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Event transcript
Opening remarks by
Frederick Kempe,
President and CEO,
Atlantic Council
Presentation by
Fatih Birol,
Executive Director,
International Energy Agency
FREDERICK KEMPE: But now we’ll move to a twenty-thousand-foot view of the energy system for the coming year, one in which it will simultaneously begin the steady recovery from COVID-19 at the same time policymakers around the world aim to seize this moment in the pursuit of climate action. For that, it is my pleasure to welcome Fatih Birol, the executive director of the International Energy Agency and an Atlantic Council International Advisory Board member.
Fatih, your sessions have always been among the most popular and well-attended of any at any of our forums, because you provide what policymakers and the industry most need with your scene setters—factual, real-world insights into the present and into the future. I’m also proud that you contributed an essay to our inaugural The Global Energy Agenda report, which we’ll be launching right after your talk. And I hope people will stay on for the panel that follows your scene setter, Fatih, because you’ll be on that panel with Indian Minister for Petroleum and Natural Gas Dharmendra Pradhan, OPEC Secretary General Mohammed Barkindo—who we always love hearing—Pulitzer Prize-winning author Dan Yergin, and the former chair of the California Air Resources Board Mary Nichols. That’s a great, all-star cast.
But, Fatih, why don’t you kick us off? We’re really looking forward to hearing your remarks. And good to see you in Paris.
FATIH BIROL: Thank you very much, Fred. And dear colleagues, greetings to all of you from IEA headquarters in Paris. My congratulations to Fred and the Atlantic Council, despite all the circumstances to bring us together from different parts of the world in this very important meeting, and with such an ambitious agenda and with so many high-level speakers. Very much appreciate it.
Now, what I would like to do in the next few minutes is first to talk about the impact of COVID-19 on oil and producer economies especially, but also to give some highlights—the expectations for 2021 and what the IEA is going to do this year. Now, COVID-19 is a major, unprecedented impact on energy, as we all know. Just to—all of us to understand how big the impact is in total energy, this—our report shows that in 2020 global energy demand declined about 5 percent—5 percent.
And what does it mean, 5 percent decline? Is it big or small? It is very big. To understand it better, we all remember—it’s still fresh in our memories—the 2008-2009 financial crisis. Global energy demand declined after that crisis as well. But the 2020 decline is seven times deeper than the decline we hit after the financial crisis. It had a major impact for all energy sources. But oil got the biggest hit. Some of you may remember the April—the month of April when oil demand started to decline sharply. And some of you may recall, [in the] beginning of April I said: April—this 2020 April—may well go in the history of the oil industry as black April.
Indeed, a couple of weeks later we have seen for the first time negative oil prices. And oil, leaving aside the critical importance in energy supply, is a key parameter for the global financial system, gave some alarming signals which would have devastating impacts for the global economy. So it is the reason IEA has pressed the Saudi G-20 presidency to organize an extraordinary meeting of the energy ministers. And I believe ministers coming together under the presidency of Saudi Arabia… gave a strong signal, and provided the oil markets and financial markets much-needed stability… And I would like to here thank Minister Mazrouei for his positive contributions that came out of this G-20 presidency.
Now, one big debate in the oil market starting from April [and] May: whether or not we have seen the peak oil demand in 2020 and oil demand will never come back to those levels and will not rebound again. Many thought leaders, including the leaders of several major oil companies, said we have reached the peak oil demand. But again, the International Energy Agency said that we don’t think so. If the governments will not take measures—political measures in terms of the oil consumption—transportation sector, petrochemical sector, and others—once the economy rebounds, so will the global oil demands, because some people thought teleworking, changing some habits, changing some parts of our daily lives would lead to structural decline of oil demand.
Indeed, once again, the IEA was right—IEA and people who thought like this—and we are seeing the rebound of oil demand. Of course, it is too early to say when we will come to the levels of 2019, but there are some very pertinent data points. One example is China. China was the first country [where] we have seen COVID-19 impacts in terms of health. China was the first country [where] we saw the economic impacts, energy impacts. And China is the first country where we see an economic rebound and pandemic being under control. And today, as we speak now, Chinese oil demand is higher than the numbers we had last year and even close to 2019 levels.
So the other countries where we see pandemic gets under control, and the economy starts to rebound—and we expect the global economy will rebound significantly this year—we may well see the oil demand rebounds strongly, together with other energy sources, again in the absence of major government policies put in place. So this is one issue to put things in context. Peak oil demand will need much more than teleworking, changing some of our daily habits. It needs changes in the technologies, structural policy interventions from governments.
Having said that, this year, decline in the oil demand cost many producer countries a lot. Our numbers show that in 2020 the consumers, they spent $1 trillion less than the year before, which means many of the producing countries face additional challenges because of the lower demand and lower oil prices. And this is something we need to see. And only in the Middle East—Middle East countries’ revenues from oil is halved compared to [the] year before, 2019.
Looking a bit further, just a heads-up from our point of view, we think that the oil demand will not—even in the absence of major policy changes in the government—will not grow as much as we have seen in the past. We rather expect around five or six years of time after this rebound after the crisis, oil demand being rather flat. And this once again, as we said several times, brings an urgent message to many governments around the world—namely, diversification of their economies. And this is as urgent as before, if not more, mainly as a result of the points I’m going to make in a moment, a result of the clean energy transitions which is coming very, very strongly.
Now, oil—similar to oil, gas, and coal demand declined substantially. Only one energy source we have seen was immune to the impacts of COVID-19 last year. What was that? It was renewables. Renewables did increase in terms of the absolute values in the year 2020, both solar and wind, as a result of, again, government policies and as a result of being very cheap. And solar especially is growing very strong. And I have—when I release our renewable market report I look at the numbers of the electricity generation around the world—new capacity coming into office.
I told my colleagues: We can now crown solar as the new king of global electricity markets because only last year half of the power plants installed in the world was solar. Other half, everything else put together—coal, plus gas, plus nuclear, plus wind, hydro—50 percent. Solar alone, 50 percent. And of course, we all know that the Middle East is one of the fortunate regions which enjoys good quality of solar, which can be a wonderful source of electricity generation and other energy uses.
So emissions last year also declined substantially about 7 percent. And again, there was a hope—and people were happy that it declined 7 percent. But this decline—7 percent decline of emissions that everybody wants to see in the world, emissions decline—for us it was not a result of policy changes, putting new technologies in place. It was mainly because of the economic downturn and pandemic. If you wanted to see a structural decline, again, new policies are needed. And going back to China example, again as we speak now Chinese emissions are rebounding and they are significantly higher than the year 2019. So why [am I] talking about China? Because it’s the first country that’s rebounding in terms of economy, in terms of having the pandemic under control.
2020, we will hopefully see the world—thanks to the vaccines, thanks to the many governments’ great efforts around the world—will be under control, [the] global economy will rebound, and [the] energy sector will be again standing on its feet. But I believe the scars the COVID-19 pandemic left will be with the energy industry for many years to come. This is 2020. I wanted to share some thoughts.
2021, it is a pivotal year for the energy sector and for our fight against climate change. There are many reasons for that, but I want to highlight only one.
Many governments around the world—the European Union, the United Kingdom, Japan, Korea, Canada, Brazil, and soon I believe United States—they are making commitments, together with China: net-zero emissions by 2050. And this will have huge implications for the energy sector. In fact, [the] climate challenge is essentially an energy challenge because more than 80 percent of the emissions causing climate change comes from the energy sector. Those pledges and the policies governments will put in place to reach their targets, to reach their commitments, will have substantial implications for the global energy markets, and in a rapid way.
Many governments I said came up with this 2050 target. And as I have announced last week, the International Energy Agency, at the request of COP presidency, President of COP Mr. Alok Sharma, is preparing a major study, the first in the world, to see what is the world’s roadmap to reach net zero for 2050, and what kind of implications it will have for the energy markets. What does it mean for [the] oil industry? What does it mean for the investment flows? What does it mean for renewables? And this is a serious issue, and I believe no country, no government—oil-producing government, gas-producing government—companies, nobody will be unaffected from the clean energy transitions.
We like it or not, it will affect everybody around the world as a result of the effects of the division of clean energy technologies, financial measures governments will take, including the clean energy emphasis on many trillion-dollar value of stimulus packages. It is the reason we wanted to bring this roadmap—we are going to publish it on 18th of May—to work to see—energy work to see what are the implications of the governments around the world who are committing themselves for 2050? I say 2050, but of course we will look at the next year—2030, 2040. All the years, what are the implications there.
And here, since we are not able to, unfortunately, be in person in Abu Dhabi, one of the key centers in Middle East, I wanted to say that it will have huge implications on the economies and the social life of the countries in that region. Many governments I know, including the Emirates, are taking measures in order to diversify their economies. Not only Emirates, but Saudi Arabia, Oman, many, many countries are doing this. But the question is whether or not the pace that they are diversifying their economies are aligned with the pace of the governments pushing clean energy transitions.
Finally, I would like to say that, to sum up, climate change is a huge challenge for all of us. And I expect, as Fred just said, tomorrow is the inauguration of the new US administration, with the new administration taking climate change as a centerpiece of many economic and policy decisions they are going to have will give enormous momentum—additional momentum to this very issue. Middle East countries, oil producers, are all distinguished members of the international community. And climate change is one of the top challenges for the international community.
And to fight against climate change, to be on the right side—position those countries and governments in a timely manner on the right place—is not only an issue of reputation, is not only a moral obligation, but I believe if we don’t do so it is a major economic or commercial risk for oil producers around the world. Thank you very much, Fred, for giving me this opportunity. And I am very much looking forward to joining my distinguished panel members to elaborate these issues further. Thank you.
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Image: International Energy Agency's (IEA) Executive Director Fatih Birol looks on during the World Climate Change Conference. REUTERS/Stephane Mahe