Tighter liquefied natural gas (LNG) markets around the world and supply cuts from major oil producers have put the world in the middle of “the first truly global energy crisis,” the head of the International Energy Agency (IEA).
Rising LNG imports into Europe amid the Ukraine crisis and a potential pick-up in Chinese appetite for the fuel will tighten the market, with just 20 billion cubic meters of new LNG capacity coming to market in next year, said the executive director of the IEA. Fatih Birol he said during the Singapore International Energy Week.
At the same time, the recent decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, to cut 2 million barrels per day (bpd) of production is a “risky” decision as the ‘IEA sees global oil. demand growth close to 2 million bpd this year, Birol said.
“It’s particularly risky as several economies around the world are on the brink of recession, if we’re talking about the global recession … I found this decision very unfortunate,” he said.
Rising global prices for various energy sources, including oil, natural gas and coal, are hitting consumers at the same time they are already facing rising food and service inflation. High prices and the possibility of rationing are potentially dangerous for European consumers as they prepare to enter the northern hemisphere winter.
Europe can make it through this winter, albeit a bit battered, if the weather remains mild, Birol said.
“Unless we have an extremely cold and long winter, unless there are surprises in terms of what we’ve seen, for example the Nordstream pipeline explosion, Europe should get through this winter with some economic and social bruises,” he said. add.
On the oil side, consumption is expected to grow by 1.7 million bpd in 2023, so the world will still need Russian oil to meet demand, Birol said.
G7 nations have proposed a mechanism that would allow emerging countries to buy Russian oil but at lower prices to limit Moscow’s income in the wake of the Ukraine war.
Birol said the plan still has many details to iron out and will require buy-in from major oil-importing nations.
A US Treasury official told Reuters last week that it is not unreasonable to believe that up to 80% to 90% of Russian oil will continue to flow outside the price cap mechanism if Moscow wants to scrap it.
“I think this is good because the world still needs Russian oil to flow to the market at the moment. A level of 80% to 90% is good and encouraging to meet demand,” Birol said.
While there is still a large volume of strategic oil reserves that can be tapped during a supply disruption, another release is not currently on the agenda, he added.
ENERGY SECURITY DRIVES THE GROWTH OF RENEWABLES
The energy crisis could be a turning point to accelerate clean sources and to form a sustainable and secure energy system, Birol said.
“Energy security is the number one driver (of the energy transition),” Birol said, as countries look to energy technologies and renewables as a solution.
The IEA has revised its forecast for renewable energy capacity growth in 2022 to a 20% year-on-year increase from 8% previously, with nearly 400GW of renewable capacity being added this year.
Many countries in Europe and elsewhere are accelerating the installation of renewable capacity by cutting permitting and licensing processes to replace Russian gas, Birol said.
