‘Russia will lose the energy battle,’ says IEA chief Fatih Birol

Russia will lose the energy battle it is waging against the West, according to Fatih Birol, the executive director of the International Energy Agency (IEA).

“Just before the invasion [of Ukraine], about 65% of the Russian total gas exports went to Europe and 55% of the Russian oil export went to Europe,” Birol told Euronews on Friday afternoon.

“Europe was by far the largest market, the largest client for Russia, and Russia lost this client forever. The biggest client.”

Birol’s comments appeared to refer to the retaliatory action that the European Union has taken in response to the Ukraine war: a near-total oil embargo of Russian gas and a highly expensive push to diversify gas suppliers, mainly through liquefied natural gas (LNG).

Asked if Russia could replace European clients with other regions, Birol said that would not be easy because “a big chunk” of Russian gas originates in Western Siberia and then flows to Europe via pipelines.

Building brand-new pipelines to China or India could take up to 10 years, he predicted, and a significant amount of technology and investment.

“You are not selling onions in the market, you are selling natural gas. It’s a different business,” Birol said. “So to replace the natural gas exports to Europe with Russia is, in the short term, a pipe dream.”

But Russia is not the only country going through troubled times.

In his interview with Euronews, recorded at the IEA’s headquarters in Paris, Birol spoke of an international crisis of unprecedented scope and reach, wreaking havoc in all corners of the world.

“We are in the middle of the first truly global energy crisis. Our world has never, ever witnessed an energy crisis with this depth and with this complexity,” he said.

“In the 1970s, we had an oil crisis, but it was only oil. Now we have oil, natural gas, coal, electricity. The reason is very simple: Russia, the country that invaded Ukraine, is the largest energy exporter of the world.”

‘Next winter may be even harder’

Birol described Europe as the “epicentre” of the storm and characterised its decades-long reliance on cheap Russian fuels as a “mistake” at the root of the present crisis.

The IEA chief predicted the continent will be able to make it through the upcoming winter with just some “economic and social bruises” and no major damage — but only if the winter “is not too long and not too cold, and if there are no major surprises.”

Birol, however, expressed greater concern about the 2023-2024 winter, citing three key factors: Europe’s absence of Russian gas, China’s economic recovery and tighter conditions in the LNG markets.

“In the next few years, we have to be ready [to deal] with volatile and high energy prices and we have to find solutions,” he said. “But to be very frank, this winter is difficult and next winter may be even harder.”

Asked about the ongoing debate about a possible EU-wide cap on gas prices, Birol said it could be a “good idea” as long as the cap is wide enough to keep the bloc as an attractive client for LNG producers.

This year’s successful re-filling of underground storage – filled to over 93% of capacity – was the result of Europe paying “more money” than other LNG clients.

“If we put the price cap too low, then our competitive power will be much less,” Birol explained.

Regarding joint purchases of gas, a proposal that has gained more traction among EU countries, the IEA chief that if European countries manage to “emerge as a strong buyer,” they could out-bid other LNG customers around the world.

Speaking about oil, Russia’s major source of revenue, Birol did not hide his displeasure about OPEC’s latest decision to cut production by two million barrels per day in a bid to increase prices. He argued the world’s leading oil cartel should have acted more responsibly in a time of crisis.

“Now, they decided to reduce their oil production, which will push the price up. Therefore, the inflation [will go] up and the global economy may go into recession,” he said.

“It’s a very risky and in my view, unfortunate decision.”