Fatih Birol - Chief Economist, International Energy Agency HARDtalk

Obama. Much more to come.

Not so long ago it seemed the world's addiction to fossil fuels

would be ended by a dwindling supply. But that would was before

fracking, tar sands and deep-sea exploration has transformed

calculations about global reserves of oil and gas. My guest today,

Fatih Birol, was one of the world's most influential analysts of the

global energy market and its effect on the economy and environment. Is

the resilience of fossil fuel supply a cause for celebration or

despair? Welcome to HARDtalk. You write some

of the most anticipated analyses of the world energy market there is.

Are they really worth the paper they are written on? If you look at

the energy Publications, it is the most recognised publication in the

world, it is the bible of the energy world. It provides in size

for energy companies, governments, citizens, for NGOs, for everybody.

Look at the reality of the energy market. To be fair and to be honest,

you have completely failed to predict some of the most important

friends that we see today. You did not know that America is going to

find a vast reserves of gas through this new fracking progress, that

was not something that you were writing on. We were the first ones.

We said there is a silent revolution starting in the US.

if you go back to those reports, DG predict the effect it would have on

the US and international energy market? Are was a silent revolution.

When you look at the US government, they could see it was happening, a

many people in the West thought they were going to import the

natural gas and they are not in a position to export natural gas, and

we successfully saw this turning point. You might claim some credit

there. What about the fact that in the mid- 2000, you were convinced

that the point, the watershed point of Peter oil production was either

happening or about to happen. That was wrong. Conventional oil

production is about to peak in 2007, and then the oil production will

come from unconventional methods. So you made a distinction between

conventional and unconventional oil. When you wrote about peak oil as

you did, it was a signal to the market that you believed that

friendly oil production had reached a peak and was going to cross the

watershed and begin a long downward slope. Because of the rise of so

many different technological processes that have allowed tar

sands to be exploited, that was not right. We said that conventional

oil production was about to peak, but the total oil production... we

estimate it to breached 100 million euros a day, as so the growth comes

from the unconventional oil, and the conventional oil, it is no

longer stable. It peaked in 2007- 2008. Just to pin you down on some

of your current forecasting, we have already touched about the

transformation of the energy sector in the West, how far is that going

to go? How close to being self- sufficient in energy, fossil fuel

production, is the US going to get? The US is making giant Steps. One

of them is the growth in domestic production, oil and natural gas,

and the second one, which is most of the time not majestic, it is the

domestic consumption of oil in the US is declining. Self-sufficiency

is a combined effort of increasing production and decreasing

consumption. It is a result of Obama's Investment, introducing

fuel efficient standards for cars, a car in the US, for 100 kilometres,

it uses about nine litres of gasoline. In Europe, it is about

six. There is a big difference. What the administration is trying

to do now, to increase the efficiency of the cars, to use less

coy or, less petrol, in order to improve energy security. We believe

that our number show, in 20 years, the US will breach energy security

and independence. -- will reach. a sense, the answer you have given

me is just in -- intriguing. It brings us back to the

unpredictability of technology. You believe they will go further

towards energy efficiency and that not know that. That is just a

prediction. It is a prediction but based on the policy decisions made

by the administration. The government set some standards and

the manufacturing industry has to adopt bird that -- those standards.

Let's look at some other unpredictable things, and see where

they are going. You have talked about the vast potential of oil and

gas reserves in the Arctic region, across the Arctic Circle. He said

that they could represent up to 15% of all recoverable oil and gas

reserves in the planet. But how do you know that they are actually

recoverable? Look at some of the problems that Shell is looking at,

with a week that has run aground. It is difficult work. How do you

know it will be successful? I would not bet that it is successful.

There are two problems. Given the current oil crisis, given the

current technology, I would not expect that in the next 20 years

there will be significant production growth from the Arctic

region. Do you think some of the big oil companies had estimated the

potential and the ease to which they could access fossil fuels?

they believe they have significant prop it -- profit, I would say they

are on the optimistic side. seashell, another company of

Greenland, I wonder whether you think this notion of an arctic

revolution is overblown. I think it is not an issue of Today and not

tomorrow, the day after tomorrow. There have been other things that

are unknown which put question marks over the valley of your

analyses. One of your other key pillars of futurology for the

industry is Iraq. You say there is no question that when it comes to

the growth in the oil business, the right is going to have up to 45% of

the growth. Had the look at what is happening in Iraq and the problems

they have got in the industry? very much so. I was in Iraq several

times last year. I was talking to people, guv you know how unhappy

many of the oil companies are? In the middle of so much energy

richness, Australia -- it right is just trying to get eight hours of

electricity. But it is very cheap to produce oil. To get one barrel

in Iraq is about ten times cheaper than Russia. Almost 15 times

cheaper than the North Sea. The resources are there. The technology

is there. The problem is stability and the agreement of Baghdad... if

it is done, there are very good reasons to push everybody there to

have a consensus on this issue. Iraq may be a major oil economy and

can be the second largest producer. This brings us back to where we

began, with the notion of peak oil. It seems much less important today.

To quote the CEO of one of the biggest oil companies in Europe, he

said the notion of peak oil is not a relevant subject any more. Do you

agree with him? I think we will not see a peak in production in the

next 20 years. If the prices around the same. When you say we are not

going to see a peak, you say that production can continue to grow?

Especially coming from unconventional oil. However, it is

not in everybody's interest to see oil production, gas production, to

grow so much because we have climate change. The energy sector

is the most important sector when it comes to climate change, because

more than two-thirds of the missions causing climate change

comes from the US using coal, oil and natural gas. I was always

intending to get to this issue of climate change in relation to the

energy sector. You have brought it to our attention right now. It

makes me wonder why you use some of the language you do we talk about

the expansion phase, you talk about a golden era for the gas industry,

for example. In many ways it is not a golden area, it is a bleak area,

if you believe that this reliance on fossil fuels is hampering all of

the planet's efforts to combat climate change. It is a golden age

for natural gas, you will see a lot of growth in natural gas. Second,

if natural gas is to replace Cole, it is a good thing. But it is as

well as, it is not replacing. some countries it is not. Among all

the countries in the world, the largest reduction in emissions

comes from the West. Natural gas replaced coal, and the largest

production of carbon emissions comes from the West, which does not

have a carbon policy. In Europe, there is a climate policy and we

did not see such a D production. The natural gas alone is not the

answer. Far from being the answer, many people would idea that it is

part of the problem. The price signal on gas suggest that you

should invest in gas. The price signal in oil says that you should

invest in oil. The Investment is taking away from Reno ball energy,

and that is a fundamental problem. -- renewable. If you look at many

of the companies involved in wind energy, title and wave power

projects, they are not getting the cash they need. In the last ten

years, renewable energy investment increased every year. Only last

year we saw a decline. If renewable energy investment would not grow,

we have no chance to arrest climate change. There is a role for the

governments. They should take it seriously and put out a framework

for renewable energy to grow, and tried to invest... and the change

in the fossil fuel picture she not affect governments to change their

policies in terms of their support for renewable energy investments.

But the problem is the price signal. How do you change the price

signals? The EU have to find a way of raising the price of fossil

fuels, both the plentiful natural gas and oil, to send a signal to

the market which says, when you buy these products, you have got to

factor in the cost of the damage that they do.

Beyond that, in many countries, where the energy demand comes from,

fossil fuel products are subsidised. They are especially cheap. In the

Gulf region, one-litre is about a sense. They are very cheap.

Globally, we have about half a trillion US dollars as subsidies

for fossil fuels in order to bring them and -- to an air than take his

position. The first thing we have to do is to phase out the subsidies.

So there is room for renewables to You have seen what happens in

country like Nigeria, Jordan, the Middle East. When they tried to

reduce subsidies on fuel, you have riots, political unrest. That is

what happens. Exactly. The trouble is, $500 billion, many governments

say we have the subsidies to protect the poor. We have analysed,

8% of this $500 billion goes to the lowest 20% income earners. A maybe

you should be telling your members, the International Energy Agency,

made up of America, the Europeans, maybe they should stop subsidising

the coal industry. This is our number one... They are not

listening. Some of them are listening. Germany is making steps,

Poland is making steps. Otherwise we have double standards. What do

you say to your members who appear to have made a strategic decision

to move away from nuclear. We see in Germany, Italy, a bunch of other

countries since the Fukushima disaster, public policy has moved

away from civilian nuclear power. A fundamental mistake? It depends on

the country and the political context. If governments want to

move away from nuclear power, it is up to them. Our analysis shows it

may not be a wise decision. The cost of energy, the cost of

electricity in those countries will go up. The prices will go up.

Nuclear energy, if you replace them with renewables, a natural gas, the

price of electricity will go up. Nuclear energy produces electricity

without emissions. It has got other environmental problems. Exactly.

Reaching environment targets will be even harder. From the point of

view of competitiveness and climate change to leave nuclear power may

not be a wise decision. I think it is a decision some governments

should reconsider... You talk about competitiveness. The market is

sending signals that your analysis may be haywire. In the UK, the

government wants to see new nuclear investment. It is desperate to see

replacement generation capacity for the retiring nuclear plants. It

cannot convince many of the big players, whether it is German,

French or Chinese investors, it is going to make economic sense to put

new money into nuclear power. depends on the government. What

kind of framework Arie going to see? You think they should

subsidise? I do not think lifetime subsidies... May be licensing and

other things. When it comes to non- fossil fuel energies, I think there

is a need for governments to play a role to give a boost to that kind

of technology. It seems to me, the fundamental problem you have got,

your member nation states, the US, Europeans and others, who consume

energy, want the cheapest energy they can get their hands on. Right

now, for the foreseeable future, that looks like fossil-fuel energy.

As long as that is the case all of your warning noises about climate

change are not going to change the basic economic vacuolation these

governments make. -- calculation. We need to put a price on carbon.

If this price is not set, it will be very difficult to leave the

fossil fuels and make investments in a low carbon technologies.

you believe that so passionately, it is fascinating that you are

saying things that many of the environmental lobby say as well. If

you believe that, why is I a -- IAEA so keen to keep international

oil prices steady, stable and quite low. During the Libyan civil war,

you put 60 million barrels of oil onto the market. Why do you do

that? Why not let the price rise? When we had the first of four in

the early 90s... -- Gulf War. We had Hurricane Katrina. It is just

to bridge the gap. Why do it? Why not embrace disruptions to the

market? The fact that oil prices might rise dramatically? This is

the market running. Relying on fossil fuels in the future is not

sustainable. If it is a result of a market development we do not touch

it. If it is a physical... A war, a natural disaster, so on. Climate

change and others need stable price signals such as the carbon price.

What we need is higher energy prices as a result of setting a

carbon and also phasing out of fossil fuel subsidies. In Europe we

have carbon prices of about $10. Fossil fuel subsidies mean hundred

and $10 every ton of CO2... $110. How Heide you believe the oil price

has to go for it to send a signal to really change the nature of the

energy market place. -- high. According to our numbers and we

need a carbon price. You keep talking about that. Let's keep it

simple. Let's talk about the price of crude oil. People know it has

been over $100 a barrel for a long time. How much higher does it have

to go to change the way we use oil. In order to see a change on the

climate change front, we do not see an increase in the international

oil prices. We can put a tax to increase the prices. That is the

way to do it? The carbon tax? What do you think is going to happen to

the price of oil? We have the possibility of conflict over Iran's

nuclear ambitions. What is going to 12 next

12 months? There are very few races to see oil prices go down

substantially the --. -- reasons. The US is growing. I hope, looking

at the global economic recovery situation it will not go higher

majorbe a major problem for the global

economic recovery. Let's leave with a longer term thought. You do not

see for the moment the political will to impose the sort of carbon

charges that are necessary in the long-term? Are you pessimistic

about the long-term future? To be honest, I'm becoming more and more

pessimistic. When you look at the trends we are in line with a

temperature increase of six degrees. That will have devastating effects

for all of us. Despite the warnings we have unfortunately we are

following a terrible trend. If there are no major international

agreements the very soon around 2017, five years from now, we may

locking our energy infrastructure and say goodbye to our current

lifestyle. We were made to think about how we can cope with a new

lifestyle. Potter, much more frequent weather events, in some