Smoke streams from the chimneys of the E.ON coal-fired power station in Gelsenkirchen, Germany in 2014.
AP Images/Martin Meissner
The world is stuck in a dire energy crunch. It’s affecting everything from gas prices to shipping times.
Countries are struggling to source coal, natural gas, oil, and renewable energy as supply-chain problems linger.
The crunch is already driving energy costs higher and threatens to keep inflation at concerning highs.
You’re paying $3.29 per gallon to fill your car when it cost $2.29 at the start of the year. Your online orders are arriving way later than usual. And as winter nears, it’s costing more to heat your home.
The complex web that powers the world is badly tangled. A combination of supply-chain bottlenecks, government policies, and ill-preparedness has left countries struggling to keep their economies running at full steam.
That energy shortage could erase a key recovery driver. The holiday season tends to bring a wave of consumer spending as people shop for holiday gifts. Consumer spending counts for roughly 70% of economic activity, but only when there are goods for people to spend money on.
Almost every major economy has contributed to the mess. China lacks an adequate supply of coal due to slowed mining and a refusal to import coal from Australia. That’s led to energy rationing and factory blackouts.
The crunch doesn’t stop there. Frackers in the US haven’t returned to pre-crisis output, leaving oil supply well below the world’s massive demand. Russia has worsened the problem by deciding not to send its natural gas to the European Union.
The insufficient amount of natural gas has dragged the world’s power plants back in time. Oil, which is traditionally used much less often in electricity generation than coal or gas, is back in vogue as countries look for other ways to fuel their economies, the International Energy Agency said Thursday.
But that’s also in short supply. OPEC is sticking with the production increases it scheduled before the crunch, essentially telling the rest of the world that they aren’t coming to the rescue. That’s already sent prices soaring. Oil now costs more than $81.25 per barrel, the most since 2014.
The world’s energy sources are all coming up dry. There’s no quick fix, and the pressures “are not going to relent in the coming decades,” the IEA said in its latest World Energy Outlook report.
The energy crunch is adding to an everything crunch
The energy crunch is having knock-on effects elsewhere. Commodities that China exports are in low supply, leading production prices to skyrocket. Coal prices have more than doubled since July. A silicon shortage has hampered semiconductor manufacturing. And companies that rely on Chinese factories to assemble their products face even larger backlogs than before.
The risks go beyond gas prices and heating costs. Advanced economies are already mired in supply-chain struggles. Blackouts at factories in China, India, and other manufacturing giants have delayed shipments. When products finally do reach the US on cargo containers, huge backlogs at ports have left vessels idling off the coast. Once goods are finally offloaded, a shortage of truck drivers has held up deliveries even more.
Solving the bottlenecks is no easy task. The disruptions “will get worse before they get better,” Moody’s Analytics said Monday.
“As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner,” the firm added.
New efforts aim to alleviate the pressure. The White House announced Wednesday that the Port of Los Angeles will start processing ships 24/7. Corporations including Walmart, UPS, and FedEx will also shift to all-day-every-day models to ease the holdup.
Yet fighting the supply-chain nightmare doesn’t address the core problem. The world’s energy supply remains under immense pressure. That’s already keeping inflation persistently high.
It all comes back to inflation
While Americans are still able to turn their lights on and fuel their cars, they’re feeling the heat in their wallets.
Up until September, inflation looked to be cooling off just as the Biden administration and the Federal Reserve expected. Price growth slowed in July and again in August, yet the energy crunch seems to be thwarting the return to normal.
Prices rose 0.4% in September, the Bureau of Labor Statistics said Wednesday, accelerating from the pace seen in August. Of the sectors powering the jump, energy reigned supreme. The segment saw prices rise 1.3% in September, exceeding the inflation seen in food, used cars, and accommodation costs like hotels and rent.
That’s directly affected what Americans are paying at the pump. The average price-per-gallon of gasoline in the US rose to $3.29 on Wednesday, according to GasBuddy, marking the highest level in seven years.
If governments can’t untangle their supply chains fast enough, you can expect price growth to stay worryingly strong. The post-pandemic normal might just include shipping delays, expensive refueling, and pricier goods across the board.