It’s ramping up to be a very cold winter as China, Europe, and India face a huge energy crunch in the coming months. As the world’s energy usage bounces back to pre-pandemic levels, supply chains have simply been unable to keep up with the demand. Now, at the very same moment that COP26 is taking place in Scotland to charter a course toward global decarbonization, China is turning to coal, India -- already reliant on the dirtiest fossil fuel for 70% of its energy mix -- is in grave danger of running out of coal entirely, and the European Union’s reliance on fossil fuels has been thrown into stark relief as energy prices soar.
The continuance of global supply chain woes is just one part of the story, however. According to a recent report from Reuters, drought could inadvertently be to blame for at least part of the supply crunch. China has the largest hydroelectric power capacity in the world, and relies on the sector for nearly 10% of the nation’s energy mix. As temperatures rise and rainfall patterns change, however, this could spell major trouble for hydroelectric projects around the world.
“This year, climate-driven droughts have triggered the biggest disruptions in hydropower generation in decades in places like the western United States and Brazil,” Reuters reported in August. “China is still recovering from the effects of last year's severe drought on hydro production in Yunnan province in the southwestern part of the country.” Now, that loss of hydropower production in China is hitting global supply chains, as China looks to other energy sources to fill the gap, thereby further squeezing global supplies of coal, oil, and natural gas.
One country, however, is poised to win big from the current supply squeeze. As Europe, China, and India -- some of the world’s biggest economies -- grow desperate, Russia seems to be deliberately sitting on natural gas supplies for its own geopolitical gain. It is believed that Russia is using its natural gas supply “as a weapon” in order to make Europe submit to the Kremlin’s desires. The primary motivator is more than likely the Nord Stream 2 pipeline. The $11 billion pipeline connecting Russia and Germany by way of the Baltic Sea has already been completed but has yet to be brought online due to concern that the move would give Russia too much influence over the European Union. Now, Russia seems to be wielding some of that power in order to strong-arm the opening of the pipeline -- which would, of course, only make that power greater.
"I think we are getting close to that line if Russia indeed has the gas to supply and it chooses not to, and it will only do so if Europe accedes to other demands that are completely unrelated," Amos Hochstein, Biden's adviser, was quoted by Reuters. "There is no doubt in my mind, and the (International Energy Agency) has itself validated, that the only supplier that can really make a big difference for European energy security at the moment for this winter is Russia," he continued. Russian President Vladmir Putin has denied allegations that Russia is purposefully withholding energy supplies.
Moscow is poised to reap huge benefits both strategically and financially from Asia as well as Europe this winter. China and India, too, are looking to Russian imports to keep the lights on. Both countries have already experienced blackouts due to this year’s supply crunch. According to reporting from Al Jazeera, Beijing is expected to buy 10 billion cubic meters of natural gas from Russia’s Gazprom this year via the China-Russia east route pipeline. This marks a two-fold increase from last year. India, too, recently inked a deal with Russia for an annual sale of 40 million tonnes of coking coal.
By Haley Zaremba for Oilprice.com