The following are the remarks, as prepared for delivery, by IEA Executive Director Dr Fatih Birol at the Extraordinary G20 Energy Ministers Meeting that was held on 10 April 2020.
Your Royal Highness, Excellencies, Ladies and gentlemen, let me express my appreciation to the Kingdom of Saudi Arabia for calling this Extraordinary G20 Energy Ministerial. I am encouraged by your willingness to gather to send the world a sign of hope and solidarity in these exceptionally difficult times.
Just over one week ago, I discussed with Prince Abdulaziz bin Salman the idea of holding this meeting, due to my firm belief that providing leadership on “global economic and financial stability” perfectly fits the job description of the G20. Let me thank His Excellency for organising this meeting. There could be no better forum for this discussion: countries around this table today represent over 70% of global oil production and over 80% of global oil demand.
I applaud all of you for the extraordinary steps your governments are taking to respond to the health, social and economic crises resulting from Covid-19. Attention must now also be devoted to the immediate future of energy markets, as the shock waves of the pandemic risk creating even more economic damage and weakening our ability to respond.
The oil world has seen many shocks over the years, but none has hit the industry to the degree we are witnessing today. Pressure on the oil market is coming from all sides, leading to a massive amount of volatility.
There has been a massive decline in oil demand, with 4 billion people, responsible for 80% of global GDP, now confined to their homes. Transport – which accounts for 60% of global oil demand - and large parts of industry have come to a standstill.
At the same time, a number of the world’s larger producers had abandoned self-imposed production restraint.
Preliminary numbers from the IEA’s Oil Market Report suggest oil demand will fall by an extraordinary amount, putting unprecedented pressure on the industry. A rapid build-up of oil stocks is saturating logistical and storage capacity. This may lead to more volatility and possibly even negative prices in some regions.
Tempting as this may sound to consumers, the reality is that it is in nobody’s interest. Current market conditions are not benefitting consumers, as they cannot move from their homes, and will harm longer-term priorities for energy security and energy transitions. Let me elaborate:
We are seeing a huge wave of job losses in the oil sector, affecting millions of families. The industry employs millions of people from production to the pump and supports tens of millions of others in manufacturing and service industries.
There will be a profound impact on the economies of the more vulnerable producing countries, jeopardising their ability to confront the health crisis and threatening social and political stability.
It also threatens the ability of the industry to continue to underpin global economic stability as oil still accounts for nearly one-third of global energy supply. Even as the world transitions to cleaner forms of energy, we still need a well-functioning oil industry for years to come.
In addition, it undermines the ability of the industry to help scale up fuels and technologies we will need for tomorrow, such as hydrogen, biofuels as well as carbon capture, utilisation and storage.
The goal must be to achieve a new market balance for everyone. This is where the G20 can demonstrate its unique value, providing a venue for decisive leadership. Let me offer four actions:
- First, we acknowledge the commitment to cut output announced by some producers overnight.
- Second, in parts of the world where oil production is the domain of the private sector, we have already seen companies starting to cut their production due to logistical or storage bottlenecks as demand for their crude falls. They have also announced large cuts to future investment. These decisions will further reduce supply, contributing to bringing the market gradually back into balance.
- Third, some countries are increasing emergency oil stocks, taking advantage of low oil prices. Here I would like to acknowledge the moves by Australia, China, India, Korea, the United States and others to fill their tanks. These actions will help to absorb excess supply and enhance their ability to respond to a future crisis.
- Fourth, we should all avoid taking steps that add to market volatility and instead recommit to strengthening our dialogue to improve global energy security and facilitate market function.
Nobody should harbour the idea that these measures provide a quick fix. The market will still face a difficult period until the imbalance peaks and eventually passes. Like the effect of confinement on the spread of Covid-19, actions to address the oil market imbalance will help lower the peak and flatten the curve. The market will then need to consider its own “de-confinement”.
Ladies and gentlemen, the extreme volatility we are seeing in oil markets is detrimental to the global economy at a time when we can least afford it. For that reason, I applaud the G20 for convening this dialogue. The IEA today works across all fuels and technologies and energy security continues to be at the core of our mandate. As such, we stand ready to do whatever we can to work with you to find a new equilibrium for oil markets for the benefit of the global economic recovery.