Over the past week the news has been filled with articles about the seemingly imminent international energy crisis. Blackouts in China, India with only a couple days of coal supply, and record natural gas prices in Europe are just some of the signs that this winter might be a painful one. These articles paint a bleak outlook, but are they sensationalizing or are we truly doomed for a worldwide Energy Crisis? And of course, how will all this affect the U.S. small business?
First, we will examine what is happening now around the world:
China– As the world continues to rebound from Covid-19 related shutdowns there has been tremendous demand for imports of products made in China. This led to an increase in demand for energy in China which still relies heavily on high-pollutant sources like coal. At the same time the Chinese government has made a concerted effort to limit their greenhouse gas emissions and are forced to curtail this same production to save energy for residential uses. This balancing act has left the country importing large amounts of coal and liquefied natural gas (LNG). It has also led to a series of blackouts in several areas of China where supply can’t meet demand.
India– A rapidly growing economy, India relies on coal to supply about 70% of its electricity generation. Coal is cheap relative to other energy sources but India also doesn’t have the resources to compete with richer countries such as China and those of Europe when demand is high everywhere. They are struggling to keep coal reserves on-hand at their power plants which are also less efficient than those of competitor countries. Recent reports suggest that most of the country’s coal power plants have less than a five day supply of coal on-hand. India’s Central Electricity Authority has called the situation “Super Critical”.
Europe– Natural gas prices in Europe, especially in the U.K., have sky-rocketed in the past month with this week seeing record highs for recent history. A variety of factors are at play there: covid-19 reopening’s have increased demand, a quick transition to renewables without sufficient energy storage facilities have led to less reliable demand, and a longer and colder than average winter has left supply lower than predicted. Now, as winter approaches governments and companies have begun to worry if supply will be able to sustain through winter. The general consensus among analysts seems to be that it will be enough, IF Europe has a mild to average winter. But if the winter is severe or a major storm hits we could see large scale energy shortages and unprecedented prices. The fear of this is causing the natural gas price spike you are seeing now and will likely maintain high prices through winter.
USA– The United States has historically been and still remains cushioned from much of Europe and Asia’s energy struggles due to natural borders. This is especially true for natural gas which is still hard and expensive to transport across the ocean even after significant recent steps in LNG production and transportation. Also, the U.S. remains a net exporter of natural gas which comes in great contrast to Europe that imports about 90% of its Gas and is therefore more dependent on world prices. The U.S. also currently has Natural Gas storage levels which are fairly in-line with typical levels for this time of year. These facts have not stopped U.S. gas prices from more than doubling since the start of this year. The U.S. has its own reasons for these price increases, from fear of another Texas Ice storm event like we had in February, to U.S. drilling still not rebounding to pre-pandemic levels but overall, the U.S. outlook is far less bleak than that of other countries.
Outlook for U.S. Small Businesses– Our prediction for the 2021-22 winter season is that uncertainty will persist keeping prices high with moments of high volatility. There are too many questions about the U.S. energy Infrastructure that will not and cannot be answered this winter. We don’t know if Texas has made enough changes to prevent what happened in February from happening again. We don’t know if the large-scale energy storage solutions we need for the renewable transition will be able to be built fast enough to maintain system reliability. And we can’t know what storms and demand requirements this winter will bring.
Recommendation based on Outlook
First, Don’t Panic
We see current natural gas prices as reasonable considering the uncertainty in the market as we approach winter.
Second, Make a Plan
In general, we recommend small businesses be risk-averse with their energy decisions because we know how one unexpectedly high utility bill can set back a small business. Additionally, a risk-averse strategy leaves more time for you to spend on your businesses core focus. In-line with this recommendation, we encourage small businesses who are not locked into a fixed electricity/natural gas rate for this winter to reach out to us immediately to discuss their options.
Do you already have a fixed contract through part or all of the upcoming winter but are looking for insight beyond that contract’s expiration? Please also reach out! We would be happy to help you make an energy plan that is right for your business.
Chris O’Brien
COO
Excelsior Gas and Electric
Excelsior Gas and Electric prides itself on being a reliable resource for our clients. We are always happy to help you with any energy strategy you are trying to implement or recommend one if you are unsure. We provide electricity and natural gas brokerage services in 5 states that strive always to exceed expectations. We leverage our low overhead and industry connections to make sure that you get the prices and service that you deserve. Request a quote anytime from our website: https://excelsiorgasandelectric.com/request-a-quote/