An energy crisis happens when the decline in the supply of energy resources is followed by an increase in the prices of these resources. While natural resources occur naturally, their supply is limited and may take thousands of years to replenish or re-generate. Since the ages of industrial revolution, energy has become an important gem in powering industrial growth. In earlier decades, the world enjoyed an abundant supply of energy from natural gas and fossil fuels at affordable prices and in great abundance. With the decline in the natural reserves and an increased demand for energy, energy crises began affecting the world economy, leading to an increased demand for the renewable sources of energy. The world has experienced many energy crises with 5 major notable energy crises whose effects have greatly affected various sectors of the economy.
5. 2000-2001 California electricity crisis
Also known as the Western Europe Energy Crisis, the California electricity crisis was a devastating time for California. It was as a result of shortage of electricity supply caused by the illegal shutdown of the Enron, manipulation of the market, and the capping of retail electricity prices. The state experienced the worst multiple blackouts in its history leading to a collapse of the country’s largest energy companies. Delays in the approval of new plants, extreme weather conditions, and the manipulation of the market led to a decrease in the supply of energy resulting in an 800% increase in the wholesale price between April and December 2000. Six years prior, the AB 1890 Act had been passed hailing historic reforms that would reward consumers with lower prices, strengthen California’s flagging economy, and provide a classical model for other states on the energy sector. The aftermath was a huge economic setback for California’s retail consumers and businesses that depended on electricity for production.
4. 2004 Argentine energy crisis
In early 2002, Argentina was deep in an economic crisis known as Argentina Great Depression, which had begun in 1982. When the economy began to recover in 2002 there was an increase in the demand for energy that stemmed from the increased demand for goods. Argentina’s energy economy could not meet the economic surge. In 2004, the country was functioning at full capacity and with no emergency reserves for energy, it could not meet the increasing demand. This resulted in the top industries in the country relying on gas for production to experience imminent cuts going as high as 30% in a day by May 2004. The worst hit regions were La Pampa and Buenos Aires provinces and the capital. By winter 2004, the government had cut on the export of natural gas to Brazil, Chile, and Uruguay, immensely hurting their economies. This move by Argentina’s government enabled the country to reserve sufficient energy for internal consumption.
3. North American natural gas crisis 2000-2008
King Hubbert, through the Peak theory, explained that there would come a time when the maximum global natural gas production would be reached, beyond which production would enter a terminal decline. Between 2000 and 2008, the Peak theory became practical in North America after natural gas prices spiked due to a decline in the production and increase in demand for electricity generation. Gas production in the US fell from 0,570,295 by 106 cu ft (5.824859×1011 m3) in 2001 to 18,950,734 by 106 cu ft (5.366250×1011 m3) in 2005 before slightly increasing in 2006. Gas shortage during this period followed by the 2008 financial crisis resulted in the demand for the importation of Liquefied Natural Gas (LNG). However, an increase in the natural gas production rate and proven reserves in parts of North America have put importation of LNG on hold and even spawned export of LNG from North America.
2. 2000s energy crisis
The 2000s energy crisis, which came to be known as the perfect storm, developed over a period of five years. It was barely unnoticed before bursting into the Northwest during fall and winter of 2000 and spring of 2001. After the 1970s energy crisis, inflation had stabilized the price of oil to $25 per barrel, which lasted to the 2000s when the prices shoot drastically, reaching highs of $147 in July 2008. The crisis began in 2000 during the Western energy crisis, which was as a result of under-investment in the generation and preservation of energy. The effect of this crisis was attributed to geopolitical factors, the effects of which were felt across the globe during the financial crisis of 2008 when oil prices hit their highest mark in world history. In addition, the decline in the value of the US dollar coupled with the increased demand for oil in China, the tension from the Middle East resulting from North Korea's missile tests, the conflict between Lebanon, and Israel and Iran’s nuclear plan resulted in the upsurge of oil prices, which were unbearable for the global economy. The energy crisis ended in December 2008, when the global economy entered a recession reducing the oil prices from $147 to $32 per barrel.
1. 1970s energy crisis
After the Second World War, America experienced an economic boom resulting from low energy costs. Between 1945 and 1960, the production of oil in the US was at its peak. However, in the early 1970s, a spur in industrialization meant higher energy consumption. In turn, domestic oil production started to decline due to the high demand for oil. The declined production did not worry the Americans as hey knew they could import more oil from many Middle Eastern countries. Additionally, policy makers in Washington believed that many nations got high returns from America and hence could not increase the prices of oil without fear of losing the lucrative returns. They were proven wrong by embargoes imposed by members of the Organization of Arab Petroleum Exporting Countries, leading to fuel shortages and an increase in oil prices from $3 to $12 per barrel. The energy crisis was a huge blow to the American economy with the worst effect being felt in the automotive industry. Though the embargo was lifted in 1974, the prices of oil remained high and its effects were felt through the decade.