China Power Shortages Are Growing and Serious

Thursday, August 7, 2008 5:11

A couple of weeks ago, I read an article that reported more than 10 provinces were rationing power supplies and I took notice.  I wasn’t alarmed at the time because when I looked at the provinces, they were primarily the outlying provinces, and they were not coastal at the time.

But, that has changed.

Obviously closely link to the coal issues, and the heat, this is also a problem of the speed by which new demand from the consumer and industrial sectors have grown over this last period of 3-5 years.

Most concerning at this point for me is that Hubei is now coal ratios, and even Wuhan is having to cut their energy by 30%. This is in addition to Shandong has now been asked to ration energy consumption to ensure the Olympics have enough juice, Anhui is 1GW short of their 15GW need, Shanghai’s A/C bills are beyond the power grids capability

According to one article, the shortage is 14 GW for July alone, and as of July 15:

There are 198 power plants with stockpiles to last less than seven days and 69 plants with enough coal for less than three days, and 53 plants that were forced to shut down because of the lack of coal

As we have seen, the coal issue has only grown worse, and China is left with few solutions to cover the short term issues.

One of the more interesting article I found though was How Coal Shortages in China Will Spark More Foreign Takeovers of U.S. Assets, where the author hypothesizes:

The top eight U.S. coal producers, which are worth more than $50 billion, are possible takeover targets for a country desperate for resources. And compared with China, American coal companies are bargains.

One of the most compeling facts found in this article, that shows just how fast this problem has worsened was higlighted in another article:

Coal demand in China jumped nearly 9% last year – meaning the Eastern power now accounts for a full quarter of the world’s annual coal consumption

With this in mind, what are the short term changes that need to happen?  Long term?

What impact would an increase in energy prices have, and what amount is needed?

Would M&A relieve the pressure, or is China going to hit the wall?

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3 Responses to “China Power Shortages Are Growing and Serious”

  1. Bill says:

    August 7th, 2008 at 10:05 am

    I think the demand on power will be reduced as fuel price for transportation and wage growth will change the competitiveness of China’s manufacturing, and reduce demand on power. This will, of course, reduce the demand on wages, and, later, improve the competitiveness again. All these will take time, like years, to show.

  2. wk says:

    August 7th, 2008 at 6:55 pm

    The current power short in china is the result of skyrocketying coal price and Beijing’s control over electricity price to fight the inflation in China. Some power plants shut down to avoid losses,

  3. Ekonomix says:

    August 14th, 2008 at 11:31 am

    Does this have anything to do with the recent increase in oil prices? They used to use diesel power generators in the past; now the price of diesel is nearly doubled, I guess they try to use more coal.