SINGAPORE, Oct 25 – Shrinking liquefied natural gas (LNG) markets around the world and supply cuts by major oil producers have pushed the world into “the first truly global energy crisis”. “said the director of the International Energy Agency (IEA) on Tuesday.
The increase in LNG imports to Europe in the midst of the Ukraine crisis and a possible rebound in Chinese appetite for the fuel will contribute to a scarcity of resources in the market, since next year only 20,000 million cubic meters of new LNG capacity, IEA Executive Director Fatih Birol 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 – a group known as OPEC+ – to cut 2 million barrels per day (bpd) of production is a “risky” move, as the IEA forecasts global oil demand growth of about 2 million bpd this year, Birol said.
“(It’s) especially risky as several economies around the world are on the brink of a recession, if we’re talking about a global recession… This decision strikes me as really unfortunate,” he said.
Rising global prices for various energy sources, such as oil, natural gas and coal, are hitting consumers at the same time they are already coping with 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 get through this winter, albeit a bit battered, if the weather remains moderate, Birol said.
“Unless we have an extremely cold and long winter, unless there are any surprises in terms of what we have seen, for example the Nordstream explosion, Europe should get through this winter with some economic and social bruises,” he added.
As for oil, consumption is expected to grow by 1.7 million bpd in 2023, so the world will continue to need Russian oil to meet demand, Birol said.
The G7 countries have proposed a mechanism that would allow emerging nations to buy Russian oil but at lower prices to limit Moscow’s income after the Ukraine war.
Birol said the plan still has many details to iron out and will require the participation of major oil-importing nations.
A US Treasury official told Reuters last week that it is not unreasonable to think that up to 80% to 90% of Russian oil will continue to flow outside the price-cap mechanism if Moscow tries to circumvent it.
I think this is a good thing because the world still needs Russian oil flowing into the market for now. A level of 80%-90% is good and encouraging to meet demand,” Birol said.
Although there is still a huge 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 RENEWABLES
The current energy crisis could be a turning point in energy history to speed up clean energy 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 see energy technologies and renewables as a solution.
The IEA has revised upwards its forecast for renewable energy capacity growth in 2022 to a 20% year-on-year increase from 8% previously, with nearly 400 gigawatts of renewable capacity added this year.
Many countries in Europe and elsewhere are accelerating the installation of renewable capacity by reducing permitting and licensing processes to substitute for Russian gas, Birol said.