In Good Company with Nicolai Tangen - HIGHLIGHTS: Fatih Birol - Executive Director of the International Energy Agency

Starting point is 00:00:00 Hi, everybody. Tune in to this short version of the podcast, which we do every Friday for the long version. Tune in on Wednesdays. Hi everybody and welcome to In Good Company. I'm Nicola Tangen, the CEO of the Norwegian Southern Wealth Fund. And today we have a tremendous guest, Dr. Fati Birol, executive director of the International Energy Agency. And wow, what a topical podcast this is going to be. So, a big welcome, Fatie. Thank you very much, Nicola. Now, you have warned that markets and politicians are still underestimating the consequences of the crisis in the Middle East. What are they getting wrong?

Starting point is 00:00:42 You know, Nicola, we are an intergovernmental organization. We work for the government's public institution. After the war has started, since there are many market-related dynamics, I told my colleagues and myself, Three weeks, we didn't make any public statement. But I saw that the decision makers, governments in Europe, but around the world didn't understand how big the problem is and can be not for the energy sector, but for the global economy. So it is the reason I decided it was a week ago or so to come up with some numbers. make the people understand it. This is a serious issue for all of us.

Starting point is 00:01:34 And the way to deal with this is, first we recognize what a big problem it is. And I tried to describe what the problem is. And I think it was, in my view, a good move that it gave a big drive to policymakers to discuss more intensely about the situation. You've said that it's the greatest global energy. security threat in history and bigger than 73 and so on. Just what do you, what metrics are you looking at? So, you know, we have many energy crises, unfortunately, but when you look at the last couple of decades, three of them stand, one of them, the 73 oil crisis, 79 oil

Starting point is 00:02:22 crisis, and 2022, Russia invasion of Ukraine and gas. So when you look at the oil crisis, 7.3.79, in both of them, we lost each about 5 million barrels per day of oil. So 5 plus 5, it is about 10. And we all know that this oil crisis led to global recession in many countries, developing countries, foreign debt spiral they fell into. Today, as it stands now, we lost 12 million barrels per day. So more than two of this oil crisis put together. In terms of natural gas, when Russia cut the gas, we lost around 75 BCM of gas, and now the amount of gas we lost now is higher than the Russian gas crisis. which means the current crisis is more than all these three crises put together. How will this pan out going forward?

Starting point is 00:03:40 I think I was very happy that many governments understood how serious it is. And I was very happy to see that the countries are not taking measures. the G7, G20, the Europeans, Japanese, I was last week with the Japanese Prime Minister Takehi and the day before with the Prime Minister Albanese in Australia. Asia hit the worst for the time being, but it will come to Europe and elsewhere. So countries are now aware of the problem and we are discussing how to tackle the situation best. Of course, Nikolai, I should tell you that the measures we are taking, IES taking, all the governments are taking are important, but single most important solution

Starting point is 00:04:37 is opening up the state of Hormuz. What do you think about European governments which subsidize energy bills for its citizens? I think if it is done in a targeted way and in a temporary way, this may well be a solution. You know what is the problem in Europe? There are many problems in Europe, but one of the problems is because of this. Now, first of all, Europe was the – I talked with many government leaders around the world, But I think Europe reflects was a bit slower than the others. It is an Asia issue.

Starting point is 00:05:30 It is a Middle East issue. No, no, no. Energy markets are global. Come on. Energy markets are global. So the first issue is Europeans needed to understand the governments. That it's a major issue coming to Europe very soon. So we had to shake up the European governments.

Starting point is 00:05:47 And what is happening in Europe is. that the gas, Europe is buying a lot of gas from the spot markets. And today, the Asian governments, Asian buyers, since they cannot have the LNG coming from the Middle East, they are jumping on the spot markets. It is where Europe normally gets. So therefore, the prices of gas is going up in Europe. And since the European electricity prices are based on the market,

Starting point is 00:06:19 cause of natural gas prices, electricity prices will go up. So we will have in Europe high gas prices and high electricity prices. And therefore, I think it is, in my view, it is important that the governments in Europe do support a vulnerable part of the population, targeted support, but a temporary one. What I'm afraid is, Nicola, maybe just making one step under politics here, which is not my professional occupation, but I have to say this. What I am afraid in Europe is that this high energy prices may give a fertile grant for extreme political thinking to abuse in just before some of the important elections going to happen in Europe.

Starting point is 00:07:23 So just a side remark, but I think it is important to register here. We could see changes in the renewables, nuclear and so on. But can you just lay out what do you think will be the changes? I mean, it is too early to give very specific things. But what I think is when I look at the 1990s, 1970s, I look at these things very carefully. There were at least three important, many changes, but three important changes. One, nuclear power.

Starting point is 00:08:00 Nuclear power, there was a big wave of, as a response to oil crisis, big wave of nuclear built, about 170 gigawatts. And this is about the 40% of the nuclear power plants we have today were built as a response to the oil crisis in Europe, in Japan, Korea, U.S., Canada, and elsewhere. This was number one. Number two, in the car industry. Before the 1970s, a car, an average car, needed about 20 liters to drive 100 kilometers. But afterwards, fuel efficiency standards came as a response to this crisis,

Starting point is 00:08:43 and very soon it was 10,000. liters you need to use for 100 kilometers. It was soft. The third one was related to also, of course, Norway and other countries, domestic production, the North Sea. The biggest growth in North Sea came as a response to this oil crisis because of the higher prices and the government gave tax incentives and the licensing very speed. So at least three things, things happen. And this time, what I expect is, of course, very generally, again, I said four years ago, in fact, that the nuclear is going to make a comeback, and this comeback will be even stronger, nuclear, both traditional and small-moder reactors. Second, I expect, especially

Starting point is 00:09:37 in Asia, the electrification of transportation sector, this will come, and I also expect the renewables will be growing with batteries even faster. In addition to those, I wouldn't be surprised in some cases temporary, in some cases even longer term, coal may make a big push in China, in Indonesia, in India as a response to high natural gas prices. So these are some areas that we may think as a response to this crisis, more nuclear, electrification, transportation, sector, faster renewables and maybe coal and other domestic energy production.

In Good Company with Nicolai Tangen - HIGHLIGHTS: Fatih Birol - Executive Director of the International Energy Agency

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