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Record demand growth, ‘artificial’ supply constraints push up energy prices: IEA

24 November 2021

The rise in energy prices has five main causes, according to Fatih Birol, the executive director of Paris-based energy watchdog, the International Energy Agency. But some are avoidable, he said in a 24 November webinar. More oil and gas could be brought to market, but supply was constrained by Opec+ in the case of oil; and by Gazprom in the case of gas.

Some oil and gas suppliers “have not taken a helpful view,” he said – adding that he had also talked to other governments about the need for more aggressive demand-side policies.

He was speaking as Dated Brent crude was trading about $82/barrel – despite the US Administration and other governments promising to release some of their strategic reserves. Short-term (spot) gas was over $30/mn Btu at the Dutch Title Transfer Facility.

Economies have grown by 6% year on year, he said, which had pushed demand for oil and gas after the slump in 2020. Gas demand was up by 5%, while oil was up 7% or 6mn barrels/day (b/d) – a long-term record. However, Opec+ has been withholding about 6mn b/d from the market; and Gazprom has let its European storage reserves fall to very low levels, despite having the gas to deliver, he said.

But the shortage had other causes too: some sprang from prolonged maintenance upstream caused by COVID. LNG production facilities exceeded the average outage times by 30%, considering both planned and unplanned outages. And there had also been a sustained under-investment in oil and gas dating back to the 2014 slump, he said.

And fifth and last, there have been adverse weather conditions, notably droughts in Brazil, China, India and US which have reduced hydro-power output and so pushed up demand for gas.

The high prices have forced a number of UK retailers into bankruptcy, most lately Bulb Energy. WIth 1.7mn customers it is much the largest failure so far. It was trapped between rising wholesale prices on one hand and the price cap, which meant it could not raise prices, on the other.

There has also been demand-side response from UK and continental industry.

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