Current global energy prices in 'danger zone' for developing countries: IEA's Birol

Global prices for key energy commodities are in the "danger zone" for the majority of developing countries, the head of the International Energy Agency said Nov. 24, laying the blame in part on a lack of oil and gas supplies from OPEC producers and Russia respectively.

The Paris-based energy watchdog also distanced itself from the US-led coordinated release of strategic oil stocks in a bid to curb high oil prices, saying the move did not represent a collective IEA response to a major oil supply disruption.

"The position of some of the major oil and gas suppliers...did not take, in our view, a helpful position in this context," IEA's executive director Fatih Birol said. "We see that close to 6 million b/d of spare production capacity lies with the key producers OPEC+ countries and when we look at natural gas, the Gazprom storage sites in Europe are experiencing very unusual low levels," he said adding that not enough oil and gas supplies are reaching consumers.

Birol's comments come a day after the US said it will release 50 million barrels of crude from its Strategic Petroleum Reserve as part of a unified effort with China, India, the UK and South Korea in an attempt to lower high fuel prices.

"The rise in oil prices places a burden on consumers in these countries and also in several emerging countries and it also puts additional pressure on inflation in a period where economic recovery remains uneven," he said. "This [US-led stock release] is not an IEA collective response. I wanted to make it clear. A collective response system is in place in case of a major oil supply disruption."

ICE Brent crude futures rebounded by up to $3/b on Nov. 23 after the US announcement, however, and remained above $82/b in midday European trade. In recent months European gas prices have experienced significant volatility, with the TTF day-ahead price hitting a record high of Eur116.10/MWh on Oct. 5, according to S&P Global Platts assessments. Platts assessed the TTF day-ahead price at Eur91.28/MWh on Nov. 23.

"We believe today's prices for key fuels are valued in the danger zone for most of the developing economies in Asia, Latin America and Africa and they are causing real hardships for many households and businesses," Birol said.

Don't blame transition

Birol said one of the main reasons for the high oil and gas prices is the rebound in the global economy in the wake of 2020 pandemic-related lockdowns. The IEA expects global oil demand to grow by 7% this year, or close to 6 million b/d, which is the highest growth that the oil industry registered in the last 50 years, Birol said. The IEA forecasts that global natural gas demand will grow about 5% this year. He said draught-hit hydroelectric output, outages at key production facilities and long-running underinvestment in new upstream capacity is also behind the high prices.

But Birol reiterated that the recent volatility in energy markets, particularly for gas, is not the fault of the transition to clean energy technologies, calling for more, not less investment in renewable energy such as wind and solar.

He said the IEA does not consider the COP26 climate talks Glasgow this month a failure with the international accord reached on greater cooperation on emission and clean energy providing "a significant momentum for the necessary transformation of the global energy sector."

At the start of the talks on Nov. 4, the IEA said of all the climate pledges announced to date were met in full and on time it would be enough to hold the rise in global temperatures to 1.8 C by 2100.

"Now today, the countries that account for over 90% of global economic made commitments to reduce the emissions to net-zero 2050 or thereafter. We are of course well aware that the commitments and pledges are not enough on their own. Implementation is key, but commitments are central to the architecture of the parties agreement. So I think we should not downplay the significance," Birol said.