SINGAPORE - The global energy crisis that has triggered soaring fossil fuel prices and inflation will accelerate the green transition and the end result will be a more secure and cleaner energy future, said the head of the International Energy Agency (IEA).
In an exclusive interview with The Straits Times ahead of the Singapore International Energy Week starting on Tuesday, Dr Fatih Birol also questioned the wisdom of the Opec+ cartel’s decision this month to cut its oil production target by two million barrels per day, calling the move unprecedented and going against all expectations.
The move came even though global fuel supplies remain tight. Opec+ comprises the Organisation of Petroleum Exporting Countries (Opec) and other producers including Russia.
Dr Birol feared that the energy crisis could deepen the mistrust between rich and poor nations and risk deeper geopolitical fracturing, with high energy prices especially hurting developing nations.
He said that while the crisis was painful, he was optimistic that clean energy investment will continue to rise, based on recent plans adopted by big greenhouse gas polluters, such as the United States and the European Union.
“The question people ask me: Do you think this will slow down or accelerate the clean energy transition? My answer is very clear. This will accelerate the clean energy transition,” said Dr Birol, executive director of the Paris-based IEA, who will be giving a keynote address on Tuesday at the start of the energy week at the Sands Expo and Convention Centre.
He pointed to the US’ recently passed Inflation Reduction Act, which provides US$369 billion (S$522 billion) in tax incentives and guarantees for renewable energy, electric cars, hydrogen and other cleaner sources of energy.
With Russia cutting off gas supplies and facing sanctions for its invasion of Ukraine, Europe’s €210 billion (S$294 billion) REPowerEU scheme aims to accelerate renewable energy investment to wean the continent off Russian fossil fuels well before 2030.
Japan, China and India also have major green energy investments, Dr Birol added. “I think this will be a turning point in the history of energy and we will see a much more secure and cleaner energy future,” he said.
A surge in renewable energy investment has largely offset what would have otherwise been a rise in global carbon dioxide emissions this year because of higher liquefied natural gas (LNG) and coal use, the IEA said last week.
Renewables are on track for another record year in 2022, with annual power capacity additions expected to grow by 20 per cent to about 340 gigawatts, the agency said.
However, Dr Birol saw major geopolitical risks in Russia’s invasion of Ukraine, especially the impact on developing nations.
“If you look at the real economic impact of the energy crisis, it hurts the emerging economies very significantly as a result of high energy prices. In many countries, the currencies are weaker. It is a major difficulty for them and I am very worried about the geopolitical implication of this situation,” he said.
The crisis risked deepening the divide between rich and poorer nations. “It is so crystal clear that the root cause of the current energy crisis is Russia’s invasion of Ukraine,” he said.
But for many in the developing world, he said, the feeling was that it was a fight between the West and Russia that is causing energy prices to go up.
“This may lead to a geopolitical fracturing between the Western countries, advanced economies and the developing world.”
This ill feeling could spill over into next month’s United Nations Climate Change Conference (COP27) in Egypt, where climate talks could be compromised, especially when tensions are already high because wealthy nations have long failed to meet climate finance promises.
Looking ahead to next year, he said supplies for the global LNG market will remain tight with strong demand driven by Europe and Asia, especially China.
This means higher prices, with the tight market likely to continue into 2024, driven in part by relatively small LNG capacity additions coming online, he said.
Dr Birol, who worked at Opec before joining the IEA in the 1990s, said he watches the oil-producing cartel very closely. Never before has he seen the group take a decision that was against all expectations. “There were differences of expectations, but being opposite is something else,” he said.
The decision also came at a crucial political and economic juncture, with fears of a recession growing. “Normally, we have seen much more accommodating decisions.”
Turning to Asia, he said the region is a vital player in the green transition and a key growth engine for the global energy market. The region has been a focus of the IEA in its efforts to expand its membership – now comprising 31 member countries and 11 association countries – which covers about 80 per cent of global energy consumption.
Dr Birol said Singapore and the IEA are exploring the possibility of setting up a regional office in Singapore. This would be the first such office outside Paris. Discussions are still preliminary, he said, but he hoped that a greater regional presence will help drive Asean’s clean energy future.
David Fogarty - The Straits Times