2018.
4) There’s no help coming
Europe is praying for the wind to blow to at least take a bit of power off of gas-powered plants but there’s no real help coming this winter. Norstream 2 isn’t going to make much of a difference even if it gets opened in November.
There’s a real chance (a certainty?) that we’re going to see industrial activity curbed this year on power shortages or high prices. With the world already suffering from bottlenecks, what happens when we get another round of shutdowns? This has stagflation written all over it.