Low-carbon energy switch not to blame for gas market volatility: IEA's Birol

Recent volatility in energy markets, particularly for gas, has "almost nothing" to do with the transition to clean energy technologies, reflecting instead weather patterns, economic recovery and upstream maintenance shutdowns, International Energy Agency executive director Fatih Birol said Oct. 4.

Speaking at the online Energy Intelligence Forum, Birol played down suggestions that the world was being caught short of energy due to an overly rapid switch to renewables, arguing demand this year had been driven partly by the highest rate of economic growth since the early 1970s, but also that gas prices might ease.

The comments come after the IEA has itself been criticized over an energy "blueprint" in May that set out a path to net-zero emissions involving no further investment in new oil and gas projects.

Birol said another contributor to high gas prices had been shutdowns in production locations such as the North Sea, where output has been crimped by operators catching up on maintenance postponed from 2020 due to workforce restrictions.

For the UK, the average NBP front-month contract price in September increased 48% month on month to 165.102 p/th, up 44% year on year compared to 2020's pandemic-hit lows.

Birol also highlighted weather events as a "driver" of gas imports, including the lack of wind that has affected generation in Europe, and drought in Brazil and China that has reduced hydro generation. He did concede, however, that any mishandling of the energy transition by governments in the coming years would create "difficulties" for markets.

"This volatility has almost nothing to do with clean energy. The drivers are completely different. There were outages one after the other around the world, and there was a lot of maintenance work... Many things came together, but I would be surprised if the high gas prices we have now continue for a very long time," he said.

"We are seeing 6% GDP growth globally this year, the highest since 1973, which gave a big push to gas demand growth around the world, hence we have a tightness. If the winter is harsh this tightness will continue. But I don't see any clean energy policies that affect this."

"If we see a very harsh winter, we may see high prices will be with us for some time to come, but there is also a good likelihood that the markets will correct itself soon through substitution or demand destruction, and after winter the situation may change," he added.

COP26 warning

However, Birol had a warning for governments on the design of energy policies ahead of COP26 climate talks in November. "If governments make a mistake, if they don't push demand side policies and find alternatives to oil, we may well see there will be difficulties in the markets."

"I can assure you that we will see during the energy transition, this journey, there will be a lot of volatilities in the markets, it will not be a smooth, easy way, it will not be a rose garden, it will be a difficult one to go, we will see a lot of changes in the markets," Birol said.

"The role of governments is to reduce this volatility as much as possible by taking the right market designs in power markets and others."