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Fatih Birol interview in Le Monde full translation

This interview was first brought to anglophone readers in a partial translation by Jerome a Paris and has been widely reported. This is the first full translation to hand.

Matthieu Auzanneau ( : In September 2005, in the columns of the World, you launched this warning to the black gold consuming countries: "Abandon Oil". Do you feel you have been heard?

Fatih Birol : Each day, the oil market becomes more difficult, because of the rate of growth in demand and the concentration of production in a very small number of countries. Since 2005, the rise in the price of each barrel was confirmed: the current price, now approaching 70 dollars, is an important signal for the large consumer countries.

The economy accepted virtually without difficulty this raising of barrel prices.

You are right, the rich economy accepted this. But the world does not stop with the rich countries. Africa is in great difficulty. The debt grows to buy oil. For future generations, this is becoming a dire situation. But the energy invoice and the deficits are also deepening in the United States, for example. The United States and the European Union try to use oil much more effectively, in order to reduce the growth of the demand for oil. Thus there was a reaction from the consumer countries.

Is this reaction what you were predicting?

The production of oil is increasing little by little in OECD countries. But it should be stressed that a large share of the rise in demand comes from China and, and to a lesser extent, India. China accounts for the moment for 70 cars per thousand inhabitants, as opposed to 680 in Europe and 860 in the United States. If the Chinese want to catch up with the consumption level of the Western nations, what will occur?

Is there production capacity available anywhere to accommodate such an increase in demand?

From now to 2015, the market and the oil industry will be severely tested. In the next five to ten years, oil production from non-OPEC producers will reach a peak before starting to decline, for lack of sufficient reserves. As each day passes, new evidence of this fact appears. At the same time the peak of the economic expansion phase of China will take place. The two events will coincide: the explosion of the growth of the Chinese demand, and the fall in production of non-OPEC oil. Will our oil system be it able to answer this challenge, that is the question.

Do the Chinese leaders have the will and the capacity to slow down their demand for oil?

This will does exist. To set up a radical energy policy is easier in China than in a country having a political régime, that is, say, different. On other hand, the Chinese wish to benefit from the Western life style. As any Chinese might say himself: "if I have the money, why would I not buy a car?" I think that the Chinese government will not be able to do better than slow down growth rate: there will always be a very strong growth in demand for oil, no matter what happens. The oil industry must take account of this fact and take all necessary measures.

Can one envisage what will be the rate of this growth?

It is a great unknown factor: what is the Chinese growth potential for the ten next years: 6 % per annum, 7 %, 10 %? These different rates will have very different implications in the world.

Bio-fuels, don't they constitute a response to this challenge?

Once again, the figures should be looked at, rather than listening to the rhetoric. Many governments encourage bio-fuel consumption, particularly in Europe, Japan and the United States. Some of these policies are not founded on a solid economic rationality: the bio-fuels will remain very expensive to produce. But even if these policies were to end, we think that the market share of these bio-fuels in 2030 will only be 7 % of the global production of fuels. To reach these 7 %, one will need an agricultural area equivalent to the surface of Australia, plus those of Korea, Japan and New Zealand...

This competition with the land area devoted to traditional agriculture is likely to have consequences on the price of harvests.

Yes, it is already the case, and it is not good. And then there are also difficulties related to the environment: more and more studies prove that the bio-fuels do not automatically reduce greenhouse gas emissions when compared with oil. It is also a large concern. Thus for both economic and environmental reasons, 7 % of the total production of fuels is a very, very optimistic figure. The agricultural fuels will never replace the oil of OPEC, as some hope. Their contribution will remain minor.

What are the potential contributions from the new oil fields of Africa?

What awaits us in Africa is nothing revolutionary: a few hundred thousand barrels per day here or there in West Africa. That will not change anything basically. Then, where will the new outputs come from? The two only countries which can really change the course of history are Saudi Arabia and Iraq. They can bring to the market a significant additional volume of crude, if they wish. But under what conditions? We have here too an enormous question mark. Here the unknown factor is the reserves figures.

Are there reasons to expect nasty surprises on this issue?

I believe that the Saudi government speaks about 230 billion barrels in reserves. I do not have official reasons not to believe them. However Saudi Arabia, just as the other producer countries and the international firms should be more transparent in the presentation of their figures. Because oil is a very crucial commodity for us all, and it is our right to know, according to international standards', how much oil remains.

Is there a short-term risk?

One bases oneself on the assumption of an average rate of decline of the production of the existing oil fields of 8 % per annum. It is already much: for a dollar invested in order to increase the extractions, it is necessary to invest three dollars to compensate for this decline. But what would it occur if, any made accounts, the rate of decline were 9 %? The additional quantity of oil which would have to be found to compensate for the difference is equal to the rise of the oil consumption of the OECD countries envisaged from here at 2020.

Saudi Arabia recognizes a fast decline of several of its principal fields...

I can confirm that Saudi Arabia is able to reach an output of 15 million barrels per day (Mb/d) between now and 2015, as compared to 12 Mb/d today, in accordance with the obligations of the Saudi Minister for oil, Ali Al-Nouaïmi. However these 3 additional Mb/day, are about all that is possible in the face of the envisaged rise of world demand for oil [ this demand is today 83 Mb/d ].

And Iraq?

If production does not increase in Iraq in an exponential way between now and 2015, we have a very big problem, even if Saudi Arabia meets its obligations. The figures are very simple, you do not need to be an expert. It is enough to know how to do a subtraction. China will grow very quickly, India also, and even Saudi Arabia projections of the 3 Mb/day will not be enough to meet the rise of Chinese demand.

But, considering the current situation in Iraq, it is very improbable that this country will reach its optimal production capacity just like that!

If this situation improved radically, how long would it take for the Iraqi oil industry to reach its optimal capacity?

Iraqi Officials mention about 3 to 5 years. They know better than me. Even if what they say is correct, and that all goes well in Iraq, it will be in any event a long process.

Thus I repeat, the oil industry will face a very serious test between now and 2015: with the decline of non-OPEC production and the peaking of growth in China, the gap between supply and demand will widen to a significant degree.

What happens to large private oil companies in this new scenario which, according to you, will be dominated more and more by confidence in the producer countries?

These "majors" [ Exxon, Rafter-Texaco, Shell, LP and Total ] will be in difficulty. They will not have additional access to new outputs. They must redefine their strategies, otherwise if they continue to concentrate on oil, they will have to be satisfied with markets of niches.

You say that they will not remain "majors" for much longer?

It is what I say. In spite of the big rise in the barrel price, which enabled them to invest, the "majors" could not reconstitute their reserves! [ see computer graphics: "average Rate of replacement of reserves of the five principal international oil companies" ].

Thus if things do not improve in Iraq...

... there is a wall, a great test in front of us, if the Western powers and also China and India do not revise their energy policy in a substantial way, by taxing oil more, by seeking more energy effectiveness.

We are not on the correct path. World oil consumption is growing ever more quickly.

Unfortunately, there are many words, but few acts. I really hope that the consuming nations will understand the gravity of the situation, and will set up very strong and radical policies to slow down the growth of the demand for oil.

Such a step would play in favour of the fight against global warming, a fight with a still very dubious end scenario...

I believe that there are many ways to fight climate change. But it is necessary to be very clear: if you want to solve the problem of the warming, it is impossible to do it without India and especially without China, which has just become the top global greenhouse gas emitter. China is the key.

On their own, between now and 2030, the Chinese could emit more than twice as much carbon dioxide than the rest of the OECD countries [ See computer graphics: "Rise of the CO 2 emissions of 2004 to 2030 in China, India and in OECD" ]. There will be no direction in the measures we need to take if China does not take part.

Example: Europe committed itself to reducing its emissions by 20% between now and 2020. Some say that it is realistic, others say that that is not it. But that is not the question. At its current emissions rate, China will need only one and a half years to emit the emissions which Europe says it will save!

You meet many Chinese persons in charge. Is the climate a major concern for them?

The first concern of the Chinese leaders, is growth and the economic effectiveness. Of course, they are concerned with the problems of the environment, but in fact the local problems worry them more. The air pollution of the east cities in their eyes is more important than climate change.

However, they take global warming very seriously, but I think that the first step must be taken by the Western countries, which will have to offer their assistance and give good reasons to China to join the combat.

Interview by Matthieu Auzanneau (Le Monde), translation by Michel Stasse, energy consultant and longtime moderator of the ROEOZ elist.

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