(Bloomberg)-China is facing the same risk of energy austerity chaos as Europe, and a state-run newspaper warned that coal-fired power plants will have difficulty maintaining lighting this winter.

The state-run China Energy News stated in a report on September 18 that coal-fired power generation companies, which account for more than 70% of the country’s power generation, were unable to purchase enough fuel after prices soared. 

According to the paper, officials at these factories stated that their coal stocks are small and it is now "almost impossible to buy" this fuel. According to the report, many people are struggling to cope with severe operating losses, and some even shut down boilers to save costs. 

The global energy market is being hit by soaring fuel prices, and power companies are scrambling to secure everything from coal to natural gas to fuel oil. Europe bears the brunt, although the United States has not been spared, winter electricity prices soared to a seven-year high. 

In China, Chairman Xi Jinping’s ambitious climate goals prevented dirty coal mining, which exacerbated the situation. Insufficient power supply in the world’s second largest economy may throw millions of factories and homes into chaos, especially when heating consumption is about to increase in winter.

The China Energy News reported that the inventories of Chinese power producers were so low that some even warned that they only had about a week's worth of coal left, but did not disclose the officials or their factories. The newspaper is the mouthpiece of the state-run People’s Daily, which used to be managed by the National Energy Administration, which is China’s highest power regulatory agency.

The newspaper quoted an unnamed official from a factory in the northeast as saying that Chinese power producers are currently giving priority to purchasing enough coal and are willing to pay any freight. According to the paper, traders in the plant were looking for supplies across the country and found that competitors in the southwestern province of Guizhou were competing with them, which itself is a major coal producing area.

After a trade dispute with Australia caused Beijing to stop importing coal from producers, the price of coal, China's main energy source, soared to unprecedented levels. At the same time, a series of fatal accidents in China led to safety inspections conducted earlier this year, which curbed domestic production. Zhengzhou's thermal coal futures, the most traded in volume, closed at 1,057.8 yuan (US$164) per ton on Friday, up 76% from last year.

The paper said that in the spot market, thermal coal prices are close to 1,700-2,000 yuan per ton, and even some of China's most efficient power plants are facing operating losses. 

As the economy recovered from the pandemic has brought so-called "catch-up demand", China, which accounts for half of the global supply, has an alarmingly high demand for thermal coal this year. 

In addition to strong demand, a key issue is supply. Heavy rains have suppressed production in Indonesia and Australia, the world’s two largest exporters. 

IHS Markit Ltd. expects that the market is tight and relatively high prices will continue until the end of the summer of 2022. At that time, catch-up demand should fade, and Chinese power plants will finally be able to make up for the inventory gap that has plagued them since the end of 2020.

© 2021 Bloomberg

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