Global Energy Prices Surge Due to Demand Recovery and Supply Shortages... "Stagflation Concerns"

Major LNG Price Indicators Hit Record Highs
UK Wholesale Electricity Prices Also Reach All-Time High
Chevron CEO: "Price Uptrend to Continue"
Bloomberg: "Stagflation Risk Increasing"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Following the COVID-19 pandemic, signs of demand recovery have emerged, but energy supply shortages have also occurred, causing energy prices worldwide to surge sharply. This has raised concerns that the pressure of stagflation, characterized by inflation and economic recession, is intensifying.

On the 16th (local time), Bloomberg News and CNBC reported that energy supply in various countries around the world is failing to keep up with demand, resulting in soaring prices.

In fact, the Dutch TTF, one of the major indicators of global liquefied natural gas (LNG) prices, hit a record high of 79 euros per megawatt-hour (MWh) the previous day. This represents a 250% increase compared to January of this year.

Additionally, the UK's weekly wholesale electricity price reached a record high of 540 pounds per megawatt-hour (MWh) on the 13th. This is the highest price since 2008 and about seven times higher than the same period last year.

The European Union (EU) carbon emission allowance price also surpassed 60 euros per ton for the first time at the end of last month.

Amid these signs of rising prices, the energy industry has also issued warning messages about inflation.

[Image source=Reuters Yonhap News]

Mike Wirth, CEO of the American oil company Chevron, said in an interview with Bloomberg News the day before, "Prices of major energy sources such as gas, LNG, and oil are expected to continue rising for the time being," adding, "Eventually, the price increase will calm down, but it will take some time."

Supply Cannot Keep Up with Demand...Low Investment in Energy Production Facilities Also a Cause

The rise in energy prices is analyzed to be caused by multiple factors.

[Image source=Reuters Yonhap News]

First, the recovery of private sector demand following the COVID-19 pandemic has driven up energy demand, which is identified as the main factor behind the price increase.

Bank of America also analyzed that energy supply shortages have contributed to pushing prices higher.

In particular, despite the recovery in demand, major energy companies are not expanding production facilities, which is increasing the possibility of inflation caused by energy supply shortages.

This is because shareholders prefer cash returns over reinvestment, creating an environment where companies find it difficult to readily expand investments.

Chevron's CEO Wirth said, "Our company has the capacity to invest, but the current market is not signaling an expansion of investment."

Furthermore, with winter approaching, energy demand for heating is expected to rise further, increasing inflationary pressure.

Jeffrey Halley, an analyst at OANDA, said, "The biggest problem the market currently faces is energy prices," adding, "As winter approaches, concerns about energy price inflation are growing."

[Image source=Reuters Yonhap News]

Especially in Europe, continuous cold weather since April this year has reduced gas stockpiles to levels lower than before the COVID-19 pandemic, driving prices up. Additionally, the supply of Russian gas dropped by more than half compared to the previous month in August, which also contributed to inflationary pressures.

"Stagflation Threat Becoming Real"... Setbacks in Climate Change Response

As energy prices fail to stabilize, concerns are emerging that a chain reaction negatively affecting economic recovery will occur.

Simon Doyle of global asset management firm Schroders warned, "Signs of the stagflation threat becoming a reality are emerging," adding, "An unfavorable environment is forming for investors."

[Image source=Reuters Yonhap News]

Bloomberg News reported, "Energy costs in Europe have risen by more than 20% on average this year," and "This sharp rise in energy prices increases the likelihood of stagflation, where inflationary pressure and economic recovery slowdown occur simultaneously."

Meanwhile, in response to energy price inflation, energy production using fossil fuels such as coal is increasing again, raising concerns that climate change policies in various countries will be disrupted. Since coal is the fossil fuel that emits the most carbon, restarting coal-fired power plants runs counter to the environmental policies of governments worldwide.

Stefan Konstantinov, a commodities analyst at ICIS Energy, pointed out, "The UK is expanding coal-fired power plant operations recently to respond to soaring gas prices," adding, "This goes directly against the government's carbon reduction policies."

[Image source=Reuters Yonhap News]

This content was produced with the assistance of AI translation services.