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The article below is an excerpt from our Q1 2024 commentary.
The following is an excerpt from an open letter written by John Barrasso, M.D., Ranking Member of the US Senate Committee on Energy and Natural Resources, and Cathy McMorris Rodgers, Chair of the US House Committee on Energy and Commerce, to Dr. Fatih Birol, Executive Director of the International Energy Agency dated March 20th, 2024:
Dear Dr. Birol:
We are writing to you because we are concerned that the International Energy Agency (IEA) has strayed from its core mission—promoting energy security.
Indeed, we would argue that the IEA has been undermining energy security in recent years by discouraging sufficient investment in energy supplies—specifically, oil, natural gas, and coal. Moreover, its energy modeling no longer provides policymakers with balanced assessments of energy and climate proposals. Instead, it has become an “energy transition” cheerleader.
[…]
The IEA also provides global energy forecasts as part of its mission. As you have noted, IEA forecasts tremendously influence how the world sees future energy trends. Consequently, the IEA must conduct its energy security mission objectively. We believe the IEA is failing to fulfill these responsibilities.
Although it took quite some time, people finally realized how misguided the International Energy Agency has become and the potential danger embedded in its bias. In our 2Q22 introductory essay, “The IEA Ushers In the Coming Oil Crisis,” we detailed many of the same concerns Senator Barrasso and Congresswoman McMorris shared.
The IEA was established by the Organization for Economic Co-operation and Development (OECD) to monitor oil supplies following the 1973 oil crisis. Its central mission was to prevent shocks caused by unanticipated severe oil supply disruptions, by thoroughly researching and reporting on global energy markets. In an ironic twist, on May 18th, 2021, the EIA released a white paper entitled “Net Zero by 2050.” In the report, the IEA insists that the global energy industry significantly curtail upstream investments and redirect capital into renewable energy. The irony of the widely cited report is apparent: were the industry to follow its advice, the IEA would usher in the supply shock it was created to prevent. Verging on the absurd, Dr. Birol even included the IEA’s mission statement in the report: “Since the IEA’s founding in 1974, one of its core missions has been to promote secure and affordable energy supply to foster economic growth.”
Earlier in this letter, we analyzed two periods when oil prices rose more than ten-fold. In each case, non-OPEC supply growth slowed, ceding market share and pricing power to the OPEC bloc. If energy companies heed the IEA’s advice, OPEC will gain market share again and prices will likely rise. This reality was not lost on the IEA: “The contraction of oil and gas production will have far-reaching implications for all the countries and companies that produce these fuels. […] Supplies will become increasingly concentrated in a small number of low-cost producers. OPEC’s share of the much reduced global oil supply will grow from around 37% in recent years to 52% in 2050 -- a level higher than at any point in the history of oil markets.”
It is naïve for the IEA to think OPEC will not exercise pricing power given its rapidly rising market share. In the 1970s, the OPEC market grew by six percentage points, and prices surged ten-fold. In the 2000s, it grew by three percentage points and prices rose thirteenfold. By the IEA’s own admission, its proposed policies will see OPEC’s market share grow by fifteen percentage points. What impact will these policies have on price?
We invite you to read the Senator and Congresswoman’s full letter (available below).
The choice between energy security and climate change is a false one. There are solutions that address both concerns, such as natural gas and nuclear power. Unfortunately, the IEA seems uninterested in seriously addressing the issues. Instead, they remain aggressive advocates of energy policies designed to usher in the next energy crisis. At least others are taking notice.
Intrigued? We invite you to download or revisit our entire Q1 2024 research letter, available below.
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