The head of the International Energy Agency declared the world energy situation a crisis, one that could get worse in the coming months amid higher gas demand and OPEC+ oil production cuts.
Humanity is facing “the first truly global energy crisis,” IEA Director Fatih Birol said Tuesday at Singapore’s International Energy Week.
Birol said markets are already tighter than usual due to rising demand for liquefied natural gas from the European Union as it races to offset Russian fossil fuels, and he warned that the situation could get even worse if China’s economy begins to reopen in the coming months and squeezes LNG markets even further.
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The additional squeeze could lead to a sharp supply-demand imbalance, he said, since just 20 million cubic meters of new LNG capacity will hit the markets next year.
Birol also criticized OPEC+’s decision to cut oil production by 2 million barrels per day. He described it as “risky,” noting that the IEA predicts global demand growth will sit around exactly that amount (2 million bpd) for the remainder of the year. In 2023, consumption is anticipated to increase by 1.7 million bpd.
“[The cuts are] especially risky as several economies around the world are on the brink of a recession. … I found this decision really unfortunate,” he said.
Birol also weighed in on the price cap on Russian oil proposed by the leading industrial countries, noting that the details of the cap must be ironed out before it is adopted in six weeks and the major oil importing nations must also buy in to plan.
The Biden administration has been a strong supporter of the plan, and U.S. Treasury Secretary Janet Yellen and senior department officials traversed the globe earlier this year in hopes of building out a global coalition to support the effort.
He then described a U.S. Treasury Department official’s estimate that Russia could continue to ship up to 80-90% of its oil outside the price cap after it takes effect as a potentially positive development that could protect against sharp market imbalances in the short term.
“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,” the IEA director said.
Already, Russian oil is selling for a steep discount since most Western countries have passed sanctions or stopped purchasing Russian crude, with a rise in private companies who have also “self-sanctioned.”
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“I think what the U.S. and others should be trying to avoid [in implementing the cap] is any major disruptions in the oil market that will drive up oil prices and increase Russia’s revenue above what it’s getting now,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies. “And that’s the fine balance that Treasury and others have to strike.”
