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Charles Kennedy

Charles Kennedy

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China To Coal Miners: Raise Production Now


Chinese authorities have ordered 72 coal mines in Inner Mongolia to boost production by almost 100 million tons amid an energy crunch that has seen factories shut down and prompted fears of a disruption to the global economy.

"This demonstrates the government is serious about raising local coal production to ease the shortage," one trader told Reuters.

The energy crunch that started in Europe and quickly spread to Asia has hit China—as well as India—particularly hard because of their energy consumption rates and the high dependence on imports.

Earlier this week, media reported China had resorted to Australian coal once again to plug the supply hole gaping in its energy security. Last year, China imposed an unofficial ban on Australian coal imports amid a political spat between the two governments.

Last week, China restricted power use in at least 20 regions and provinces that contribute more than half to the Chinese economy. It has also stepped up gas imports, contributing to a price rally that may before long become unprecedented.

Whether local production could respond so quickly to the deepening gap between supply and demand for energy remains to be seen. The 72 mines that were asked to start boosting production immediately have a combined capacity of 178..45 million tons annually, so the proposed boost, at 98.35 million tons, represents quite a substantial one.

This is only the latest attempt by Beijing to ensure enough energy supplies for the winter. At the end of September, the authorities told energy companies to do whatever it takes to make sure China has enough raw materials for power generation and heating, with Bloomberg reporting the message, loud and clear, was "blackouts will not be tolerated."

Yet blackouts remain a possibility not only in China but in part of Europe as well if the crisis continues and forecasts for a cold winter turn out to have been accurate.

By Charles Kennedy for Oilprice.com


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