Low oil prices will not go on for a long period of time, according to International Energy Agency director Fatih Birol, who said he would expect oil prices to start rising 2017 under normal economic circumstances.
However, prices of energy resources are among the four factors making the world energy outlook less predictable than ever, Birol said on Jan. 11, speaking at the Turkey launch of the IEA’s world energy outlook.
The question of whether low energy prices will continue at this level or show an upward trend adds to the unpredictability in the sector, he added.
“There was a 20 percent decrease in 2015 compared to the previous year in oil investment. We expect a fall in 2016 too. There has never been a case in the past whereby investment in oil went down for two consecutive years,” said Birol.
Low oil prices are good news for oil importers, providing an opportunity to press ahead with subsidy reform, but they might also have some negative consequences, the IEA head said.
Low revenues leading to less investment brings the risk of a sharp market rebound as reliance on Middle Eastern oil could return to 1970s levels. However, political turbulence in the Middle East is making the energy sector less predictable than ever.
Another unintended consequence of lower prices could be the undercutting of support for renewables and energy efficiency, which are key pillars of the energy transition. The ratio of renewables in energy resources used has in recent years been on a steady upward trend.
The agreement for a low-carbon transition reached at the climate summit in Paris last December was a very important development, Birol said, adding that questions over whether the summit outcome will lead to significant changes in the energy sector were also contributing to unpredictability in the sector.
His answer to whether the Paris summit will lead to change is “definitely yes,” stressing that two-thirds of greenhouse gas emissions stem from the energy sector.
“So if we are to solve the climate change problem, we need to start from the energy sector,” Birol said.
One of the consequences of the Paris summit agreement will be more emphasis on innovation, which in turn will decrease the costs of renewables, which has now proven it is a real business, the IEA director also said.
“The questions over whether renewables will work or whether they will be too costly are now behind us,” he added.
Speaking before Birol at the launch, both Turkish Industry and Business Association (TÜSİAD) head Cansen Başaran Symes and Sabancı Holding managing director Güler Sabancı emphasized the need for further liberalization of the energy sector.
“The energy sector should be a solution, not the cause, of the climate change,” said Sabancı.