Keynote Speech at Singapore International Energy Week 2015
(This is part II of a two-part post on the opening of Singapore International Energy Week 2015. Read part I here.)
The Keynote Speaker was Dr Fatih Birol, Executive Director of the International Energy Agency (IEA). Dr Birol’s speech was titled “Navigating the Emerging Energy Transition”. In his speech, Dr Birol mentioned that the fall in energy prices is a boost to consumers, but has serious indications for the future–primarily that “cutbacks” and “cost efficiency” are the new watchwords upstream of the energy sector, and that the Middle East turmoil raises doubts over the future oil balance. He also mentions the 21st Conference of the Parties (COP21) in Paris, in which there are ongoing reforms to fossil fuel subsidies and an emphasis on energy efficiency and renewables which addresses climate change concerns. He put forward a question for the audience: “Will changes in global energy be led by policies, or driven by events?” The answer is highly dependent on what emerges from COP21 in December, hence most of the globe is looking towards the summit as a decisive point in climate change negotiations.
Cost of LNG still not as competitive as coal
Dr Birol attributes the plunge of oil and natural gas prices to an oversupply of fuels, causing a divergence between different regional gas prices to narrow sharply–the differences between gas prices in the US, Europe, Japan and China are much smaller now. The lower revenues are affecting investments in upstream oil and gas capital, and is compensated by cost reductions for services and supplies. He goes on to further predict that more cuts are to be expected in 2016 if low oil and gas prices persist. Dr Birol further elaborates on Mr Iswaran’s earlier point on LNG, saying that it is the only option to deliver gas all over the world. There is an increase in demand for LNG across the globe and this is supported by projects in Australia and the US, with trade projected to increase exponentially by 2020. However, the operation costs of LNG is much higher compared to coal, and only very competitively priced LNG has a chance to beat coal, especially in Asia. Should there be no environmental restrictions imposed by any government, the more cost effective choice for energy would be coal – hence making the switch to the more carbon effective LNG is still a difficult process for many countries.
Renewable energy as the energy of choice in the future, decoupling rising world electricity demand from carbon dioxide emissions
Dr Birol moves on to speak about renewable energy, which he predicts will lead the world power market growth by 2020–hydro, solar, wind and geothermal power are expected to enter the mainstream fuel and be responsible for the establishment of two-thirds of the power plants in the next 15 years, with emerging economies making up two thirds of the expansion of the power market. This is in relation to the coverage of climate change pledges–more than 150 countries submitted pledges, accounting for 90% of global Gross Domestic Product (GDP) and almost 90% of emissions, indicating an interest in turning towards more renewable sources of energy and slowing down the rate of carbon emissions. Unlike the Kyoto Protocol, both developed and developing countries are making the commitment to change their energy policies and to combat climate change. This would result in the world electricity demand and related carbon dioxide emissions to decouple, with the emissions staying flat to 2030 despite the rising demand of electricity.
Government support still crucial for renewables to become a viable source of energy
Dr Birol concluded his speech with a reminder that the investment in renewables continues to remain strong as the costs of production continues to fall, but that government support is still crucial to ensure that they are adopted as a viable source of energy. Furthermore, he states that the Intended Nationally Determined Contributions submitted in advance to the COP21 summit are an excellent basis to build ambition, but is still insufficient to reach the goals of the climate change summit. He ended by reassuring the audience that as the new IEA Executive Director, the modernisation of the agency is his priority, which he plans to do so through building ties with emerging economies, and ensuring the agency moves towards becoming a global hub for clean energy.
Dr Birol’s speech was quickly followed by a question and answer session moderated by Sri Jegarajah, an Anchor/Correspondent with CNBC. Questions from the audience were placed online and subjected to a voting system, in which the questions with the highest votes were put to Dr Birol.
Iran’s oil supply will increase now that sanctions have been lifted and China is a leader in renewable energy technology
The issue of Iran and its oil supply came up, and Dr Birol said that Iran could boost production by 400,000-600,000 barrels per day within a year after sanctions are lifted, and even more could come from its floating storage platforms. He also mentions that there may be pressure on Organisation of the Petroleum Exporting Countries (OPEC) in COP21 to reduce their export in oil, which would require them to turn to broadening and diversifying their economies. Dr Birol also singled out China as a leader in renewable energy, noting that their renewable technology and nuclear power will soon become one of the country’s major energy exports.
Dr Birol also addressed the viability of nuclear energy as an option for countries to turn to, stating that the capital costs of nuclear power plants, as compared to OPEC energies are a major deterrent, and financing schemes need to be put in place to allow countries to consider nuclear power. Furthermore, governments face an extremely hesitant public that needs to be educated and convinced on the invulnerability of such nuclear plants, especially after the Fukushima disaster in 2011.
An agreement on global carbon price is not likely for COP21
Dr Birol finished off the Q&A session by addressing the likelihood of a globally agreed carbon price, the amount that must be paid for the right to emit one tonne of carbon dioxide, in the near future, which many governments and stakeholders have concurred is crucial. He acknowledged that a globally agreed carbon price will discourage the use of fossil fuels and incentivise the switch to cleaner fuels and the use of more energy-efficient fuels, but has doubts that a global agreement pertaining to carbon prices will be achieved in COP21.
Dr Birol’s slides from his speech can be viewed here.