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Heading: China power failure turns heat on the rest of the world

Sub-heading: The effect of disruption in sectors ranging from the toy industry to glass and paper manufacture will be felt long into next year

Monday November 08 2021, 5.00pm

A power crisis in China that has seen months of blackouts is forcing factories to halt production or reduce operations to two days a week — which will mean further supply chain disruption, delays and higher prices for British businesses.
Senior retail sources say that they are having urgent discussions with their Chinese suppliers about the disruption. Sudden blackouts and power shortages have struck about 20 provinces in the country over the past two months. Sixteen provinces or regions — about half of China’s total — have introduced power restrictions.

John Mullally, a procurement and supply chain expert at Robert Walters, the Hong Kong-based recruitment group, said: “It is now taking double the time to produce goods. You can see the impact in the north of the country, where factories that make raw materials such as steel are running into difficulties, which will result in shortages down the line for other factories that will need those materials to make finished goods. It’s going to really hurt by late November.”

The Chinese government has told factories it is prioritising power for high-value production and energy for heating homes as winter approaches. Factory owners are often given just a day’s notice before power is shut off, while rationing has meant that they are rushing to find diesel generators and trying to conserve energy — for example, by shutting down escalators.

China’s export growth slowed in October. Although up by 27.1 per cent to $300.2 billion compared with a year earlier, it was down from September’s 28.1 per cent. Last week China’s manufacturing purchasing manager’s index revealed that the sector had shrunk for the second consecutive month.

John Perry, chief executive of Scala Consulting, an international supply chain firm, said that “power limits” had become a buzzphrase in China.

Continued... (due to the character limit).

@Gubby, SR123 had written a little under 4000 comments. I recall that he joined just before the New Year. That’s a little under 380 comments a month!

@Gubby, who was the person who posted that there was a new price target of approximately £7.50? When told by someone else that that person couldn’t see it, the person who had posted the price target said he could see it.

Kenny-G has gone too!

There’s often at least one person on a share BB who claims to be a stock market sage. The only thing we truly know about people, regardless of what they say, is what they write and how they write it, and these self-proclaimed sages tend to share a number of the following features:

* Poor spelling, punctuation and grammar (that’s pretty well obligatory);
* Often, an inability to string a sentence together. The relevance of these first two bullet points is that they can’t learn the basics of the English language yet want us to believe that the same lack of intelligence has enabled them to become a stock market guru - self-proclaimed, of course!;
* Claims that they said things which you can’t remember seeing and which they can’t or won’t back up;
* Rudeness to anyone who challenges them (because they can’t back up what they say so they want to scare you off);
* Sometimes a shot across the bow, warning people not to challenge them (which means “I’m talking rubbish - please don’t challenge me on it”);
* Saccharine sweetness to anyone who has praised or might praise them, to the extent that your stomach can churn; and finally...
* An embarrassing user name which most of us grow out of when about 15. That’s completely unnecessary of course yet paradoxically so common. It gives an insight into their maturity, or lack of.

@Porsche1946 has yet to provide any evidence of his claim.

@Porsche1946

“I have called it pretty much bang on with whitbread”

Please post links as proof.

Continued...

Xi doesn’t have to bow to public opinion but he needs to tread carefully in a country that is trying to cling on to socialist heroic stereotypes while operating a near-market economy. Xi has to be the master of fudge.

For the time being he is busy undermining his own pledges. Because some pits have been closed, he is facing a shortage of fuel at the onset of winter, the precise moment this week when the central heating is turned on in apartment blocks.

Xi is having to face the reality that his economy is incredibly energy inefficient. Not only does China burn more coal than the rest of the world combined, it is also the second biggest oil-guzzler after the United States. Factories in China consume twice as much electricity as the rest of the country’s economy. And factories in China need between 10 and 30 per cent more energy than their western counterparts.

Yes, it is the dominant producer of clean energy technologies and raw materials for clean tech such as polysilicon for solar panels. Yet this embrace of the green — the wind, the sun, the hydroelectric dams and the natural gas — hasn’t been able to fill the gap left by even the most tentative of retreats from coal.

China’s biggest provinces have just under a fortnight’s stock of coal left and the global trading price for it is soaring. Result: mines are being reopened, even clapped-out ones. Banks have been ordered to dish out loans to coal producers. Street lamps are being switched off, lifts in provincial apartment buildings are grinding to a halt.

This is the transition period of course and most serious states, not only China, have been jittery about it. All the summer driving forces for Cop26 — the wildfires, the growing deserts and the floods — have given way to the winter preoccupation of energy security.

And Xi’s instinct is not to give in to demands to declare peak coal in 2025 rather than 2030 and thus speed China’s pace towards carbon neutrality. Rather he wants to head off any possible revolt from party bosses in the coal-mining provinces of the north. Xi seems to foresee a disruptive energy transition and fears the political risk.

All major participants in the Cop process have similar anxieties because bets placed now can quickly turn bad, perhaps even within a single electoral cycle, such is the speed of green technology advances.

President Biden also has to find a balance between the lofty aims of his clean energy programme and the stubborn opposition of coal-producing states such as West Virginia. For a dictator like Xi, though, the nightmare is more complex. As a child his life was turned upside down by the Mao-era Cultural Revolution. If he cuts coal subsidies, closes collieries, he could soon face street protests by miners, the salt of the proletarian earth, denouncing Xi for betraying the legacy of Mao.

Politics would become dangerously personal.

I’ll post the article across a few comments due to the character limit.

https://www.thetimes.co.uk/article/why-president-xi-dare-not-turn-his-back-on-king-coal-t6mwnh0f7

Heading: Why President Xi dare not turn his back on King Coal
Sub-heading: China’s stocks are low and party chiefs face popular uprisings if they can’t keep the heating on

Coal is at the heart of Chinese civilisation. Fuxin in northeast China claims to be the site of the earliest coal excavation in the ancient world and became the largest open-pit mine in Asia. The communists under Mao Zedong turned Fuxin into coal city, central to the industrialisation and modernisation of the country. Primary school children sang songs praising doughty pit-workers, proletarian heroes who kept their classrooms heated.

President Xi, it seems, has no intention of coming to Glasgow to sign coal’s death warrant. His absence from Cop26 at the end of this month will be more than just an act of diplomatic brinkmanship (or as some have been suggesting, a Covid-era twitchiness about long-haul travel). It will signal defiant reluctance to let China be put in the dock as the world’s biggest polluter.

The apparent contradictions in China’s positions, marked by Beijing’s increasingly toxic addiction to the black stuff, will probably turn Glasgow into a flop. If China can’t commit to an accelerated path out of coal in this decade then why, ordinary punters may ask, should others take on added costs of converting households? Xi’s reluctance to grasp the biggest nettle of decarbonisation makes a nonsense out of modest personal sacrifice elsewhere.

The Chinese leader surely understands that to westerners he will look like a Grade A hypocrite. He promised at the Paris climate conference to reach peak coal use by 2030 and then ease towards net zero by 2060, allowing wind, solar and other renewables to pick up from coal.

As a concession — a “this is all we can do for you at the moment” gesture — he has added a pledge not to finance coal plants abroad.

Climate activists consider this gift to be not just profoundly conservative, but essentially a ruse, a way of making it look as if China is open to addressing global concerns about the continuing production of coal-fired plants without actually doing much about it at home.

They’re right. Anything that smacks of a Thatcher-like clash with mining communities and their powerful Communist Party protectors is regarded as taboo in the court of Xi.

There’s an awareness of middle-class urban discontent about air pollution and this gives Xi a constituency of sorts for pit closures. But it’s brittle support and it melts away as soon as there’s another wave of power cuts, when the lift stops working up to the eighth floor of an apartment block. Then the call goes up: Give our miners what they need! Keep the lights on!

Continued...

“...Good, again, for major producers of coal like BHP, Rio Tinto, Anglo American and, in this case, Glencore...”

It’s a bit odd that an article dated 15/10/21 claims that Anglo American is a “major producer of coal”. Not any more, it isn’t. The article should have named another company.

Continued...

No country likes to see its population go cold, and the British government is understandably preoccupied by scenes of queues and voters anxious about paying their fuel bills. But for the government of China, where it began, there is more at stake. As a repressive one-party state, it has an absolute intolerance of popular unrest and criticism. Having successfully suppressed political opposition, it is averse to any cause of practical discontent in a population that is increasingly used to middle-class comforts, such as warm homes and stable electricity supplies. For Xi, expensive gas may be a small price to pay.

The end. Enjoy your weekend.

Continued...

But China is no longer in a position to impose fuel boycotts — some reports say that the ban on Australian coal is being discreetly abandoned. Australia was the largest source of China’s LNG imports last year and this year Canberra expects them to rise by 87 per cent to $56 billion (£30 billion) – on top of the rise in orders from Japan, South Korea and Taiwan.

Qatar, which exports as much as LNG as Australia, is also doing well out of the volatility. Britain has always been one of its biggest customers. Last month, in a sign of the new market trends, Qatar Petroleum has signed a deal with China National Offshore Oil Corporation for the supply of 3.5 million tonnes of LNG per year until 2037. In a polite quid pro quo it also ordered four LNG carriers from a Chinese shipyard.

The other obvious winner is Russia, whose giant company Gazprom furnishes 35 per cent of Europe’s natural gas. Supplies of Russian gas have been lower than expected in recent weeks and many believe that President Putin is gleefully tightening the tap for political reasons.

UK wholesale gas prices have rallied to all-time highs this week but they fell back after Putin hinted at more supplies for Europe, emphasising Russia’s powerful and direct influence.

Putin wants German regulators to approve the start of operations at Nord Stream 2, a new gas pipeline connecting Russia and Germany under the Baltic. This will reduce the importance of Europe’s existing Russian pipeline which runs through Ukraine. The United States and Poland are among the governments that argue that Nord Stream 2 will increase Putin’s malign strategic influence over Europe.

Putin has insisted that Europe is solely to blame for soaring gas prices. “They’ve made mistakes,” he said in a televised meeting with Russian energy officials. He blamed the termination of “long-term contracts” in favour of the spot market. He said: “There was not a single case in history when Gazprom refused to increase supplies to its consumers if they post requests.”

But Alexander Novak, Russia’s deputy prime minister, hinted at the linkage between increased gas flows and approval of Nord Stream 2 when he said that the new pipeline would “somewhat cool off the current [gas] situation” in Europe.

Britain is particularly exposed to the politics of natural gas because it has far lower storage capacity than the EU. Analysts at HSBC recently described the UK’s situation as “more precarious than its European neighbours” and estimated that Britain’s storage capacity was “equivalent to just 2 per cent of its annual demand”, compared with between 25 per cent and 37 per cent for Germany, Italy, the Netherlands and France.

Continued...

Heading: China, one cold winter and the origins of Britain’s fuel crisis

Sub-heading: Beijing is desperate to avoid a shortage of gas this winter and will pay whatever it takes. The resulting bidding war is not one Britain can win

Britain’s gas crisis has its origins nine months ago and 5,000 miles away in the depths of the Chinese winter. The country experienced record-breaking low temperatures in the warmer south as well as in the north. In January Beijing recorded its lowest temperatures since the 1960s, sending demand for fuel surging.

A government campaign to phase out polluting coal-fired power stations meant that the fuel in demand was natural gas, and China didn’t have enough. Now winter is coming around again and an electricity crunch has swept the country, with local governments cutting power for upwards of 12 hours without notice. Factories that saw double-digit increases in output in August now operate only two days a week in some parts of the country, threatening the economic recovery from the pandemic.

The government of President Xi is scrambling to avoid a repeat and has ordered the country’s state-owned energy companies to secure supplies for this winter “at all costs”. Essentially, the world’s second-richest country is prepared to pay whatever it takes to keep warm the world’s largest population. The effect is to create a bidding war for fuel supplies, especially natural gas, that will drive up heating costs across the planet, from Shanghai to Sheffield.

The tankers that ferry natural gas are propelled not only by conventional engines but also by money. If a bidder in Asia offers more than one in Europe, they will literally turn around and head in the opposite direction. Like the other great economies of east Asia — Japan, South Korea and Taiwan — China has less storage capacity than the European Union and hence a greater hunger.

Unconstrained by democratic accountability, China can pay what is asked without too much concern about the market – unlike Britain, whose private energy companies are subject to a mandatory cap on how much they can charge. This is an auction in which Britain starts at a disadvantage.

All of this seemed a remote possibility for much of last year, when the slowdown in industry caused by pandemic lockdowns reduced the demand for liquefied natural gas (LNG), and prices fell. LNG has become an increasingly important part of the energy mix in a number of big countries since the Fukushima nuclear disaster ten years ago — including in Japan, which is only slowly turning back on its reactors, and Germany, which is phasing them out altogether.

There are some winners in the fuel crisis, among them Australia, a big producer of LNG and coal. China cut coal imports from Australia last year as part of a wide range of retaliatory measures that followed its acrimonious dispute with Canberra over its push for an international inquiry into the origins of the coronavirus.

Continued...

This sums up why we are where we are. You might find it an interesting weekend read. I’ll put it below, spread over a few comments due to the character limit.

https://www.thetimes.co.uk/article/china-one-cold-winter-and-the-origins-of-britains-fuel-crisis-c7n67ng6x

Thank you, LL. I looked at that web page at about 1900 tonight and only the first row was green. As I write this, the first 5 rows are green.

Sun article 6/10/21:

“Dear Deirdre - The only person who knows I like to cross-dress is my prostitute”.

(A bit of balance).

https://www.thesun.co.uk/dear-deidre/16345219/only-person-who-knows-cross-dress-prostitute/

Continued (nearly there)...

To set the level of the cap from October to March, Ofgem’s formula looked at the next 12 months of forward prices that were seen during a six-month “observation period” between February and July. The cap level from April will similarly be based on the forward prices observed between this August and January. That means that the high prices seen in August and September are baked into the next cap level and prices are showing little signs of easing.

There could be more pain on top: the high wholesale costs have triggered a raft of supplier failures, leaving behind costs for other suppliers that, sooner or later, will be recovered from all households on their bills. The price cap may need to rise even further to reflect this.

Continued...

Rising wholesale energy costs have already fed through to a 12 per cent rise in the energy price cap, which limits tariffs for 15 million households or just over half of all UK homes. The cap increased by 12 per cent to £1,277 a year last week and is due to be updated again in April. Deals cheaper than the cap have disappeared from the market and some suppliers are now marketing fixed-priced tariffs at as much as £2,000 a year.

A raft of small energy suppliers have gone bust amid surging wholesale prices and experts on Moody’s on Wednesday added their voices to warnings that more would follow, leaving a bill that could exceed £1 billion for the rest of the industry to pick up.

UK benchmark month-ahead gas prices had already surged by more than a fifth to trade at more than 300p per therm for the first time ever on Tuesday. Such prices had only previously been seen briefly for day-ahead gas delivery during an extreme cold spell in 2018.

With gas fired power stations forming the backbone of Britain’s electricity system the higher gas prices have fed through to higher electricity prices. Phil Hewitt of EnAppSys, the consultancy, said electricity prices on Tuesday were more than five times higher than a year ago.

A global shortage of gas has pushed up prices the world over as demand bounces back from the pandemic and supplies remain constrained. A cold winter last year has left stock levels in Europe unusually low while Russian pipeline gas supplies are also lower than expected, leaving Europe competing with Asia for scarce cargoes of liquefied natural gas.

De la Rey Venter, a Shell liquefied natural gas executive, said the market had faced a “perfect storm” of cold weather, supply concerns and increased demand but will stabilise eventually. “This turbulence will pass. It might take a while, but the market will stabilise at sensible levels,” he told a conference on Tuesday.

Experts said colder weather and further supply constraints had driven the latest rally.

Sub-heading: Painful rise — and worse lies ahead

If this month’s £139-a-year rise in the energy price cap wasn’t painful enough for consumers, it now seems likely that worse is to come. The cap, which limits tariffs for 11 million households on standard tariffs and four million with prepayment meters, will be updated again in April. It will take a dramatic reversal of soaring wholesale gas prices to avoid a far greater increase then, with the latest forecasts pointing to a rise of as much as a third or about £400 a year.

Ofgem sets the cap based on its assessment of the costs suppliers face. It assumes they buy wholesale gas and electricity in advance, purchasing forward contracts gradually over time, according to a published hedging formula.

Continued...

This is the article. I will have to spread it out over more than one comment due the character limit.

Heading: Gas prices surge to record high
Sub-heading: Rise in oil costs amid supply shortage adds to inflation fears

Gas prices in the UK leapt by as much as 40 per cent to all-time highs this morning before falling back after President Putin promised to pump more gas to Europe.

In an unprecedented morning of extreme volatility, gas prices across Europe surged to new records as fears of a winter energy shortage intensified but then retreated on hopes that increased Russian supplies would ease the crisis.

UK gas prices traded as high as 407p a therm at one stage, far exceeding levels seen ever before even during extreme cold weather events.

Despite the reversal following Putin’s comments, gas prices remain extremely high, trading at more than 290p a therm by early afternoon. That is about eight times higher than a year ago, and close to the previous all-time records set on Tuesday.

Lower-than-expected supplies from Russia to Europe have been one factor intensifying the supply crisis in recent months. Russia’s state gas giant Gazprom has denied deliberately withholding supplies, despite accusations it may have been doing so for political leverage to ensure the start up of a controversial new gas pipeline bypassing Ukraine.

However Putin said Russia would now boost gas supplies in response to the energy crunch in Europe and stood ready to stabilise the market.

This would include pumping more gas via Ukraine than it is contractually obliged to, he said.

UK benchmark month-ahead gas prices hit highs of 407p a therm, about ten times higher than a year ago and up more than 200 per cent over the past month alone.

“Extremely high global gas prices are now incentivizing significant fuel switching away from gas (to coal and liquids), and also leading to out-right demand destruction for the first time in over two decades, particularly in the UK,” James Huckstepp, gas expert at S&P Global Platts, the commodity news and pricing group, said.

“Platts Analytics believe this demand switching/destruction is necessary to balance a market short on storage and supply.”

Oil prices globally eased slightly this morning from the three-year-highs of more than $83 a barrel seen on Tuesday but remained at more than $82 a barrel, threatening to hamper the fragile economic recovery and compound a growing cost of living crisis.

Soaring energy prices have already increased inflationary pressures, sending the yield on 10-year UK government bonds to 1.09 per cent on Tuesday, the highest since May 2019. Markets believe there is a one in four chance that the Bank of England will be forced to raise rates next month.

Household energy bills could jump by as much as a third or £420 to almost £1,700 a year from April if wholesale gas prices do not abate in coming months, experts warned.

Continued...

There is an interesting article in The Times today about gas. It caught my eye as I was wondering when the cost of coal - and therefore the SP - might start falling, and the article addressed the former question but for gas.

It says “demand switching/destruction” is required to bring the price down, with the switching being from gas to liquids (which includes oil) and coal. What I took away from this is that demand isn’t likely to decrease (In the short-term), just the energy source, and that the solution - which it says is already happening - will increase the demand on coal.

These are the two paragraphs that I found interesting:

“Extremely high global gas prices are now incentivizing significant fuel switching away from gas (to coal and liquids), and also leading to out-right demand destruction for the first time in over two decades, particularly in the UK,” James Huckstepp, gas expert at S&P Global Platts, the commodity news and pricing group, said.

“Platts Analytics believe this demand switching/destruction is necessary to balance a market short on storage and supply.”

https://www.thetimes.co.uk/article/gas-prices-surge-to-record-high-3jrsql3w6