Why is India facing a massive coal shortage?
To tackle Covid & its widespread economic impact; the Gods of the financial developed world started printing almost unlimited money, They printed more than ever, more than needed. This created various asset bubbles including equity & commodities, Once economic activity resumed all across the world with fervor Consumption started at neck-breaking speed.
If we look at the GDP growth projections of India or China, it was unthinkable one year back Because of money available at 0 interest rates & thanks to complex derivatives People started buying commodities many months ahead This was visible in the silver squeeze a few months back. Then crude oil started inching up, OPEC has its own politics & sideshow with Russia Both the blocks use energy prices to get their docket going.
In this crisis; Putin directly tried to show Europe~ How incompetent the EU leadership is in anticipating & mitigating risk The thing with energy products except crude oil is that production can’t be ramped up overnight & storage is costly OPEC will not increase crude oil production even by 2-3 MBPD as their worst ordeal is Oil going back to Sub 40 levels & settling there like a hibernating bear So they have to play energy scarcity to be relevant Gulf Countries including Saudi are running a huge fiscal deficit & they have a crisis of unemployment at home Prices of NG started going up; rather started galloping up by 40% this month. Europe loves NG as it’s considered environmentally friendly Also; the prices of NG are much easy to manipulate & Russia has huge reserves & is kind of a market maker So when Natural Gas prices skyrocketed; it developed into a big crisis & now people will suffer in the cold if the situation is not sorted before winter.
Coal Plants are being shut down as there is no availability of gas
For Electricity production in the developing world; both Coal & NG are used If we talk about India, most of our coal is imported~ Partly because we never had coal sector reforms & that our power plants are in awe of Australian brown Anthracite coal After NG prices skyrocketed; China tried to maximize coal-based production, As I said~ Shortage & transportation of coal is a time-consuming process.
Very soon China reached a stage where they had no coal for power plants
In Indian states like UP, which are totally dependent on coal-based plants; power cuts are scheduled & they have closed 12 plants Today Power Ministry & Coal Ministry had a meeting with all major power producers & Govt admitted that they have only 4 days of inventory left Going a bit into the technical details; all the Private Power Generation Companies have long-term PPA (Power Purchase Agreements) with various states for 15~25 years; which are won on the lowest bid-basis So any sudden hike in input costs like Coal or even NG will make the power-producing company unviable of loss-making So it’s in the interest of Power Producing Companies to shut down the plant rather than run it at a loss~ on one pretext or another.
Govt PSUs like NTPC has very poor plant load factor & they can’t ramp up quickly.
Goldman has already given a report in which they have talked about spot coal prices to go 100% or higher from these levels within a year, So if coal & NG prices keep going up with an amplifying effect then our plants will have to be shut down.
We will have tough winters Especially; In villages~ as our irrigation is also dependent on power & agriculture can be affected As analysts keep talking about~ Commodity inflation & its Tsunami; we might see one small Tsunami this winter But all this can be avoided if Biden shows some leadership:
Talks to Saudi~ MBS (Hint Khashoggi), Talks to Russia & stops cornering Putin for no reason.
This entire energy crisis can be avoided in less than a week America is losing its leadership & it’s showing on the world stage For Us~ Peasants.
WINTER IS COMING!
