China’s energy crisis and Russia

While the world discusses the unprecedented rise in gas prices in Europe, another energy crisis is unfolding on the other side of Russia’s borders. In China, electricity shortages have forced several provinces to effectively introduce power rationing. At the end of September, the Chinese authorities asked the Russian power generator Inter RAO to increase supplies to China.

It seems that the transition over to green energy will not only change the market conditions for Russian hydrocarbon exporters in Europe, but in China, too. In China’s case, however, it will likely create more opportunities than problems.

The electricity deficit in China has been caused by regional governments scrambling to bring emissions of carbon dioxide and other greenhouse gases in line with the limits set on them. A year ago, the Chinese leader Xi Jinping pledged that China would be carbon-neutral by 2060, and the first to feel the pressure are the country’s coal-fired power stations, which still play a key role in Chinese energy production.

In recent weeks, nineteen major Chinese provinces have started rationing electricity. Energy-intensive industries such as the manufacturing of metals, cement, and chemicals have been almost universally affected.

The current crisis has three main underlying causes. The first is a spike in energy commodity prices on global markets amid the post-coronavirus recovery. That includes the price of coal, which is still the main fuel used at China’s power plants. The increase in prices has coincided with a decrease in China’s own coal production, since many coal mines have closed in recent years as a result of tougher environmental standards.

The second cause is that by the end of the third quarter of 2021, many Chinese provinces had realized that they were not on target to meet the environmental recommendations issued by Beijing. They therefore set about trying to reduce emissions using radical methods, such as requiring enterprises to limit their energy consumption.

Thirdly, while power generation may be growing, in some Chinese regions, especially in the southeast, it still lags behind demand. Some aluminum producers, for example, are in such a hurry to reduce emissions by moving over to hydroelectric power that there are not enough new hydroelectric stations to meet demand.

China’s energy infrastructure is simply not ready for such a concerted effort to curb emissions, which opens up new opportunities for Russian hydrocarbon exporters.