IEA Executive Director Dr Fatih Birol (left) with Mr Nur Bekri, Administrator of the National Energy Administration (Photograph: IEA)
BEIJING/GUIYANG – Dr Fatih Birol, the Executive Director of the International Energy Agency (IEA) was in China from 7-9 July for talks with Chinese ministers on opportunities to broaden and deepen collaboration to bolster energy security, improve air quality and reduce carbon intensity.
Dr Birol met with Mr Nur Bekri, Administrator of the National Energy Administration (NEA), at the State Guesthouse. They reviewed progress on the IEA-China 3-year work, which includes cooperation on energy security, energy efficiency, data and statistics, as well as policy analysis and recommendations to support China’s energy transition towards a cleaner pathway, and discussed priority areas to build on this collaboration in the future.
The meeting with Minister Nur Bekri capped a series of talks with high level government leaders. Dr Birol met bilaterally with Mr Zhang Yong, Vice Chairman of China’s National Development and Reform Commission (NDRC), to discuss plans to deepen cooperation between the IEA and NDRC on energy efficiency. He also met with Mr Liu Hua, Deputy Minister of Ecology and Environment, to sign an MoU that will see the IEA and China cooperating on issues related to climate change, environmental protection, sustainable development, energy security, and air pollution. Dr Birol also met with Mr Xie Zhenhua, China’s Special Representative on Climate Change Affairs, to discuss cooperation on China’s clean energy transition.
Dr Fatih Birol and Mr Liu Hua, Deputy Minister of Ecology and Environment
Dr Fatih Birol meets with Mr Nur Bekri, Administrator of the National Energy Administration
As part of the visit to China, Dr Birol delivered the keynote address at the ECO Forum Global Annual Conference in Guiyang. The conference was inaugurated by China’s Vice Premier, Ms Sun Chunlan, and brought together more than 20,000 government officials, representatives from industry, and academia, to break barriers between sectors and regions, and build a platform for exchange and cooperation to accelerate the development of green industry projects. Dr Birol also provided opening remarks to the Green Industry Development 100 Forum, where he announced the online release of the Chinese language version of the World Energy Outlook Special Report on China.
OMR: Stretched to the limit
12 July 2018
There are indications that production from leading producers is climbing and may reach record levels (Photograph: Shutterstock)
Since our last report, OPEC oil ministers and ten non-OPEC oil ministers have met and agreed to achieve 100% compliance with the Vienna Agreement (i.e. they will increase production). What this means in terms of volume and timing remains to be seen as the official communique contained little detail, but there are already indications from leading producers, particularly Saudi Arabia, its Gulf allies, and Russia, that production is climbing and may reach record levels. Such determination to ensure the steady supply of oil to world markets in the face of multiple challenges to stability is very welcome. The prospect of higher supply might be thought to have sent oil prices down, but in fact WTI prices have risen close to levels not seen since November 2014 and Brent prices have recently made a renewed attempt to reach $80/bbl. Higher prices are prolonging the fears of consumers everywhere that their economies will be damaged. In turn, this could have a marked impact on oil demand growth.
That prices have remained relatively high reflects various supply concerns, some of which will be with us for some time to come, e.g. Iran and Venezuela, and others that are probably shorter term. The clearly expressed determination of the United States to reduce Iran’s exports by as much as possible suggests that shipments could be reduced by significantly more than the 1.2 mb/d seen in the previous round of sanctions. In June, Iran’s crude exports fell back by about 230 kb/d, albeit from a relatively high level in May, as European purchases dropped by nearly 50%. Most of Iran’s oil goes to Asia, however, with China and India currently taking over 600 kb/d each. When you also consider that both China and India are exposed to Venezuela, importing respectively 250 kb/d and 325 kb/d, it is clear that the world’s second and third biggest oil consumers could face major challenges in sourcing alternative compatible barrels.
The re-emergence of Libya as a risk factor in global supply follows a series of attacks on key infrastructure that saw production plummet to around 500 kb/d in July from close to the 1 mb/d level seen for about a year. At the time of writing, the situation seemed to be improving, but we cannot know if stability will return. The fact that so much production is vulnerable is clearly a cause for concern. Incidentally, China receives nearly 140 kb/d of oil from Libya. Two other supply disruptions are likely to be short-lived. In Alberta, 360 kb/d of output from Syncrude’s heavy crude upgrading facility was shut-in from 20 June and in the North Sea oil production fell sharply in May by nearly 360 kb/d and output likely remained constrained due to summer maintenance and strike action in Norway. In addition, Brazilian production growth so far in 2018 has been lower than expected. At the same time, refiners’ thirst for crude oil will remain high during the summer period before seasonal maintenance kicks in.
Some of these supply issues are likely to be resolved, but the large number of disruptions reminds us of the pressure on global oil supply. This will become an even bigger issue as rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit. This vulnerability currently underpins oil prices and seems likely to continue doing so. We see no sign of higher production from elsewhere that might ease fears of market tightness. Indeed, in this Report, our overall growth outlook for non-OPEC production in 2018 has been reduced slightly to 1.97 mb/d, although in turn our 2019 growth estimate shows a modest increase to 1.84 mb/d. On the demand side, although there are emerging signs of reduced economic confidence, and consumers are unhappy at higher prices, we retain our view that growth in 2018 will be 1.4 mb/d, and about the same next year.
The northern hemisphere summer promises to be anything but quiet as markets adjust to the ever-changing geopolitical and physical climate. We continue to be in a close dialogue with major producers and consumers, both inside and outside the IEA family, and are monitoring market developments in order to be prepared to advise on any support that might be needed.
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