Coal will get a boost from geopolitical shocks, International Energy Agency head says

The head of the International Energy Agency says coal will be boosted as a result of the geopolitical turbulence disrupting energy markets.

Addressing the oil and gas conference in Stavanger, Norway, the ONS Conference, Fatih Birol said that governments were willing to pay more for energy if the supply could be relied upon, with cost no longer the dominant priority.

The price of oil has surged above US$100 per barrel several times since US President Donald Trump and Israel’s Prime Minister Benjamin Netanyahu launched their war on Iran on February 28.

The effect sent petrol and diesel prices up globally and sent the Australian Government scurrying around the world to shore up petrol supplies, as well as temporarily cutting petrol tax.

Data from Trading Economics shows oil trading around 30 per cent higher than this time last year, prompting governments to both consider relying on greater fossil-fuel use in the short-term whilst arguing the need for eventual decarbonisation.

Last year, coal made up around a quarter of Australia’s, behind 40 per cent use of oil, 24 per cent of gas, while just 9 per cent came from renewables.

Mr Birol adopted a saying from his native Turkey, to liken Iran’s closure of the Strait to a broken vase.

“And you cannot put the vase back together. Vase is closed — vase can be closed again. We may will still get oil and gas from Middle East, but it will be very difficult to get back where the things were before 28th of February,” he said.

“And many countries that are not exporters are looking as much as possible at domestic energy production; renewables will be a big winner in my view, nuclear comeback is strengthened but they also look at other energy sources, including coal which will also get a boost from this issue,” Mr Birol said.

“Governments are now looking at their energy strategies from a different angle with new data in their hands and review their energy choices, energy partners, new partnerships are in and some energy partnerships are out. And this is becoming a major issue.”

He said that governments were no longer willing to place bets on the energy that could provide the cheapest supply and were willing to pay a premium if it could be guaranteed, nominating trust as the biggest driver in commodity markets right now.

“I see there is a huge move on diversification, from the producers’ side and from the consumers’ side,” Mr Birol said.

“Just in time will be replaced by just in case, so from that point of view I really believe that we are going to see a new energy map. The energy map will be redrawn.”

Mr Birol said the world was entering an age of electricity that was driving an “incredible” pace of demand for power.

“It was already moving very fast, but there are three new additional drivers,” he said.

“Here, if I asked anybody: ‘What is the biggest driver of electricity consumption in world today, I think many of us, including me would not be finding the answer. The single most important driver of this consumption in the world is air conditioners.

“The second is the data centres. And the third one is electric cars — it is growing much faster than any of us think.

“What is happening now, this geopolitical cloud and the changes will further accelerate the electrification of the energy world, again, we will need oil, we will need gas, but again the electrification will be very, very strong.”

Labor has mandated a target of net zero carbon emissions by 2050 to mitigate Australia’s contribution to climate change, but the Coalition says this is unachievable and too expensive and the Nationals strongly back using coal, even though it is carbon intensive.

Globally, coal demand is rising, although the growth is slowing from post-pandemic surges.

The IEA says while coal remains the world’s largest source of power generation, its share in the electricity mix has fallen to 35 per cent, its lowest level on record.

Iran and the United States have been involved in a tit-for-tat for control over the key waterway the Strait of Hormuz, through which a quarter of the world’s oil supply passes.

Shell CEO Wael Sawan said fossil fuel companies had to meet governments where they were because the current energy system could not be maintained.

“Think of it as the shock absorber of a car. The shock absorber continues to take the significant bumps that we’re going through, but that shock absorber is weakening,” he said.

He said that the world was accumulating shocks by drawing on reserves and commercial inventories, and supply routes that used to take days had been extended to weeks.

“We should reduce oil and gas production — well, we’ve been forced to reduce oil and gas production in the last few months and look at the implications — in some parts of Europe we don’t feel it,” he said.

“The reality is, however, if you go to the Philippines or Pakistan it’s a four-day week at the moment. If you go to Indonesia it’s fuel rationing, so how we do have an approach that is globally resonant, recognising that energy transitions are happening at local contexts, very different in Norway than what you will see in India, than what you will see in Australia.”

Sunita Narain from the Delhi-based Centre for Science and Environment said the energy shocks could not be divorced from the effects of climate change which she said were experienced daily in India.

“We have two wars happening, we have a physical war which we’re talking about, the Iran war, the Ukraine war, but we also have a war with nature, which is happening and they’re both happening together,” she said.

“And the revenge of the war with nature is playing with the complete disruption that we are seeing on the energy system.”