Speaking to CNBC on Monday, the executive director of the International Energy Agency discussed the intricacies of the energy transition and the competing challenges that will need to be balanced in the years to come.
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The executive director of the International Energy Agency spoke on Monday about the current challenges facing global oil markets, stressing the significant influence Chinese demand could have over the coming months.
In an interview with CNBC at the World Economic Forum in Davos, Switzerland, Fatih Birol painted a grim picture of the current situation, describing oil prices as “very high”.
“They are risky for economic recovery globally, but especially in importing countries in the emerging world,” he said. “It’s a big risk, with food prices being very, very high, and I think that could well trigger us, the world… step by step into a recession.”
With elevated geopolitical tensions following Russia’s invasion of Ukraine and ongoing supply concerns casting a shadow over oil markets, the price of Brent crude currently sits around $113 a barrel. .
Looking ahead, Birol then outlined some of the challenges the markets may face in the coming months.
“I very much hope that the increase from [the] United States, Brazil, Canada this year, [will] will be accompanied by the increase coming from major producers in the Middle East and elsewhere,” he said.
“Otherwise, we have only one hope that we don’t have big problems in the oil markets this summer, which is hoping… that Chinese demand remains very weak.”
Chinese demand for oil has weakened in recent months as the country imposed a number of strict containment measures in a bid to curb the spread of Covid-19.
If China returned to normal trends in oil consumption and demand, “then we’re going to have a very difficult summer around the world,” Birol said.
During his interview with CNBC, Birol was also asked about the “huge” profits made by many hydrocarbon-based companies — as well as exploration companies — and what to do with them.
His response illustrated the complexities of the global energy transition and the competing challenges that will need to be balanced in the years to come.
“Over the past five years, on average, [the] the oil and gas industry made revenue [of] around $1.5 trillion,” he said.
“And this year, from 1.5 it will increase to US$4 trillion, a more than two-fold increase in revenue for oil and gas companies.”
It’s not just companies making money, he added, targeting countries like Saudi Arabia, Iraq, Iran, Russia, Angola and Nigeria .
“Of course, the money should go, in my opinion, to replace Russian oil and gas, in terms of traditional assets,” Birol said.
“But I really hope the money will also go to clean energy, clean and safe energy technologies, ranging from solar, wind, carbon capture and storage, to hydrogen.”
“We are [responding to] …this immediate crisis,” Birol said. “But our response must not lock our energy infrastructure into a terrible world that is much, much hotter than today and with lots of problems – extreme weather events and so on. “