China Orders Energy Companies to "Secure Supply by Any Means"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Recently, as China is experiencing an extreme power shortage, authorities have reportedly instructed state-owned energy companies in oil, power generation, and coal sectors to "mobilize all means" to secure power supply in preparation for winter.

On the 30th (local time), Bloomberg News cited sources saying that the Chinese government issued such guidelines, instructing state-owned energy companies to "mobilize all methods to secure energy supply."

According to the report, this directive is said to have been issued by Vice Premier Han Zheng, who is responsible for energy and industrial production policies in China.

Sources said, "Vice Premier Han issued this directive at an emergency meeting earlier this week with senior officials from the state-owned assets regulatory authority and economic policy institutions," adding, "Vice Premier Han said, 'No power outage can be tolerated.'"

China Holds Emergency Meeting on Power Shortage... "Authorities Likely to Mobilize All Means to Win Coal Bidding War"

The Chinese government's emergency meeting on power supply indicates the severity of the situation in China.

On the 29th, the South China Morning Post (SCMP) reported that power emergency measures were issued in 20 out of 31 jurisdictions in China due to the power shortage, stating, "China is experiencing its worst power shortage in 10 years."

The power shortage in China has been attributed to a recent decrease in coal supply for power generation within the country, coupled with a sharp rebound in power demand as the COVID-19 pandemic subsides.

SCMP reported, "As of the 21st, China's coal reserves stood at 11.31 million tons," adding, "This amount is enough for 15 days of use and is the lowest ever recorded."

The imbalance in coal demand has worsened, causing coal prices to surge.

On the same day, at the Zhengzhou Commodity Exchange, futures for Chinese thermal coal rose sharply by 6.5% from the previous day to 1,393.6 yuan per ton. This is an all-time high and about double the price from earlier this year.

As coal prices surged, the operating profit margins of Chinese energy companies significantly declined, leading these companies to reduce power supply, which further exacerbated the power shortage, analysts say.

Bloomberg News reported, "China's power shortage is causing turmoil in international commodity markets, including energy," adding, "Most commodity prices are soaring."

A senior analyst at SEB said, "The Chinese government's directive will increase volatility in the energy market," and predicted, "China will stake everything necessary to win the coal and natural gas bidding wars."

As the power shortage worsens and signs emerge of greater socioeconomic impacts on the Chinese economy, authorities are also moving busily.

On the same day, Premier Li Keqiang said at a meeting with diplomats from major countries, "The Chinese government will make every effort to maintain economic growth," and "We will focus on stabilizing industry and supply chains."

Global Surge in Demand and Supply Shortages Push Oil Prices Higher

With power demand surging worldwide, including in China, oil prices are also soaring.

On the 28th, North Sea Brent crude surpassed $80 per barrel, reaching its highest level in three years.

[Image source=AP Yonhap News]

At the New York Mercantile Exchange, West Texas Intermediate (WTI) futures prices also reached the highest level since October 2018, trading in the $75 range.

Leslie Palti-Guzman, CEO of U.S. consulting firm Gas Vista LLC, warned, "(Energy supply chain issues) are bad news for European governments and consumers," adding, "Gas and electricity prices are expected to rise sharply this winter."

Some forecasts even suggest Brent crude could reach $200 per barrel by the end of next year.

According to Bloomberg News, options trading at the London Commodity Exchange betting on Brent crude reaching $200 per barrel by December next year has surged.

Bank of America has predicted that due to soaring demand, Brent crude could surpass $100 per barrel this winter.

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