- International Energy Agency says there's around a decade until peak fossil fuel demand
- A clean energy ramp up could quicken peak oil and gas, as the world is currently on track to hit 2.5 degrees of warming by 2100
Oil and gas companies remain on track for the most profitable year in their existence, but the International Energy Agency (IEA) has reaffirmed its estimate of peak demand for fossil fuels: 2030 for gas and 2035 for oil. In the interim, gas demand growth will slow to 0.4 per cent a year, the report said, compared with 2.3 per cent between 2010 and 2019.
Previous peak oil estimates by consultancy Rystad Energy had seen oil demand top out at over 106mn barrels per day (bopd); the IEA has put it at 103mn bopd, driven by advanced economies shifting to electric vehicles. A quicker shift to EVs could bring the peak to as early as the mid-2020s, however.
The agency’s latest energy outlook comes after two years of rising oil and gas demand, and disrupted supplies – first from the Opec cartel and private companies that opted not to materially ramp up supply during the Covid-19 rebound, and then as Russian oil and gas was largely removed from Western markets due to the war in Ukraine. The IEA forecasts are reached via a ‘stated policies scenario’, which is based on current policies and government strategies.
Despite 2030 not being far off in capital allocation and project life terms, peak demand for oil, gas and coal could come sooner if current rates of growth for solar and wind power and electric vehicle take-up are maintained. This would also bring down the forecast temperature increase – the current trajectory is for global warming to reach 2.5 degrees by the end of the century, well beyond the Paris accord goal of 1.5 degrees.
Rystad said high gas prices were likely to spur more renewables investment given wind and solar are far cheaper than fossil fuel options. “For Europe’s utilities and member states, at prices over €100 (£86) per megawatt-hour (MWh) it is unsustainable to continue generating electricity using gas, especially when solar PV [photovoltaics] and onshore wind offer far cheaper alternatives,” the consultancy said, although it highlighted that gas would continue to “play an important role in the European power mix”. Rystad’s gas price forecast for 2030 is €30/MWh, below the average 2021 price of €46.
The short term has countries looking for new sources of gas, however. Prices are currently far below the highs of recent months, but forecasts for next winter are dire as storage will be depleted after a summer without Russian gas imports into Europe.
The IEA said investing in fossil fuels was not the route out of the current energy crisis.
“In the most affected regions, higher shares of renewables were correlated with lower electricity prices – and more efficient homes and electrified heat have provided an important buffer for some consumers, albeit far from enough,” it said. But the report did highlight the need to replace Russian supply, pointing to new onshore shale gas production as a quick solution.
The IEA had previously said there should be no new oil and gas projects, and also maintained that the current energy squeeze could speed up the transition away from fossil fuels. “Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system,” said IEA executive director Fatih Birol, who added that the existing forecast of $2tn (£1.73tn) in green spending by 2030 is only half that needed for the planet to be on the path to net zero.
Current major spending programmes include the Inflation Reduction Act in the US, which will send $369bn to energy and climate projects, and the EU’s RePowerEU programme.
The IEA report included some findings that the oil and gas industry would agree with heartily. “Subdued investment due to lower prices in the 2015-20 period made the energy sector much more vulnerable to the sort of disruptions we have seen in 2022,” it said.
Before this year, a shift in investing appetites has seen capital move to renewable energy and other green projects, as energy companies trade like traditional sin stocks: high dividend yields and low valuations.
ExxonMobil (US:XOM) chief executive Darren Woods said his company – which posted earnings of just under $20bn for the three months to 30 September – was an outlier for putting cash into new supply. “You’ll recall back in 2020 we made the point that the industry is underinvesting,” he said.
“We continue to lean into the investments, to spend at a rate higher than the rest of [the] industry, so that when the call came, we would be there to answer.” Exxon has also been an outlier compared with other supermajors for other reasons in recent weeks, as its third-quarter profits were higher than those posted in the previous three months.
