Slow Exit of Covid-19 Menace Ushers in Darkness As Energy Crisis Looming

By Ritesh Barot Business & Financial Analyst

Kenyans are furious over repeated fuel price increases this year. The latest last month caused a rumpus as wananchi were already suffering economic adversity due to the effects of the Covid-19 scourge.

Fuel prices are at record highs due to an increase in taxes approved by parliament. Petrol prices currently stand at Sh129.72 from Sh135 last week per litre in Nairobi following the latest adjustment on Thursday.

After suffering job losses, many sectors including tourism being most affected, Kenyan Gross Domestic Product shrank last year for the first time in three decades. Compounded with uncertainty in the economy and ongoing jobs crisis, fuel prices rise leads to an upsurge in costs of production, food prices, transport and the cost of living as well as inflation.

There is a similar problem brewing across the world. During the year 2020 economic activity globally came to a near standstill. There was a nosedive in international travel, factories were working under-capacity and demand for most products had reduced thereby leading to a cut in manufacturing.

Consequently, the aggregate demand for energy went south. Global major oil producers slashed output. After administering Covid-19 vaccines, countries are mostly out of lockdown and air travel is slowly getting back on track. Suddenly demand for energy has skyrocketed whilst the supply remains low.

Non-renewable energy

The world is running on electricity and fuel. Heating, lighting, manufacturing, travel, transport are all fuelled by mostly non-renewable energy including coal, petroleum and natural gas.

 Unlike the situation in Kenya, whereby the price rise is attributed to increased taxes, the global price-increase scenario is due to the currently strained supply of energy. Manufacturing plants are paying astronomical prices for coal to fire their production.

From coal shortages in China and India to gas dearth in the UK, a global energy crisis is brimming and it is affecting everyone as prices across the globe have started to spiral leading to high inflation.

In most of Europe, there is a natural gas crisis, the Eurozone inflation reportedly being at a 13-year high.

In China, factories are shutting down citing coal shortages. South America reports looming power cuts due to energy shortages. Has a rapid post-pandemic recovery led to this situation?

After the Covid-19 menace, this impending energy crisis threat could end up in empty shelves as far as the eye can see. In the UK, after a botched Brexit, the country is facing a self-inflicted crisis, not due to lack of fuel but due to lack of drivers and the British soldiers are driving oil tankers, delivering fuel to empty gas stations.

Europe’s gas reserves are also falling significantly as the continent faces the worst fuel crisis in modern history. China’s attempt to go green and drastically cut carbon emissions with immediate effect has led to slowing down of mining whilst demand for coal has not reduced. Factories across the entire China have started to ease production as there is not enough coal to fuel production lines, even as producers import coal at a much higher price than ever before.

Aluminum prices

The price of natural gas and coal used for production has risen to multi-year highs. Over 80 Chinese steel mills have indefinitely suspended production for maintenance due to the low availability of coal and their inability to carry out operations.

In India car manufacturer Maruti has already raised prices three times this year. Aluminum prices will soar to multi-year highs. The green energy supplies are unable to match the energy demand from the factories.

There has been a difficult transition to green energy. Was there a clear road map for climate action and provision or investment in green energy? In the case of China, In order to meet climate goals, was it prudent to cut off coal supply and leave the nation in the dark?

Should there have been a strategy in place to provide for the expected sharp economic rebound compounded with the green transition? The movement towards green energy led to many European countries relying on wind farms in the North Sea.

Gas reserves

The wind in the North Sea has stopped blowing, turbines stand almost motionless, forcing regional energy markets to struggle for gas reserves to heat homes during winter and power industries. The Nordic region is experiencing a power crunch due to subsiding water reservoirs affecting hydroelectric power output, causing their fuel prices in September 2021 to be five times higher than 12 months prior.

Europe could face blackouts at the peak of winter. China’s industrial users including chipmakers and aluminum smelters could face shut down of factories with the repercussions echoing around the world. Economies that cannot afford the fuel could easily grind to a halt.

So how does it affect us? Cars, electrical appliances, devices, medicines, transportation, everything will get more expensive.

All production will take place at a higher cost and manufacturers will be forced to raise prices that are then passed to consumers. Even as the world sees a glimmer of light through the Covid pandemic, darkness may be falling as we run out of fuel.

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