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Energy Crunch Hits Recovery   10/19 06:36


   (AP) -- Power shortages are turning out streetlights and shutting down 
factories in China. The poor in Brazil are choosing between paying for food or 
electricity. German corn and wheat farmers can't find fertilizer, made using 
natural gas. And fears are rising that Europe will have to ration electricity 
if it's a cold winter.

   The world is gripped by an energy crunch -- a fierce squeeze on some of the 
key markets for natural gas, oil and other fuels that keep the global economy 
running and the lights and heat on in homes. Heading into winter, that has 
meant higher utility bills, more expensive products and growing concern about 
how energy-consuming Europe and China will recover from the COVID-19 pandemic.

   The biggest squeeze is on natural gas in Europe, which imports 90% of its 
supply -- largely from Russia -- and where prices have risen to five times what 
they were at the start of the year, to 95 euros from about 19 euros per 
megawatt hour.

   It's hitting the Italian food chain hard, with methane prices expected to 
increase sixfold and push up the cost of drying grains. That could eventually 
raise the price of bread and pasta at supermarkets, but meat and dairy aisles 
are more vulnerable as beef and dairy farmers are forced to pay more for grain 
to feed their animals and pass the cost along to customers.

   "From October we are starting to suffer a lot,'' said Valentino Miotto of 
the AIRES association that represents the grain sector.

   Analysts blame a confluence of events for the gas crunch: Demand rose 
sharply as the economy rebounded from the pandemic, while a cold winter 
depleted reserves. Europe's chief supplier, Russia's Gazprom, held back extra 
summer supplies beyond its long-term contracts to fill reserves at home for 
winter. China's electricity demand has come roaring back, vacuuming up limited 
supplies of liquid natural gas, which moves by ship, not pipeline. There also 
are limited facilities to export natural gas from the United States.

   Costlier natural gas has even pushed up oil prices because some power 
generators in Asia can switch from using gas to oil-based products. U.S. crude 
is over $83 per barrel, the highest in seven years, while international 
benchmark Brent is around $85, with oil cartel OPEC and allied countries 
cautious about restoring production cuts made during the pandemic.

   The crunch is likely short term but it's difficult to say how long higher 
fossil fuel prices will last, said Claudia Kemfert, an energy economics expert 
at the German Institute for Economic Research in Berlin.

   But "the long-term answer that has to be taken out of this is to invest in 
renewables and energy saving," she said.

   The European Union's executive commission urged member nations last week to 
speed up approvals for renewable energy projects like wind and solar, saying 
the "clean energy transition is the best insurance against price shocks in the 
future and needs to be accelerated."

   In the meantime, some gas-dependent European industries are throttling back 
production. German chemical companies BASF and SKW Piesteritz have cut output 
of ammonia, a key ingredient in fertilizer.

   That left Hermann Greif, a farmer in the village of Pinzberg in Germany's 
southern Bavaria region, unexpectedly emptyhanded when he tried to order 
fertilizer for next year.

   "There's no product, no price, not even a contract," he said. "It's a 
situation we've never seen before." One thing is certain: "If I don't give the 
crops the food they need, they react with lower yields. It's as simple as that."

   High energy prices already were hitting the region's farmers, who need 
diesel to operate machinery and heat to keep animals warm, said Greif, who 
grows corn to feed a bioenergy power facility that feeds emission-free energy 
into the power grid.

   Likewise in Italy, the cost of energy to process wheat and corn is expected 
to go up more than 600% for the three months ending Dec. 31, according to the 
grain association. That includes turning wheat into flour, and corn into feed 
for cows and pigs.

   Giampietro Scusato, an energy consultant who negotiates contracts for the 
AIRES association and others, expects the volatility and high prices to persist 
for the coming year.

   High energy prices also seep into bread and pasta production through 
transport costs and electricity use, which could eventually affect store 
prices. Dairy and meat sections are especially exposed because prices are low 
now and farmers may be forced to pass along the higher cost of animal feed to 

   People worldwide also are facing soaring utility bills this winter, 
including in the U.S., where officials have warned home heating prices could 
jump as much as 54%. Governments in Spain, France, Italy and Greece have 
announced measures to help low-income households, while the European Union has 
urged similar aid.

   Much depends on the weather. Europe's gas reserves, usually replenished in 
summer, are at unusually low levels.

   "A cold winter in both Europe and Asia would risk European storage levels 
dropping to zero," says Massimo Di Odoardo at research firm Wood Mackenzie.

   That would leave Europe dependent on additional natural gas from a 
just-completed Russian pipeline or on Russian willingness to send more through 
pipelines across Ukraine. But the new Nord Stream 2 pipeline has not passed 
regulatory approval in Europe and may not be contributing gas until next year.

   Russian suppliers' decision to sell less gas on spot markets reflects "an 
intention to put pressure on the early certification of Nord Stream 2," said 
Kemfert, the energy economics expert.

   In China, outages have followed high prices for coal and gas as electric 
companies power down amid limits in passing costs to customers or government 
orders to stay under emission thresholds.

   Factories in Jiangsu province, northwest of Shanghai, and Zhejiang in the 
southeast shut down in mid-September, and dozens warned deliveries might be 
delayed ahead of the Christmas shopping season.

   Chenchen Jewelry Factory in Dongyang, a city in Zhejiang, faced power cuts 
over 10 days, general manager Joanna Lan said. The factory makes hairbands, 
stationery and promotional gifts and exports 80% to 90% of its goods to the 
U.S., Europe and other markets.

   Deliveries were delayed "by at least a week," Lan said. "We had to buy 

   The biggest city in the northeast, Shenyang, shut down streetlights and 
elevators and cut power to restaurants and shops a few hours a day.

   China's gas imports have jumped, but surging demand in Japan, South Korea 
and Taiwan also helped push up global prices, said Jenny Yang, research manager 
for the gas, power and energy futures team for China at IHS Markit.

   In Brazil, higher gas and oil prices have been compounded by the worst 
drought in 91 years, which has left hydropower plants unable to supply 
electricity and more expensive bills.

   Rosa Benta, a 67-year-old from a Sao Paulo working-class neighborhood, fears 
she will no longer be able to provide for her unemployed children and grandkids.

   "Several times, (energy company) Enel called me saying I had debt. I told 
them: 'I'm not going to stop feeding my son to pay you,'" Benta said outside 
her concrete house on a steep, narrow street. "If they want to cut the 
electricity, they can come."

   Benta lives on 1,400 reais (about $250) a month and says she often has to 
choose between buying gas for cooking or rice and beans.

   "I don't know what we are going to do with our lives," she said.

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