Pumpjacks operate near the site of a new oil and gas well being drilled in Midland, Tex. on April 8, 2022.Eli Hartman/The Associated Press
Global oil demand is projected to peak by the end of the decade as climate and energy-security risks push countries to accelerate electrifying their economies to meet surging demand, the International Energy Agency said on Wednesday.
Demand for crude oil will hit a tipping point before 2030, leading to stiffer competition among producing countries and falling prices, the Paris-based agency said in its annual World Energy Outlook, while cleaner energy sources keep expanding their reach in transport and power generation.
After the peak, the IEA said, the reduction in oil demand will be gradual through the subsequent decade, based on countries’ current stated policies.
That makes achieving the goal of net-zero carbon emissions all the more difficult. But it should provide a “buffer” against risks of energy-market disruption as technology such as electric vehicles, computer-chip manufacturing, data centres and artificial intelligence soak up increasing amounts of power, it said.
The energy-security watchdog’s report, which examined a range of potential future scenarios, highlights the difficulties in balancing the need to slash emissions and provide affordable and reliable energy, all against the backdrop of global conflict and climate-driven disasters.
“After the Age of Coal & Age of Oil, the world is moving rapidly into the Age of Electricity,” IEA executive director Fatih Birol wrote in a social-media post.
Electricity supplies grew at double the rate of total energy demand from 2010 to 2023, and that is projected to increase to six times as fast between now and 2035, he said.
Much of the expected increase will be fed by renewables, with solar energy supplying the most by 2035, followed by wind, the agency predicted. Coal-fired generation is projected to peak in 2026, then fall by 36 per cent by 2035.
Despite this, based on current policies, the world will miss the target of limiting the rise in temperatures to 1.5 degrees above preindustrial levels by 2100, the amount by which scientists say will prevent the worst effects of climate change, the IEA said. Current policies suggest global warming of 2.4 degrees.
Military conflict in Ukraine and in the Middle East have not inflamed oil prices as would have been expected historically, when threats of supply disruptions loomed. U.S. benchmark West Texas Intermediate crude sold for about US$70.50 a barrel on Wednesday, well off this year’s highs.
Still, the IEA said it rates the potential for disruption as high, pointing to the fact that a fifth of the world’s oil and supplies of liquefied natural gas flows through the Strait of Hormuz, where maritime security is a major concern.
The hostilities underscore the need to diversify energy sources that emphasize clean alternatives. Yet even that comes with its own risks, including the concentration of market power within clean-energy supply chains, the agency said.
Rory Johnston, founder of Toronto-based market research firm Commodity Context, said the oil-demand peak forecast is not as remarkable as the near plateau that follows it. The forecast shows that, absent of some dramatic change in policies aimed at slashing emissions, oil consumption will linger, especially in emerging markets and for petrochemical manufacturing.
“There will be further growth in biofuels et cetera, so you see some substitution and pressure on petroleum products specifically,” Mr. Johnston said. Under a net-zero scenario, the reduction would be far steeper, but the stated policy projection suggests “a small-c conservative view” of energy transition.
With the stated policies, output peaks at about 102 million barrels a day in 2029, and remains above 98 million beyond at least 2035. Like oil, demand for coal and natural gas will also peak before 2030, but the IEA stressed that trends vary across countries that are at different stages of energy and economic development.
Mr. Johnston said Alberta’s oil sands could survive such a future, given the long-term investment horizon and variety of non-fuel products derived from the supplies.
“In that scenario, crude prices are kind of level around the mid US$70s a barrel in real terms to 2050. That’s a scenario where the oil sands kind of thrive in, particularly if it is relative to slower growth from the U.S.”
Under a more stringent set of net-zero policies, he said, that would not be the case.