Fatih Birol, executive director of the International Energy Agency, says that while clean energy is growing strongly across the world, the oil and natural gas markets will remain volatile as global factors play out. Birol told Rachita Prasad of Moneycontrol that 2023 will be a challenging year, especially for energy-importing developing countries.
Birol said last year’s energy crisis triggered a stronger case for investing in renewable energy. Commenting on concerns over hydropower projects in view of the sinking of Joshimath town in Uttarakhand, he said hydropower needs to be developed in a sustainable manner. Edited excerpts:
In October, the IEA said the world faced a global energy crisis of “unprecedented depth and complexity.” Where do we stand right now?
February 24 was the start of the [Russia-Ukraine] war and only a week later, March 1, I had a press conference and I told your colleagues that I believe we are entering the first global energy crisis. And the world has never ever witnessed an energy crisis of this depth and of this complexity….
And the question we asked ourselves was whether or not this energy crisis would slow down or accelerate the energy transition. At that time, my guess was it would accelerate clean energy transition. And when I look at the numbers, as of today, almost one year later, I see that we were spot on because we have seen a huge increase in renewables…
Nuclear power is making a comeback and as a result, we are seeing that clean energy options are turbocharged around the world as a response to this energy crisis. In the past, clean energy technologies were mainly driven by environmental climate reasons. But now, the number one driver of clean energy is energy security. People and governments want to build clean energy in order to reduce their reliance on a few countries. So I see where we are today, clean energy is growing very strongly, but the oil and gas markets are still volatile, and 2023 will be a challenging year, especially for the energy-importing developing countries.
Crude oil has fallen to about $80 a barrel. But experts believe it could rebound and rise to $100. What’s your outlook?
There are so many uncertainties, but if I have to pick one that could change the entire market, it is China. China is the number one oil importer of the world and the number one LNG importer, and last year, Chinese oil and gas consumption, declined for the first time in 40 years. We have never seen that before.
Now, China is opening up. How this opening up will affect their economy, and therefore, their oil demand and LNG imports is a key question. If there's a strong rebound of the Chinese economy, this will put upward pressure on oil demand, and therefore, on oil prices. And when we come to that level, then we have to see how the producers, OPEC-plus countries, are going to respond to that demand increase, if it happens.
Is there a price band in which you expect crude to move? Will volatility reduce?
So by law, I can't give you any price figure. But what I can tell you is that the current price levels we are experiencing are perhaps the limit for many energy-importing developing countries to fall into recession. So when we talk about the impact of high energy prices on the economy, there is a lot of discussion about Europe as it is the epicentre of the current conflict.
But Russia's invasion of Ukraine made it clear that the gas markets will go through difficult times in Europe… If prices go higher than today, it will be a major challenge for developing countries. So, it is the reason why I very much hope that the oil-exporting countries will, if demand goes up strongly, bring more oil in the markets, more barrels in the markets to comfort the markets so that prices are kept at these levels or lower in order to not hurt the economies of developing countries further.
India is an energy-importing country. IEA has said India may see the world’s biggest rise in energy demand this decade. While the country is adding renewable energy capacity, will it be enough to fill the gap?
India is making huge steps in the right direction of renewables… hydrogen. Again, in green hydrogen, India is moving very, very strongly…
India needs to improve how it is using energy. Here, I would like to say that the recent concept put on the table by Prime Minister Modi, LiFE (Lifestyle for Environment), is an excellent one, which could help India to use energy more wisely in a less wasteful manner…
In addition to the technologies we are talking about – renewables, efficiency, hydrogen and nuclear power – I think India and the Indian people have to use energy in a less wasteful manner… India with this LiFE agenda can be a source of inspiration for many countries.
You have said hydropower needs to move up the energy and climate agenda. India’s hill station Joshimath is sinking and the concern is that this is due to a hydropower project in the area. How should the balance between growth and sustainability be maintained?
When the world talks about renewable energy, it is solar and wind. But today when we look at the numbers, hydropower's contribution globally is higher than solar and wind and the potential is huge.
For me, hydropower is the sleeping giant of renewable energy. If hydropower is developed in a sustainable manner, without a doubt, it is a very important technology which can help us generate electricity without emissions and also help solar and wind become a secure electricity source. So for me, hydropower is a big yes, but it should be developed in a sustainable manner.
China dominates the manufacturing of green energy equipment and much of the world depends on it. How big a risk is this? Can India’s push on renewable manufacturing help reduce the risk?
China is dominating clean-energy technology manufacturing – batteries, solar panels, windmills, electrolysers, and nuclear power. Why? Because China started this many, many years ago… and has an important advantage there. And the world also benefited from China, bringing the cost of these technologies down.
But the entire world relying on one single country for technology is not a good situation. It can be China, it can be this or that country. There is a need for diversification and it is a very good step from the India side – these production-linked incentives. For the US, the Inflation Reduction Act of 2022. Europe is coming, Japan is coming, other Asian countries are coming. It is important to have diversification because clean energy is good, but it should also be secure when we look at the entire supply chain. Diversification is the magic word.