What is causing power outages in China and how does this affect the rest of the world?

Eastern China has been suffering rolling blackouts, where power to factories has been cut, power to residents has been cut, and even water pumping stations have seen their power cut, which left them unable to send water to people's taps.

So what is the cause of this? A single word: coal.

Last summer China banned the import of Australian coal, because the Australian government said that the UN should open an enquiry about the origins of Covid-19. The Chinese thought they wouldn't suffer any problems as they have their own coal mines.

But there was a reason that Chinese electricity companies were importing Australian coal: it is a premium coal that produces a high amount of energy per tonne burned, compared to lower quality Chinese coal. In addition, there has been a series of accidents at Chinese coal mines, which have shut to deal with the causes of the accidents.

So the supply of coal was low, and to buy it on the international markets is expensive.

On the demand side, China does not allow the electricity companies to pass on the price increases in coal. So their choice is either to go bust or to ration the electricity they generate. They have chosen the latter, hence the blackouts.

Last week the Chinese government ordered their electricty companies to secure energy supplies at all costs.

This means they are scouring the planet buying coal and gas. They have managed to outbid Europe for Russian gas supplies - so the gas in the pipelines to Europe is a third of what it normally is, and it is being diverted to China instead. This has caused gas prices in Europe to soar, as they have to rely on gas from Norway and the UK, and liquified natural gas shipped in from Qatar.

World coal prices are now higher than the all time high from 2007. So any country that depends on coal for electricity generation is feeling pain.

Finally, the blackouts that Chinese electricity companies are imposing on factories means that the supply of components to the rest of the world is being interrupted. If Chinese factories are a key part of your supply chain, then you are in trouble, as they can't produce anything when the electricity is switched off.

All this and winter hasn't even started yet... Lets hope this winter is a mild one.

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