Monday , 25 September 2023

IEA Believes Peak Oil Before 2030 But OPEC Calls Projection “Dangerous”

In an op-ed featured in the Financial Times this week, Fatih Birol, the Executive Director of the International Energy Agency (IEA), articulated the IEA’s projections, signaling an impending “historic shift” in global energy demand and the potential peaking of oil demand before 2030.

The International Energy Agency (IEA) is set to release its World Energy Outlook, projecting a significant turning point in the global energy landscape. Even without new climate policies, the IEA anticipates peak demand for oil, gas, and coal within this decade. This development is driven by several factors.

Key Factors Driving the Changing Energy Landscape

Firstly, the rapid growth of clean energy technologies, such as solar panels and electric vehicles, is reshaping the energy sector. Solar and wind power, in particular, are dominating the expansion of electricity systems, reducing the demand for coal. China, the largest coal consumer globally, is also shifting towards renewables and nuclear power, further diminishing coal’s role.

Secondly, the growth of electric vehicles, especially in China, is reshaping the oil market. Electric buses and e-bikes are gaining traction in emerging economies, reducing oil demand.

Thirdly, the “Golden Age of Gas,” which was anticipated in 2011, is coming to an end. Renewables are increasingly outperforming gas in electricity generation, and the rise of heat pumps and Europe’s shift away from gas after the Ukraine crisis are contributing to a decline in gas demand.

However, declines in demand will not follow a linear path. Temporary fluctuations can occur due to factors like heatwaves, droughts, and energy security challenges.

Investment in oil and gas supply remains necessary to address steep declines from existing fields. However, major new oil and gas projects may face economic, financial, and climate-related risks.

OPEC’s Call Projections “So Dangerous”

Later on in the week, the Organization of the Petroleum Exporting Countries (OPEC) contested the projections made by the IEA regarding the peaking of fossil fuel demand in 2030.

OPEC, led by top oil exporter Saudi Arabia, expressed concerns about the IEA’s projections, primarily due to the accompanying calls to halt new investments in oil and gas. OPEC’s Secretary General, Haitham Al Ghais, argued that such narratives could lead to energy chaos on an unprecedented scale and have dire consequences for economies and populations worldwide.

Fossil Fuels Generate 80% of the World’s Energy

OPEC countered the IEA’s projections by emphasizing that the IEA does not consider the ongoing technological advancements in the oil and gas industry aimed at reducing emissions. Furthermore, OPEC pointed out that fossil fuels still account for 80% of the world’s energy mix, a figure unchanged from three decades ago.

Fatih Birol acknowledged that the forecasted decline in fossil fuel demand, even under current government policies, falls short of the necessary reduction to limit global warming to the more ambitious target of 1.5 degrees Celsius outlined in the Paris climate agreement.

OPEC’s stance is one of pragmatism, emphasizing the need to address energy poverty, meet rising energy demand, and ensure affordability while reducing emissions. They call for recognizing the short- and long-term energy realities and not dismissing any energy sources or technologies.

Final Thoughts

The IEA’s projections indicate a historic shift in global energy demand, presents an opportunity for cleaner energy systems, and underscores the need for stronger climate policies.

However, OPEC has challenged the IEA’s projections of fossil fuel demand peaking in 2030, citing concerns about the potential consequences for the global energy system and economies. OPEC argues that technological advancements and the continued reliance on fossil fuels in the world’s energy mix need to be considered.

Decision-makers must adapt to the changing energy landscape and be prepared for potential acceleration in the clean energy transition but a balanced approach is necessary to address energy challenges while reducing emissions.

FIGURE 1: 5-YearCrude Oil Chart
Oil Chart - 5-Year
Source: S&P Capital IQ

About the Writer: Christopher P. Thompson, CFA, MBA, P.Eng, is the President and Director of Equity Research at eResearch. He is a Professional Engineer and CFA Charterholder with an MBA in Investment Management and over 14 years of experience in the Capital Markets covering industries including mining, FinTech, industrials, oil & gas, software development, technology, and telecommunications.

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