The International Energy Agency (IEA) expects oil markets to reach a balance between supply and demand in 2017 as the current oil glut slowly eases, IEA chief Fatih Birol said during meetings in South Korea.
The head of the Paris-based agency also exchanged views with energy minister Joo Hyung-hwan on the direction of the world’s energy markets in the wake of the renewed commitment to tackle climate change after last year’s Paris climate talks, South Korea’s Energy Ministry said in a statement on Thursday.
The IEA forecast in its August report that oil markets will slowly tighten in the second half of 2016 as global demand growth declines and non-OPEC supplies rebound.
“Oversupply of oil markets will gradually be eased and (oil markets) will find a balance between supply and demand in 2017,” Birol said in the statement.
In a separate interview with Reuters after the statement was released, Birol said he saw two drivers for the rebalancing of the oil market.
The first is a drop in production from countries outside of the Organisation of the Petroleum Exporting Countries (OPEC) of about 900,000 barrels per day (bpd), especially in the United States in 2016. The second is “demand that is growing in a healthy way” and that the IEA expects to climb by 1.4 million bpd this year.
“We may be on a higher side compared to others (forecasts), this is mainly because we’re more upbeat when it comes to Europe and emerging Asia demand in demand growth,” he said.
In the statement, Birol also said there is concern that a decline in upstream oil and gas investments because of the prolonged low oil prices could increase oil price volatility.
The statement added that Birol believes the start of the new climate regime after Paris would spur research and development investments on clean energy technology, with fast growth expected from the solar, wind power and electric car sectors.
Birol noted in the interview that solar energy costs have dropped by 80 percent over the last five years and wind power costs have declined by 35 percent which means more countries can afford them.
“Several years ago renewables were considered to be a romantic story but now it’s becoming a business,” he said.
Birol also commented in the interview on how changes in the global liquefied natural gas (LNG) markets could affect South Korea, the world’s second-largest LNG buyer, and other countries, particularly regarding destination clauses that restrict LNG sales to the country of delivery.
“A lot of gas is coming to markets … and this creates a historic opportunity to push for flexibility in gas contracts, especially destination clauses,” he said.