Victim of power outages, China faces its dependence on coal

Europe didn’t need that. There were already fuel shortages in the UK and soaring gas and electricity prices across the continent, especially in France. Gold, according to the Financial Times, a new threat is emerging on the European energy horizon: China.

Beijing has asked the national gas and electricity groups to build up stocks for the winter “at all costs”. The Deputy Prime Minister, Han Zheng, even ordered them to increase imports of liquefied natural gas … a commodity also in great demand in Europe.

The Chinese rush on this raw material “suggests that other regions of the world, such as Europe, will have even more difficulty in securing their supply”, which could further increase the energy bill, underlines the Financial Times.

Turn off traffic lights to save electricity

If China is ready to pay lavishly for its gas supply, it is because it has been facing its own energy crisis for a few weeks. Power cuts have been observed in more than twenty administrative provinces out of the country’s 32. “The large and rich industrial provinces of the South like Guangdong as well as the mining regions of the Northwest instituted electricity rationing measures which caused great concern among the population and threatened to plunge the economy into chaos” , summarizes the South China Morning Post.

China has grown accustomed in recent years to seeing some of its factories shut down temporarily to save energy as winter approaches. But this time, residential areas are also affected by power cuts, which “had not happened for almost a decade”, recalls the BBC site.

The situation is so tense in some regions that cities “have had to turn off traffic lights to prevent a collapse of the electricity grid,” the South China Morning Post said.

The tensions on the Chinese and European energy markets have the same origin: “In both cases, it is linked to the economic recovery. electricity needs that the energy supply cannot satisfy “, explains Xin Sun, specialist in Chinese economic policy at King’s College London, contacted by France 24.

Prison sentence

But the reasons for the low supply are very different in Europe and in China. On the Old Continent, “it is a question of gas prices, supply problems and renewable energies which have not yet succeeded”, sums up Xin Sun.

In China, the main culprit is called coal. There is too little of it and it has become too expensive for a country which, despite its desire to green its electricity network, still depends 70% on coal mines to generate its electricity.

At the end of September, the six major national energy suppliers had only 11.5 million tonnes of coal in reserve, “which is barely enough to cover the country’s needs for two weeks”, underlined, at the beginning of the week, Sinolink Securities, a Chinese investment company, in a note on the energy market.

This shortage is the “result of a policy applied for several years by China to become less dependent on coal,” said Xin Sun. About five years ago, Beijing indeed began to plan the gradual closures of mines concentrated in the north-west of the country. At that time, the Chinese mining industry was producing too much coal and therefore had a very negative environmental impact. She also had very bad press because of numerous fatal accidents.

The mines which survived had, moreover, to submit to new environmental and safety rules which would have made the sector less reactive to sudden changes, such as those induced by the health crisis, Bloomberg says.

The American economic channel even suggests that one of the new laws has contributed significantly to the current shortage. This text stipulates that mine operators risk prison sentences in the event of accidents due to breaches of safety rules. “As a result, miners are more reluctant to work harder in the event of a strong increase in demand, because this also increases the risk of accidents”, summarizes Bloomberg.

“It is clear that this situation is partly the result of the end of nonsense and laissez-faire in the mining sector”, confirms Jean-François Dufour, director of the consulting firm DCA Chine-Analyze, contacted by France 24. But for him, Chinese climate ambitions are just as responsible for the low production of coal, Beijing having set annual limits on greenhouse gas emissions due to mining.

Very expensive coal

Last summer, part of the provincial authorities had the suspenders raised by the central power because they were not in the nails of the climate objectives. They therefore put pressure on mining groups to reduce their production… at the worst possible time. “The local authorities did not want to pay the political price of not meeting the demands of the central power, even though this has contributed to the current energy crisis,” confirms Xin Sun.

Jean-François Dufour even suspects the mining groups of having organized, in part, the coal shortage. “It is a signal sent to the central power to show him that the Chinese economy is still very dependent on coal and that it would perhaps be necessary to slow down the pace of the energy transition which is costing them dearly”, estimates this economist.

As coal is becoming scarce, it is becoming very expensive… to the chagrin of electricity producers, who cannot influence electricity prices. These are set by the state, which “currently refuses to mount them so as not to arouse the anger of the population,” notes Xin Sun. Suddenly, energy suppliers are currently producing electricity at a loss, “which does not motivate them to increase production in an attempt to limit power cuts,” adds Jean-François Dufour.

The government therefore decided to restart some mines and let others produce more despite the annual limits. But this does not happen overnight, and this is why Beijing wants to increase its imports as quickly as possible, at the risk of accentuating the surge in prices. This is bad news for Europe.

The good thing is that China is not as fond of gas as Europe for heating. “Most thermal power plants still run on coal,” recalls Xin Sun. The impact on gas prices should therefore only be limited. But sometimes all it takes is one drop to break the camel’s back.