China Has a Power Shortage; South Africa Has a Power Shortage

I talk about our coming World of Shortages (tm) :) each and every week. More and more evidence comes to the forefront, no matter what commodity we discuss. You can click here for all my posts about inflation which is essentially the other side of worldwide shortages.... we just have more and more evidence from a story here, and a story there. Once you begin adding up all these mole hills, eventually you have the mountain. Maybe this was why the coal stocks were so buoyant last week.

China Feels New Year Chill as Coal Shortage Bites

• China is experiencing an acute power shortage with a nationwide electricity shortfall at 70 gigawatts, the equivalent of almost Britain’s entire generating capacity
• State media has described the crisis as China’s worst-ever power shortage. With coal prices soaring and supplies disrupted by some of the most severe winter weather in years, it is certainly the most acute since 2004 when demand outstripped supply by 40 gigawatts.
• A rush for individual generators and to buy diesel to fuel them sent state firms into the international markets, provoking a spurt in crude oil prices.
• So worried is the government that on Friday it put in place a two-month ban on coal exports. (leaving more for our producers to fill the gap... bingo)
• The coal shortages have forced the five biggest electricity producers to close 90 power stations - with a combined capacity of more than 20,000 megawatts - in northern and central China. Coal stockpiles at the plants have dropped below the "caution mark" of three days' requirements.
• The shortage could not have come at a worse time for the ruling Communist Party. The leadership is anxious to ensure plentiful supplies of power for the most important holiday of the year, the Lunar New Year holiday,which begins on February 7, just as rising prices – particularly for food – are fuelling popular discontent.
• Chronic winter shortfalls of coal, which fuels 78 per cent of China’s electricity supply, have been aggravated by transport disruptions due to unusually heavy snow across central, eastern and northern China. The unusually icy temperatures have prompted a surge in demand for power as people try to keep warm.
• The core problem is that China’s economy is still caught between Marxist central planning and market forces. Domestic prices of coal have been liberalised and rose 14.2 per cent year on year in December while electricity prices rose only 2.1 per cent since these are capped to by the state to curb inflation. Utilities have chafed at caps on electricity rates that prevent them from passing the higher costs for coal on to customers.

That last point, is what I see as a major problem for China. They continue to supress free market pricing in the energy market... which in turn drives demand even higher than it should be, so its a very vicious cycle. Keep prices lower than they should be, and keep driving up demand over "market levels". At some point something breaks. And it breaks badly.

Now on to South Africa...

South African Mines Remain Shut Down Amid Power Shortages

• AngloGold Ashanti Ltd. and Gold Fields Ltd., Africa's biggest gold producers, kept their South African mines closed for a second day as an electricity shortage threatened growth in the continent's biggest economy.
• Mining companies stopped thousands of workers going down shafts, some of which are more than two miles (3.2 kilometers) deep, after state utility Eskom Holdings Ltd. said it couldn't guarantee a stable electric supply.
• Gold and platinum rose to records in London trading yesterday on concern that shortages may result from the mine closures. Eskom, which supplies 95 percent of South Africa's power, mostly by burning coal, can't meet demand after the government delayed an expansion decision by four years.
• Eskom asked 138 industrial customers on Jan. 24 to cut use after heavy rain damaged coal stocks, cutting generation that threatened to destabilize the entire grid, said Andrew Etzinger, a spokesman from Johannesburg-based Eskom.
• Talks also have started with coal suppliers about diverting some high-quality coal destined for exports to Eskom plants for blending with the coal normally used. Export-quality coal is more expensive than the coal Eskom typically uses.
• The power cuts may shave South African growth by half a percentage point this year, Goolam Ballim, chief economist of Standard Bank Group Ltd., Africa's biggest lender, said yesterday.

Since early in the fall, I've mentioned coal as the forgotten commodity - despite all the fuss about how dirty it is, it is driving much of the world's growth. Now we see 2 countries potentially diverting exports to take care of in house emergencies. And in this World of Shortages, I think what we are seeing here is just a preview of what will be coming. Remember, 2006 marked the first year this globe has ever seen with >50% people living in urban centers as opposed to rural. And each year the global population grows. And each year more move to cities. And we're struggling even at these levels with our global natural resources.

This is why I am saying the most dangerous words ever written: "It is different this time". Inflation is of a global scale and will be derived from a population too large for our world's natural resources. These are long term, structural changes. Eventually (10+ years) technological innovation will come in and alleviate some of the issues, but in the 1-8 year period - I think it's going to be a very hairy situation. I can't forecast past that because I don't know what innovations will come to the forefront... but if they are not meaningful we will have major global crisis. We're just seeing small blips now...