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Fatih Birol, executive director of the International Energy Agency (IEA), was in New Delhi for a series of G20 meetings. In an interview to TOI, Birol who is a well-known energy expert, says that China’s economic performance will determine the way oil prices behave. Excerpts:
Where do you see oil prices after the latest voluntary output cut by Saudi Arabia?
Prices may see an upward trend in the second half of the year when, as I see, demand might be stronger and additional production coming from the non-Opec countries will be weaker. So, we may see a deficit and an upward pressure on the prices. The biggest uncertainty for me is China’s economic performance. If the performance in the second half is weaker, the prices will be less stronger. If it rebounds, we and others think, together with the supply cost, will push prices higher. In any case, production cuts at a time when global economy is rather fragile is not something that importing countries should disregard.
What is your outlook on oil demand growth?
Again, if China’s economy performs in line with what the Chinese government and major economic institutions say — around 5% and above — we may see more than 2 million barrels per day (additional demand) come. About 60% of this will be from China alone and 40% everybody put together. So, it will depend on the Chinese economy. But then, this year we still see demand being strong also as a result of rebound from the Covid. In next few years, we will see global oil demand being weaker, mainly because of electrification of the transportation sector, which is growing in exponential terms.
Is the post-Ukraine tectonic shift in the direction of global energy flow here to stay? Because the war will end someday. . .
In certain areas at least (the change is here to stay), just for example, natural gas. Russia, before 24th of February, was the largest natural gas exporter. And by far, the biggest client was Europe. And they were exporting natural gas to Europe through pipelines. I don’t think that the Europeans will go back to Russia (at least) for natural gas. Many Europeans have taken many steps, found LNG and also pushed renewables. In some countries, we have seen nuclear power coming back. In terms of natural gas, it is irreversible.
The IEA oil market report sees oil market turmoil since 2020 speeding up transition. But on the ground we see Big Oil reverting to talking about raising production, mothballed coal power plants being revived. How do you explain this?
The investment in clean energy will not be made mainly, even in small terms, by the international oil companies. It’s coming from every where else. When you look at international oil companies, they made $4 trillion in revenues last year, which is two times higher than in a normal year. Only 5% of this money went to clean energy. But (the investment) in clean energy is growing. Just this year, the global energy spending, when we look at it, $1 trillion went for fossil fuels, $1. 7 trillion went to clean energy investments. And if you take solar, which is very important for India, global solar investments overtook the investment in oil production. For me, this in itself is a very good indication that the clean energy investment is speeding up, speeding up much faster than many people realise.
Where do you see oil prices after the latest voluntary output cut by Saudi Arabia?
Prices may see an upward trend in the second half of the year when, as I see, demand might be stronger and additional production coming from the non-Opec countries will be weaker. So, we may see a deficit and an upward pressure on the prices. The biggest uncertainty for me is China’s economic performance. If the performance in the second half is weaker, the prices will be less stronger. If it rebounds, we and others think, together with the supply cost, will push prices higher. In any case, production cuts at a time when global economy is rather fragile is not something that importing countries should disregard.
What is your outlook on oil demand growth?
Again, if China’s economy performs in line with what the Chinese government and major economic institutions say — around 5% and above — we may see more than 2 million barrels per day (additional demand) come. About 60% of this will be from China alone and 40% everybody put together. So, it will depend on the Chinese economy. But then, this year we still see demand being strong also as a result of rebound from the Covid. In next few years, we will see global oil demand being weaker, mainly because of electrification of the transportation sector, which is growing in exponential terms.
Is the post-Ukraine tectonic shift in the direction of global energy flow here to stay? Because the war will end someday. . .
In certain areas at least (the change is here to stay), just for example, natural gas. Russia, before 24th of February, was the largest natural gas exporter. And by far, the biggest client was Europe. And they were exporting natural gas to Europe through pipelines. I don’t think that the Europeans will go back to Russia (at least) for natural gas. Many Europeans have taken many steps, found LNG and also pushed renewables. In some countries, we have seen nuclear power coming back. In terms of natural gas, it is irreversible.
The IEA oil market report sees oil market turmoil since 2020 speeding up transition. But on the ground we see Big Oil reverting to talking about raising production, mothballed coal power plants being revived. How do you explain this?
The investment in clean energy will not be made mainly, even in small terms, by the international oil companies. It’s coming from every where else. When you look at international oil companies, they made $4 trillion in revenues last year, which is two times higher than in a normal year. Only 5% of this money went to clean energy. But (the investment) in clean energy is growing. Just this year, the global energy spending, when we look at it, $1 trillion went for fossil fuels, $1. 7 trillion went to clean energy investments. And if you take solar, which is very important for India, global solar investments overtook the investment in oil production. For me, this in itself is a very good indication that the clean energy investment is speeding up, speeding up much faster than many people realise.
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