The energy crises were a concept mostly associated with the West and developed world in our recent history. The developing world has always been vulnerable to energy crises. But an Asian energy crisis is a new thing; therefore, its consequences will be different.
The mother of all energy crises is the first oil crisis of 1973-1974 because of the Arab-Israeli conflict. In his book "Red Gas," Per Högselius explains how an oil crisis has created tensions in the European gas system. Dutch threatened others with gas if oil was not shared. At the end of that crisis, new institutions such as International Energy Agency emerged. Such events have big effects on countries and force them to act together.
In recent events, there are multiple stories. First of all, regional differences are obvious. While Europe and the US have succeeded in mass vaccination, Asia is still laggards. While the holiday season was strong in the West, Asia was struggling with Covid19 closures. This created asynchronous regional growth momentums—a complicating factor for analysis.
The core of the issue is natural gas and coal. Asia is susceptible to panicking more in scarcity periods. One of the patterns we keep seeing in Asia is the same panic for "trying to secure supply at all costs." That further feeds gas into the fire. The fundamentals, seasonality, the AI models can not forecast that. The premium associated with this panic spreads to other regions and feeds into a global panic.
One worrying factor we have recently is the record low level of Indian coal stocks. According to FT, "more than half the country's power plants have less than three days of supplies remaining." India's coal-fired plants are producing 66% of the nation's electricity. It is a worrying case since once the panic starts, the demand also gyrates unpredictably.
This is what we experienced in Britain. Most of the time, satisfying demand looks like enough for managing an energy crisis. But as the news spread, consumers tried to stock more than their normal demand. Whether it is toilet paper or gasoline, the same trend is observable everywhere. But gasoline gets you to work, where an economic activity creates other economic activities.
The Chinese situation is also worrying. More than 20 provinces of 34 Chinese provinces are struggling with power cuts. The issue can be traced back to the Chinese spat with Australia. Last year, the situation was less alarming. Before last year, the Chinese "Blue Sky" project also affected coal consumption. There are lots of reasons for the recent cuts. Coal mine accidents, surging coal prices, low tariffs, local governments' maneuvers to reach their end-year targets, drought, and other factors are all part of the problem.
The high coal prices and electricity cuts also created shortages for solar panels, chip production, and other industrial sectors. A coal product, coke is generally used for panel grade silicon. The gasoline crisis in Britain is to be solved by military assistance. In China and India, we have to see how things evolve, but an energy crisis in Asia will not be a regional event. This will be the first time such an event at this scale happens.
Whether Asian countries can contain such a crisis is irrelevant for what is to come next. The damage has been done, and policymakers have seen and felt the fear of such a scenario. Will this create new prospects for Asian energy institutions? Is creating common institutions the Asian way to deal with the problem? Is it the price, supply, or rationing the demand, or a mixture of all of them that will lead the Asian efforts? Maybe just like Europe, the industrial sector will give up steaming its engines and rest until problems become manageable.