Executive Director of the International Energy Agency
Michał Kurtyka: Fatih, it’s very nice to meet you on this very symbolic day for you. I’m very happy that it is the first meeting of the IEA governing boards following your appointment to the second term. Congratulations.
I’m really very happy about it and we will keep our fingers crossed for IEA and for your leadership of the IEA.
Fatih Birol: Thank you very much Michael. It is a great honor to lead this agency and I am very happy that our ministers and our member governments offered me this honor for the second time. I am looking forward to the next couple of years leading this agency under the guidance of our member governments.
MK: Let me then immediately jump to the tough questions because the world around us is changing in terms of energy, in terms of transport systems and this has a knock-on effect on the role of oil. Knowing that oil is one of the main focuses of IEA, how do you see the future of oil? Where will oil be in 2050 in your opinion?
FB: Yes, you are completely right. Oil dynamics are changing both on the production side and on the consumption side. Especially on the consumption side, we see that in the transportation sector many alternatives to the internal combustion engines are appearing, such as electric cars. Their sales are very strong. Last year we saw a record again in terms of electric car sales and there are two reasons behind this: one, their cost keeps decreasing, meaning the battery costs are going down and second, many governments in Europe, in Asia, actually everywhere, are offering strong financial support to electric car sales. Having said that, when we look at the future, in our current scenario, we don’t see the death of oil. Oil consumption is still growing though maybe slower than in the past because of the electric cars penetrating the markets and cars becoming more efficient. But why we think it will continue to grow is because the growth is brought about not only by cars but also trucks or the petrochemical industry.
MK: And that is much more difficult to substitute.
FB: Exactly. Jets are very difficult to substitute so we see a slowing down in the growth in oil demand but not a decline nor a disappearance as some people say. The supply side also adds some strong changes here, Michael, and the very fact of the shale revolution in the United States and Canada and other countries tells us that the previous dynamics are changing the oil markets. The conditions are not only determined by the established producers of oil but the USA as well. For example, in the next five years about 60% of the global oil production will come from the United States and the US will soon become the leader in global oil production overtaking Saudi Arabia and Russia. This will bring more flexibility to the markets, I may say more price responsive oil markets. Therefore, looking at the long-term future in terms of demand and supply, we will still need oil for many years to come. And oil will come not only from the established producers but also from other countries such as the USA, Canada, Brazil.
MK: It will be interesting to see whether it will modify the mission of the IEA remembering that, in fact, the IEA was created in 1974 after the oil crisis, and whether these technological changes and this shift in demand-supply, new producers entering the market and completely also changing the geopolitics behind oil will affect the IEA. Let me ask you, then, how do you think it will all affect the mission of the IEA?
FB: Our core mission is energy security; that is oil security, but also gas and electricity security, which are also both very important. When we look at oil security, we think of course in terms of the coming decline of shale oil – that is important but we shouldn’t forget that the number one oil exporting region in the world will remain the Middle East for many years to come. We’ll be producing a lot of oil and a huge portion of this oil will be used at home in the United States but export will come from the Middle East region where there are still a lot of geopolitical tensions. From that point of view, I think oil security is very important for us. We must remember, not only the production but also the transportation of oil is concerned as well. The protection of sea links is therefore critical. Another aspect is not only geopolitical security issues but issues related to natural disasters such as the Katrina event. When there is a problem in terms of oil security I will be always there to act. I believe, then, that these changes in the oil markets do not question our mandate in regard to oil security but rather bring it to a new level in a modern concept together with gas security and electricity security.
MK: This is interesting: oil security, gas security, electricity security. What about these new technologies? You mentioned alternative fuels before. Are we able to somehow incorporate this kind of security into the IEA’s mission?
FB: That’s a very good question because the new technologies need different types of input to materialize, for example, there are some rare earth materials which are also, unfortunately, like oil, concentrated within very few countries in the world.
MK: And so we are in a way going back to the 60’s and 70’s of the last century – not with oil, but with rare metals this time.
FB: Exactly, with rare materials, definitely. Therefore, this energy security issue will be with us for many years to come and there’s a lot of work for the IEA to do for oil security, gas security, electricity security as well as looking at the issues related to rare earth materials. Just to tell you, the forthcoming World Energy Outlook will be focusing on this problem.
MK: I know that you personally are a fan of energy efficiency. You keep saying that it’s one of the important engines driving energy security as well as also helping us to curb the demand for energy. When we talk about energy efficiency and renewables, people see these two driving forces behind the future changes in the energy equation. On the other hand, you already said there will still be demand for oil. What about fossil fuels in general?
FB: You said that I am a fan of energy efficiency but I know that you are a big fan of energy efficiency as well Michael. Back to fossil fuels and, if I may say so, these are stubborn. In the year 1987, 30 years ago, there was the famous Norwegian Prime Minister, Mrs. Brundtland. She was asked by the UN secretary at that time to prepare a report on global energy and environmental issues and the first concept of sustainable development was conceived at that time. It’s important to remember that at that time in 1987 the share of fossil fuels in the entire energy mix was 81%. In the last 30 years a lot has happened: renewables became cheaper, efficiency policies were pushed, other technologies and governments became much more environmentally aware across the world. We have seen a huge move over the last decades and the basic idea was to bring the share of fossil fuels down and increase the others. As I told you, 30 years ago the share of fossil fuels was eighty-one percent and after all these efforts today the share of fossil fuels in the global energy mix is still 81%. Nothing has changed, they are stubborn. That means we have to find a way to make the most of the fossil fuels, which are cheap and convenient, but at the same time stay on track with our climate course. Here we need technology to be a part of the game and in that context I believe carbon capture and storage is an extremely important technology and this can help us to use fossil fuels in a cleaner way. Many resource holders can benefit from that but at the same time we can stay on track with our climate course. At the IEA we are well aware that renewables and energy efficiency are two important pillars when it comes to fighting climate change but we also think that CCS can play a very important role and, depending on the country, nuclear energy can be a part of the equation as well.
MK: Thank you very much. I’ll move on to the next issue. We are living in Europe with this big question that is the cause of a lot of reflection as well as a lot of policies – is it possible and feasible to have a world of 100% renewable production of electricity?
FB: You are right, that is a very intense debate in Brussels and other parts of Europe. One thing we see, Michael, which is a very clear trend, is that the cost of renewable energy is going down, especially solar. In the last three years the cost of solar has halved. Wind is following the same trend and becoming cheaper and the governments are very generous in supporting it. Rightly so! What we can see in our analyses is that the share of renewables will increase substantially in the years to come. However, we don’t expect it to happen anytime soon, I mean that our entire energy system industry is solar based or transportation to be a hundred percent renewable supplied. We will rather see an increasing share of renewables but a hundred percent anytime soon is not within the reach of the current energy landscape.
So we will still need this base load generation whether it’s fossil fuels with new technologies or nuclear, this baseload generation is somehow part of our civilization.
FB: We need to arrive at a workable marriage between renewables and other technologies. We need electricity storage. There’s a lot of work going on and we will definitely have more and more renewables. However, a hundred percent renewable energy system in general would be highly challenging if not impossible in the short and medium term.
MK: I think you are right to point out that there are serious challenges linked with renewables mostly relating to their interrupted performance, so called intermittence of renewables. In fact, when we make comparisons we need to compare intermittent renewables together with a storage system in order to match the security of supply which is provided by base load generation relying on traditional fuels. How do you see this equilibrium evolve?
FB: I think it is evolving slowly but surely. Yet again, I don’t think that we will have the luxury of saying goodbye to all fuels except renewables anytime soon; we won’t enjoy this luxury. We still need other fuels to be a part of electricity generation and also of the other parts of our energy system.
MK: So in fact, we will still have a market where a substantial part will rely on regulation as there are subsidies on the market. Can we imagine a world in 2050 where there is, what I would call a little bit falsely, a real market?
FB: I wish it was a real market. That is a very good concept – a real market. I think it is very difficult to achieve it if we want to internalize some of the challenges coming with the use of energy. Energy is objectively a very good thing. We have no problem with energy. Energy makes our life better, more comfortable, faster and prosperous. The problem is not with energy, then, the problem is with the emissions so we have to find a way to use a lot of energy for Europe but also for Africa, for Asia, for Latin America, for everybody, but simultaneously reduce the emissions. I think sometimes the debate moves in the wrong direction showing energy as an enemy. Our enemy is not energy, our enemy is emissions.
MK: I think you are completely right saying that this energy is the biggest ally of our civilization. It’s a fact that the enormous progress that has been made in the last 200 years in terms of how long we live, how comfortably we live, how far we are able to move, how well we live, we are heated, we are cooled etc. all has one common denominator which is energy, so somehow energy is like civilization and this brings me to another question because we see a world which is also very fragmented. There are countries which are richer and richer producing more and more energy and there are countries which are stuck behind and they do not have sufficient means to produce energy. Can we somehow end this energy poverty? Is it a realistic goal?
FB: It is a realistic goal but, to be very frank with you, Michael, I have worked on energy poverty for 20 years. I have seen two major transformations: one with China and now I am seeing it again with India. Both China and India brought electricity to 500 million people each in one decade. China in 1990’s and India in the last ten years and India will soon have a universal electricity access in the whole country and this can mainly be credited to the Prime Minister Modi and his team but the one region that never changes is Africa, Sub-Saharan Africa. Still today two out of three people have no access to electricity in Africa. Why it worked in China and India is mainly because of the political leadership and willingness of the governments. In Africa I see that there are some signs of political leaders willing to bring access to electricity to their citizens plus in Africa it’s a very opportune time because firstly, we have huge renewable potential in Africa and the cost of renewables is going down and secondly, several countries in Africa, Mozambique, Tanzania and others, discovered huge natural gas resources. I am therefore hopeful that today’s governments in Africa will push the button to bring electricity to their citizens. I already had this hope in the past several times and it was never realized so I hope I will not be disappointed this time but I feel that the market conditions are on our side as the cost of renewables is very cheap. Africa is one of the continents with huge renewable resources: solar, wind hydro power, so therefore, I have some hopes but I’m more cautious this time.
Thank you very much, it’s very interesting and it is highly dependent on political leadership, on leaders and on economic development, on conditions for economic development. These create and trigger energy demand but also provide energy forever larger populations so what happened in China, in India, is absolutely remarkable.
FB: And as you said, I mean you said something very important: energy has increased our lifespan. In Africa you can imagine that parents cannot keep the medication for their children in the refrigerator because they don’t have electricity so this is a real issue and if we want longer lives, if we want to have a healthier life, if you want to have a more prosperous life, energy is critical.
MK: I come back to oil and there was a concept invented in the middle of the 20th century which is peak oil. People were afraid that the world resources would be exhausted. I think that the reality has somehow challenged this fear because the more we have been consuming oil, the more we have discovered new oil potentials, we also used better technologies so we were able to somehow dig into previously unexplored fields. So in fact, I don’t see that peak oil will occur because there will be lack of oil but maybe there will be a curbing. People are thinking whether consumption of oil will be curbed due to electric vehicles, due to energy efficiency etc. But there is a parallel discussion in Europe, in particular concerning coal. So if I had to use the same word as peak oil I would say peak coal and so my question would be a little bit provocative: do you think one of these will occur and, if yes, which would you bet your money on to occur first – the peak oil or peak coal?
FB: If I have to bet here Michael, I would bet on peak coal coming earlier and because today half of the coal in the world is used in China, the other half by the rest of the world. And when you look at China’s trends: China is trying to replace coal with natural gas with LNG imports due to the local pollution in the cities and looking at those Chinese numbers – maybe not immediately but sometime soon – we may witness a peak of coal or at least plateauing of the coal.
MK: In China
FB: Yes, in China and China is so large that for the rest of the world, too, we will see a general decline in the aggregate terms from Europe to the United States. There will be a slow decline if China continues the trend. The growth will come from India and Southeast Asia. In net terms there is a plateau and perhaps in the future there will be a peak. But what could be a game-changer in the issue here is once again technology. Technology making coal use environmentally benign in ways such as the carbon capture utilization storage may well change this game. And it is the reason I believe the coal-rich countries, and companies as well, need to be big supporters of the CCS technology in order to save the planet to save their assets
What is the case for peak oil?
FB: Peak oil, to be very frank with you, I don’t see peak oil coming anytime soon. You are right in saying that electric cars, efficiency, will all curb the growth in demand but it will still grow from different areas such as trucks, such as the petrochemicals, such as jets, planes and, as you rightly said, it is very difficult to substitute oil in this type of use. But in terms of cars, we will definitely see some substitution coming whilst in others we will still see demand, as we discussed, but maybe a bit slower than in the past.
MK: And this is something which we can also observe in the European Union because there are countries in which emissions are rising but this rise is not due to energy production but rather to transport needs and so it will definitely trigger considerations because, as you also said before, it depends very much on leaders’ willingness to tackle the problem, the issue.
FB: I am sure leaders like you in the energy business pay attention to coal and gas but oil is also an emitter and all the emissions coming from oil will be significant in the future. Therefore, we have to find a way to look at all these fossil fuels carefully, not only coal.
MK: Fatih, you are a world-class energy economist. You have been following this market for 30 years in an extremely strategic place, in the IEA. That’s an enormous capital of knowledge, experience, of intuition. Can you imagine what the world will look like in 2050? How will we generate energy, where will the energy come from?
FB: This is true. I am very fortunate here because I have 300 renowned experts on energy and efficiency and on renewables, gas, oil different technologies. I learn something from them every day and what I can tell you is that, first of all, energy will be used more and more and producing energy will be more and more digital. Digitalization will dominate the energy sector, both in terms of the usage, our use of energy and how we produce energy. It will, in fact, be a major transformation in the energy sector and when I look at the future I think we will see an energy system which is much more digital, which is much
more decentralized and which is cleaner than today and, I hope, which is much more secure than today. So the direction we are going in worldwide thanks to technology, thanks to the energy leaders, is the right direction. My only worry is that these changes prove to be fast enough so that we don’t miss the train.
MK: It’s a pleasure to discuss these topics with you. Thank you very much for devoting your time to this interview on this very important day for you. Again congratulations and we keep our fingers crossed for your continuous leadership in the IEA.
FB: Thank you very much Michael for this very nice discussion and I am grateful to Poland and all the other countries for the support we enjoy at the IEA. We will do our best to make the energy world more secure and create a more sustainable energy world all together with Poland and all other countries. Again, thank you very much.
MK: Thank you.
