European countries would improve their negotiating position on gas prices if they were to club together around a common purchase mechanism, the managing director of the International Energy Agency (IEA) says.
"I think it is a very good idea," Fatih Birol told Sándor Zsiros on the Global Conversation. "If the European countries come together and make their muscles even stronger and emerge as a strong buyers. It will help them to outcompete some of the other LNG buyers."
But Birol said price caps would only be useful if they didn't damage Europe's competitiveness on the market.
"One of the reasons why we in Europe were successful this year was we paid more money than the other buyers and we could get the LNG here," he said. "If we put the price cap too low, then our competitive power will be much less. Therefore, putting a price cap which is good enough to compete with other buyers but at the same time have to protect the consumers would be a good idea."
The IEA is an intergovernmental organisation that provides policy recommendations, analysis and data on the energy sector.
Interview in full
Sándor Zsiros, Euronews: First of all, I would like to know your opinion about the energy crisis in Europe because many people would like to see whether or not the end of this crisis is any time soon. So what is your opinion?
Fatih Birol, Managing Director, International Energy Agency: So we are in the middle of the first truly global energy crisis. Our world has never, ever witnessed an energy crisis with this depth and with this complexity. The reason is very simple. Russia, the country that invaded Ukraine, is the largest energy exporter in the world. And this invasion of Russia sparked a major energy crisis. And Europe is at the epicentre of it because a big chunk of European energy came from Russia. It is the mistake that Europe had for years and years, decades and decades, so much reliance on Russian energy. One single country. And as a result, we are going through difficult times in Europe. And I guess that for a few years we will have difficult times in terms of our economy, and energy. And I guess it will have implications for our social life as well.
Predictions on supply for the winters ahead
SZ: What are your predictions for this winter? How we will get through this winter?
FB: I think we can go through this winter if the winter is not too long and not too cold. And if there are no major surprises, a pipeline is exploding, a fire here and there. Unless such unexpected surprises happen, we can go through this winter with some economic and social bruises here and there. We will come to February, and March without major problems. Because we were able to, thanks to the European governments' policies, put a lot of natural gas in our storage. We will use that this winter. But the question is, next winter may be even harder than this winter, because when we come to February, or March next year, how are we going to fill our gas storage again? It is a big question. Because the conditions in the markets will not be easy.
SZ: So how are we going to replace this gas that is missing? Are there enough LNG capacities to replace this gas?
FB: Next year, China may go up, the economy may rebound and we will not get any Russian gas. Plus, the bad news is next year, the amount of new gas capacity, LNG capacity, coming to markets is very, very limited. So putting these three things together: no more Russian gas coming to Europe, China may also need a lot of gas from the global markets and very little new gas capacity coming from the US and elsewhere, means it will be very tight for Europe and for the rest of the world.
Volatile prices likely to continue
SZ: So we have to get used to high energy prices in the long term?
FB: I think in the next few years we have to be ready for volatile and high energy prices and we have to find solutions. But to be very frank, this winter is difficult and next winter may be even harder.
SZ: So the European Council would like to introduce a kind of flexible price cap on gas. Do you think that would help the situation?
FB: One of the reasons why we in Europe were successful this year was that we paid more money than the other buyers and we could get the LNG here. If we put the price cap too low, then our competitive power will be much less. Therefore, putting a price cap which is good enough to compete with other buyers but at the same time protects the consumers would be a good idea.
SZ: So there is also another idea, a small-scale common purchase mechanism. How do you see this?
FB: I think it is a very good idea. If the European countries come together and make their muscles even stronger and emerge as a strong buyers, it will help them outcompete some of the other LNG buyers.
Spurring the push towards clean energy
SZ: What's going to be the position of Russia in the future of the oil markets?
FB: Russia will be a loser of this energy battle for the following reason. Just before the invasion, about 75% of the Russian total gas exports went to Europe and 55% of the Russian oil exports went to Europe. And Europe was by far the largest market, the largest client for Russia. And Russia lost its client forever, the biggest client.
SZ: The Russians are saying that they can sell their gas to Asia, to China.
FB: It is not easy. You cannot quickly just build pipelines to China or India. It will take in the most optimistic case ten years to build these pipelines. To go through this geography, you need a lot of new technology, finance and so on. So you are not selling onions in the market. Selling natural gas is a different business. So for Russia to replace its natural gas exports to Europe with Russia is, in my view, in the short term is a pipe dream.
SZ: So Europe is losing, Russia is losing on this crisis and who is winning?
FB: I would say Europe and the rest of the world are definitely going through a very difficult time. But we shouldn't forget that in many countries now around the world, many governments are giving strong responses to this crisis. In Europe we have REpower EU, a major program, putting a lot of money to accelerate clean energy. It is onshore wind, offshore wind. It is heat pumps, it is hydrogen. These are not statements or strategies, this is money on the table: for solar, wind, nuclear power, and electric cars. They will come in a few years' time. And I believe this crisis may well be a turning point in history for the acceleration of the clean energy transition. We will go through a few years of difficult times, but at the end of the day, ten years from now, when we look back, we may see the year 2022 as the year when the clean energy transition started to accelerate strongly around the world.