In Asia and Europe, energy prices have been going up recently, with North America preparing for ripple effects. Europe had its gas reserves, which primarily comes from Russia, depleted after a cold winter. Wind power to the grid has also started to dwindle.
The energy crisis has also hit China as it had to close down factories and is experiencing a power shortage. It would allow coal-fired power plants to pass on the high costs of generation to some end-users via market-driven electricity prices. Allowing prices to be set by the market is expected to encourage loss-making generators to increase output.
Local governments have also been encouraged to help small and medium-sized firms and individual business users to cover the increased cost of electricity. China has also ordered mines in Inner Mongolia to increase coal production to meet future demand.
In India, the power ministry has asked power companies to direct more power to its capital, New Delhi. The Chief Minister of New Delhi warned of a power crisis after the government asked power producers to import up to 10% of their coal to meet the demand.
In the UK, the government is considering lending money to energy-intensive industries to help with rising power costs. Other countries in Europe are also facing the pinch, with prices for electricity reaching record levels. In Spain, electricity prices have tripled since December.
North America might also soon be engulfed in the power crisis. The US saw gas prices jump by 47% since the start of August. Oil prices have also been rising, with Bank of America predicting a surge in demand because cold weather could push the price of Brent crude past $100 a barrel, which would be a seven-year high.
Prices of crude oil crashed to the negatives in 2020 after the pandemic warranted lockdowns worldwide, causing the demand for oil to reduce. However, due to the energy crisis deepening this year, oil prices have been on the rise. This is expected to continue as the demand increases. Moreover, this made the IEA raise oil demand and growth forecast for 2021 and 2022.
Oil demand is set to rise by half a million barrels per day (BPD) as the power sector, and heavy industries switch from more expensive energy sources, the IEA said, warning that the energy crunch could stoke inflation and slow the world economic growth. This comes at a time where lingering inflation has already been a concern.
US President Joe Biden has also consulted the oil industry about the soaring gasoline prices around the country. US gasoline prices hit a new high this month, to an average of $3.26 per gallon as of the start of this week. President Biden has also called on OPEC+ to bring more crude oil to the market to lower prices.
On Wednesday, Russian President Vladimir Putin has also said that oil prices hitting $100 is "quite possible" due to the circumstances as the global energy demand keeps growing. It is no surprise that if current trends continue, the crisis may hamper the global economic recovery even more.