Living the diesel shortages in China - coming soon to a city near you

Chinese citizens have put the equation together: Higher fuel prices equals higher food prices. Based on the complaints I hear from my students about high prices, the central government would be asking for trouble with another fuel price hike. This puts the central government in a "Catch 22". If they raise fuel prices, refiners will produce more since they are not losing money, but civil disorder may occur. If they do nothing and the shortages will continue for the next six months, the manufacture and export sector will continue to slow down, slowing the entire economy. That is until the Olympics are over!

Diesel shortages not only affects individual drivers with cars but also the transport and logistics industry which supports the bread and butter of the Chinese economy, manufacturing and export. Long lines at petrol stations are common across the country, and is not limited to the east coast, as some western media have reported. All cities and all provinces are experiencing lack of adequate diesel. Obviously there are slowdowns in the delivery of imported materials from ports to factories and missed loading dates for containerised shipment.

There are now holes in delivery drivers’ pockets, since they are no longer able to earn a month’s wage. Drivers paid by the trip are waiting as long as five or six hours for a rationed 200 yuan of diesel per stop. This will buy them 40 litres of fuel - but first they have to drive around the city until they find an open station with diesel to sell. Truck drivers are basically working part-time now. They do not get paid to wait in line. There is frequent talk about drivers changing occupations to earn a wage. They have to do something else for work to feed the family.

Contracts signed with a specified delivery date and with provision for late charge penalties are no longer valid. If your delivery is late by days or even a week, well that’s life. Cancelled orders and partial delivery to customers overseas is now standard. A number of logistics company vehicles are grounded all along the coast from Shanghai to Shenzhen, waiting for their 40 litres of fuel as lines spill out onto highways, creating traffic jams on interstate highways. Company vehicles are in a parking lot not moving at all.

I have been travelling around in the countryside and in cities, taking notice of petrol stations and changes in the society because of this situation. What I have noticed is the number of stations that are simply closed. Trucks, wooden planks or plastic ropes block entrances to the pumps.

Buses now leave when full - a far cry from the earlier norm of regular hourly service that left on time even if you were the only passenger on board. A new 1 yuan fuel surcharge is added on to every taxi ride and bus ticket you now purchase.

The countryside seems to have more diesel than the city areas. I saw no lines in rural areas, but the city is a different story. Lines of waiting trucks were longer last week than today in western China, a sign that the shortages have eased a bit, maybe.

Drivers seem to be taking it in good spirits. There is little violence in the lines as the army and police are at stations to keep order, but the economic trickledown is still to be felt. Job shifts, less earned income per month, cancelled factory orders, late orders, missed loading dates, difficulties in transporting materials to and from ports, will mean some sort of ripple effect through the economy.

What I see occurring here is a dry run for worldwide energy shortages that may be just around the corner as decreasing production from older wells continues to outpace new discoveries of oil on our planet. These diesel shortages in China will eventually ease if the proper amount of money is paid to the refiners in China - these shortages are based on economics. Declining global oil production, on the other hand, will be permanent. Those shortages will be based on geology. There is a huge difference.

This shortage in China is diesel only. All other fuels are available at the moment, so keep an eye on the economic information coming out of China from November and the trickle down of lost revenue. The outcome should be mirrored in every other economy that experiences fuel shortages in the future. When energy shortages become permanent, these are the effects you can expect in the city near you.