Tightening markets for liquefied natural gas (LNG) around the world, combined with major oil producers cutting supply, have thrown the world into “the first truly global energy crisis,” according to the head of the International Energy Agency (IEA).

Rising LNG imports to Europe as a result of the Ukraine crisis, as well as a potential rebound in Chinese demand for the fuel, will tighten the market, as only 20 billion cubic meters of new LNG capacity will enter the market next year, according to IEA Executive Director Fatih Birol at the Singapore International Energy Week.

At the same time, the recent decision by the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, to cut 2 million barrels per day (bpd) of output is a “risky” decision, according to Birol, because the IEA forecasts global oil demand growth of close to 2 million bpd this year.

“(It is) especially risky as several economies around the world are on the brink of a recession, if that we are talking about the global recession…I found this decision really unfortunate,” he said.

Soaring global prices for a variety of energy sources, including oil, natural gas, and coal, are weighing heavily on consumers, who are already dealing with rising food and service inflation. High prices and the possibility of rationing pose a risk to European consumers as they prepare for the Northern Hemisphere winter.

If the weather remains mild, Europe may survive the winter, albeit battered, according to Birol.

“Unless we will have an extremely cold and long winter, unless there will be any surprises in terms of what we have seen, for example Nordstream pipeline explosion, Europe should go through this winter with some economic and social bruises,” he added.

Oil consumption is expected to rise by 1.7 million barrels per day in 2023, implying that the world will continue to rely on Russian oil to meet demand, according to Birol.

The G7 countries have proposed a mechanism that would allow emerging nations to buy Russian oil at lower prices in order to limit Moscow’s revenue in the aftermath of the Ukraine war.

According to Birol, the scheme still has many details to work out and will require the support of major oil-importing countries.

According to a US Treasury official, 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 attempts to circumvent it.

“I think this is good because the world still needs Russian oil to flow into the market for now. An 80%-90% is good and encouraging level in order to meet the demand,” Birol said.

While there is still a large volume of strategic oil reserves that can be tapped during a supply disruption, he added that another release is not currently on the agenda.

According to Birol, the energy crisis could be a watershed moment for accelerating clean energy sources and establishing a sustainable and secure energy system.

“Energy security is the number one driver (of the energy transition),” said Birol, as countries see energy technologies and renewables as a solution.

The IEA has raised its forecast for renewable power capacity growth in 2022 to 20 per cent year on year, up from 8 per cent previously, with nearly 400 gigatonnes added this year.

According to Birol, many countries in Europe and elsewhere are accelerating the installation of renewable capacity by shortening the permitting and licensing processes to replace Russian gas.

(Adapted from Reuters.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability