Fatih Birol: “Right now there is more uncertainty about diesel than about gas” | Economy

He has just landed from Paris and is in a hurry. Fatih Birol (Ankara, Turkey, 64 years old), director general of the International Energy Agency (IEA), takes 20 minutes to chat with EL PAÍS in the only interview he will give during his brief stay in Spain. In a few hours he will return to the French capital to catch another plane, bound for New York, where he will meet the UN Secretary General, António Guterres.

Prompt in his answers, he leaves several clear messages: that next winter may be even more difficult than this one and it is not convenient to relax; that Europe has to think of an industrial plan to compete with the US and China; that the diesel supply cannot be taken for granted after the next veto on Russia, on February 5th; and that a good part of what happens in the Old Continent passes through Beijing. A few minutes later he will meet with the top brass of the Spanish energy sector: Vice President Teresa Ribera, with whom he is particularly in tune, and the main electric, oil and gas companies.

Question. After many months of price tension in Europe, gas has dropped a lot. Will current levels, still high but more manageable, hold?

Reply: There are, above all, two factors that have allowed this drop: mild temperatures and China, whose demand for fossil fuels fell last year for the first time in four decades. It is the leading importer of oil and LNG [gas natural licuado] of the world. Kerosene consumption is always a good indicator, and what we have seen is that it is growing a lot and may soon be importing as before [de la covid-19]. In the case of LNG, there is an added problem: the volume that will enter the markets this year will be one of the lowest in history. And if next winter is normal and not mild, we may again see upward pressure on prices.

Q. He has just been at the Davos forum, marked by optimism. Too much, perhaps?

R. I have seen many European governments very happy about this change in tone [en los mercados energéticos]. But I have also taken the opportunity to warn them not to relax.

Q: Feel, then, that some Executives are relaxing.

R. Yes, and I have taken the opportunity to warn you not to open the champagne too early. The coming winter may be even more difficult than this one. We still have to be very careful.

Q. LNG, especially that which comes from the United States, is called to be an essential factor in resolving the crisis. But, will he solve the ballot on his own?

R. It is being and will continue to be helpful, but it will not resolve the situation by itself. We have to take many other measures, because the hole in the market is still very big.

Q. More measures of supply or demand?

R. Both. We have to bring gas from more countries, but, above all, we have to speed up with renewables and continue reducing consumption.

Q. Is there a risk that last summer’s highs in the price of gas will be repeated, or are they already part of history?

R. It would be a surprise if they were repeated. So many circumstances coincided: the low generation of the French nuclear; the drought, which reduced hydroelectric production…

Q. The problem is that we are still well above the historical average of prices…

R. I would also be surprised if we return to those levels. Europe has to get used to living, for years, with higher prices than before. That is why it is more important than ever to have an industrial policy strategy. The European secondary sector is suffering a double challenge: a current one, the high prices of energy; and one for the future: the push of China in the manufacture of technology for the production of clean energy and of the United States, especially after the Inflation Reduction Act. It is time for Europe to have a master plan for its industry, which takes into account its competitive advantages.

Q. The oil market also calmed down in the final stretch of last year, but has risen again in recent weeks.

R. If Chinese demand rises strongly, it will again be an important factor [para que los precios sigan subiendo]. And the second factor is the recent decision by OPEC and Russia to reduce pumping despite requests from the US or India. It’s a completely different attitude than they’ve taken in the past: When the economy faltered and neared recession, they didn’t cut oil production. If the Chinese demand is not very strong and the producers choose a position that helps the markets, the prices will be able to continue at the current levels.

Q. Virtually everything goes through China.

R. Completely. This is something that is sometimes not taken into account in Europe: China is the largest importer of fossil fuels, and the world market depends to a large extent on what happens there.

Q. For Europe, the Chinese reopening is bad news.

R. Very bad news, because it will have more competition for energy. Our numbers say that China can eat 80% of the additional volume of liquefied gas that will enter the world market this year. Something similar happens in the case of oil.

Q. 2022 was the year of the gas shortage. Will 2023 be the year of the diesel shortage? There is little more than a week left before the veto on imports of crude oil derivatives from Russia, which is its main supplier…

R. I fully understand that European countries take this position towards Russia, but I must say that the embargo on oil products may be more challenging than the embargo on crude oil. [ya en vigor]. For diesel, for kerosene… Europe will buy more in the Middle East, India or China… Again, what China does with its idle refining capacity is going to be critical.

Q. Is diesel what worries you the most right now?

R. It’s worrying.

Q. More than natural gas?

R. There are more uncertainties about diesel.

Q. Why?

R. Because diesel trade flows have been established like this for decades, and now this changes them. I hope that we do not see the price increases that we have seen in the case of gas. But, once again, it will be determined by China with its export policies.

Q. Should European governments take steps to avoid a major diesel supply bottleneck?

R. Both for reasons of energy security in the very short term and for environmental reasons, diesel consumption must fall. But that will not happen only by putting commercials on television: it would help, but more incentives are needed.

Q. There is, however, no ongoing awareness campaign.

R. I wouldn’t be surprised to see them soon. Nor that the IEA does something in that regard in the coming weeks.

Q. Spain will soon assume the rotating presidency of the EU. What challenges will you have to face in terms of energy?

R. The first thing will be to prepare the block for next winter. The second will be to prepare this master plan to adapt the European industry to the new environment. The US Inflation Reduction Act is the biggest climate action since the Paris Agreement.

Q. You have already mentioned the need for such a master plan twice. Where should it go?

R. I will give you an example: Europe is the leader in the production of electrolysers, it has an advantage [competitiva] and it should remain so. Another: today, China manufactures 80% of solar panels, but 20 years ago, when this industry started, the leaders were Spain, Italy and Germany… They dropped the ball and the Asian country took it. In a marathon, the medal does not go to whoever reaches the top with 10 kilometers to go; The one who reaches the finish line first takes them. You have to learn from that.

Q. Europe is turning to green hydrogen. What would you say to those who say, little less, that this energy vector still belongs to the sphere of science fiction?

R. I think there are two misperceptions: by those who think it’s science fiction and by those who think it will be a significant part of the energy matrix very soon. We will need some time for it to be so. I highly value political determination, but we still have to see exactly how much it will cost, where it will be produced, and what is its market, who is going to buy it. I predict a very promising future… But in the future.

Q. When exactly?

R. Around 2030.

Q. The BarMar, the new tube that will link Spain and France and continue to Germany, is conceived as a hydroduct. If the plans are fulfilled, it will not transport gas even in its initial phase.

R. The first thing I must say is that investing in interconnections is always a positive thing. However, it would be best for this tube to work for a short period of time for natural gas and then for hydrogen. That would be the optimal solution. Gas consumption had started to decline in Europe before the Russian invasion of Ukraine, but it will continue to be needed, especially in some industrial areas.

Q. 2022 will be remembered as the year of the definitive takeoff of renewables in Europe. What bottlenecks remain to be resolved to finish accelerating?

R. Bureaucracy. If I have to choose three things I would say: faster processing of permits, faster processing of permits and faster processing of permits. There is more, of course, but that is the most important.

Q. And for the electric car to take off?

R. In 2019 only 3% of the vehicles sold were electric and in 2022 it was already 13%. And in 2023 we hope to see an even bigger jump. In 2030, which is practically tomorrow, all the cars that will be sold in Europe, China and the US will be electric. A few weeks ago I met with the 20 largest car manufacturers in the world, and for 18 of them the electric vehicle is already at the center of their business model. Not for climatic reasons, but because it will be a source of money for them.

Q. However, some countries, such as Spain, are lagging behind on that flank. In part, due to the still high cost of many models.

R. Governments have to encourage buyers to turn to electric cars with subsidies and other policies. It is a good decision for that buyer, for the environment and for the economy of the country as a whole.