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Birol urges Middle East to diversify economies

International Energy Agency executive director tells World Energy Congress it is is vital that region looks beyond oil and gas

International Energy Agency (IEA) executive director Fatih Birol has warned that it is "imperative" for the Middle East to diversify its economy away from oil and gas in the face of the changing global energy landscape and competition within the sector from the US.

“More than at any other point in history, this region needs to diversify its economy. It is very urgent now, imperative, because in this region 80% of the fiscal revenues come from oil, and a giant new producer has come up in the oil markets — the US, which has huge implications,” Birol told the World Energy Congress.

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“Also, while oil demand will increase, this increase will be weaker than what we have seen in the past because of the technological developments such as electric cars and improvements in energy efficiency,” he said.

“Much of the oil (volumes) that will be exported from this region may be at a lower level than before and also the price may be lower.

"My suggestion is that it is now time to broaden the economy.”

Birol's recommendations come as the IEA's figures show that investments in the energy sector in the past two years have shifted away from oil and gas to accommodate growth in the power sector. Birol said that in 2014 around $1.3 trillion of investments were made in the oil and gas sector and less than $700 million was directed towards the power sector.

However, the market is now more balanced with 2018 investments in oil and gas down to around $700 million, roughly flat with those in the power sector.

“The oil and gas segment of the energy sector has always seen the largest investments. However, in the past two years, the power sector has grown," he said.

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"This is because we see an increase in renewables but also we see the electrification of our societies and a push for digitalisation, all of which will continue to grow."

The switch in the direction of investments comes as the global energy landscape is adapting to a changing world, focused on fighting climate change and working towards meeting the targets of the Paris Agreement by reducing emissions.

In this context, panellists at an afternoon session at the World Energy Congress, which also included Total chief executive Patrick Pouyanne and Eni chief executive Claudio Descalzi, said that while growth in renewable energy investments and capacity is welcome, it alone will not tackle climate change.

If serious about emissions, Birol said the oil and gas sector has to look at carbon capture and storage, nuclear energy and energy efficiency while also replacing coal with gas.

“Renewable energy generation is breaking records every year and yet emissions grow... we need to get all the technologies to work together to see results in fighting climate change and not pick a favourite and ignore the rest,” Birol said, referring to criticism that the latter move means replacing one fossil fuel with another instead of switching to a clean energy source.

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However, he added the IEA's data for the past five years suggest that the switch from coal to gas has so far resulted in 500 million tonnes of emissions reductions.

Birol’s view was supported by both Pouyanne and Descalzi, who said reducing emissions by replacing coal as an energy source with gas was part of their respective energy transition strategies.

Speaking on the same panel, Jean Pierre Clamadieu, chairman of French utility Engie said that amid a stronger focus on fighting climate change his company has had to adapt.

Engie last year sold its exploration and production business to private equity-backed Neptune Energy, and is now focused on natural gas, electricity generation, energy efficiency and renewable energy.

“There is a need to go faster and address emissions, (therefore) companies need to speed up the transformation of existing systems into greener sources,” Clamadieu said.

Francesco La Camera, director general of the Abu Dhabi-based International Renewable Energy Agency (IRENA) said the future energy mix will look different because oil would no longer be dominant.

“We need to reduce our footprint if we don’t want catastrophic consequences,” La Camera said.

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