The world is witnessing the most extreme energy crisis ever seen, both in terms of its depth and complexity, and the worst may still be ahead, the head of the International Energy Agency (IEA) warned Tuesday.
Addressing the Sydney Energy Forum, IEA Executive Director Fatih Birol said the nations are experiencing the first global energy crisis, which he said may have "serious implications for the global economy" as winter approaches.
"We might not have seen the worst of it yet," Birol warned.
"It is interwoven by many factors, including the geopolitics. Oil, natural gas, coal, electricity prices, they’re all going up of the roof. Why? Very simple. Russia, the country that invaded Ukraine, as of 24th of February," he said.
According to Birol, following Russia’s invasion of Ukraine in February – at the time the largest exporter of oil and natural gas and a significant player in the commodities market – the whole energy system is in disarray.
"And as a result, we are seeing that the entire energy system is going through a crisis," he added.
Birol noted that this winter in Europe will be "very, very difficult," adding that this is a major concern and may have serious implications.
Price cap on Russian oil
Birol also elaborated on the G-7 proposal to impose a price cap on Russian oil, which he said should include refined products as well.
The Group of Seven rich nations is considering imposing a price cap on Russian oil in an effort to keep oil flowing and curb inflation while still limiting revenue to Moscow for the war on Ukraine that it calls a "special military operation."
"My hope is that the proposal, which is important to minimize the effect on the economies around the world, gets buy-in from several countries," Birol told Reuters in an interview on the sidelines of the Sydney Energy Forum.
"And if it is pursued, it is not only focused on crude oil, as refined products are also an important challenge for the economies and will be more of a challenge in the next months to come," he said.
Prices of refined products, such as gasoline and diesel, have soared even more than crude oil in the wake of the loss of Russian supply, because of a global refinery capacity crunch following the closure of several plants around the world.
The G-7 idea is to tie financial services, insurance and the shipping of oil cargoes to a price ceiling. A shipper or an importer could only get these services if they committed to a set maximum price for Russian oil.
Birol said he did not know what level the price cap would be set at.
Supply chains, clean energy
The IEA chief was in Sydney to co-host a meeting of Indo-Pacific nations with the Australian government discussing supply chains, the transition to clean energy and energy security. Countries attending included the United States, India, Japan and Indonesia.
The Sydney Energy Forum was focused on what needs to be done to ease global dependence on China for solar technology and countries like the Democratic Republic of Congo and Russia for critical minerals essential for clean energy technologies such as batteries, electric vehicles and wind turbines.
Birol said the IEA was working on a plan to coordinate critical mineral supplies among its member and associate member countries in case of a supply disruption, similar to the emergency petroleum stockpiles that have been used recently to beef up global oil supply.
"Critical minerals security will be an important issue for energy security in the future," Birol said.
"It is the reason that IEA ministers asked the IEA to consider building a safety network and coordination among its members and associate members in terms of a major disruption in the availability of critical minerals."
He did not give a timeline for finalizing plans for the "safety network" and said it was too early to say what it would entail.
The IEA sees opportunities for Australia, India, Indonesia and the United States to build solar technology manufacturing capacity to ease the world’s dependence on China, which the IEA says will have a 95% share of the market by 2025, based on current construction plans.
"We cannot rely on one single country," Birol said, adding that China had a competitive advantage in manufacturing thanks to lower electricity prices.
To overcome that competitive edge, he said countries like Australia and India would have to offer incentives to companies to set up solar technology manufacturing plants.
"I see a big opportunity in India," he said.