What now for peak oil? Unpacking the IEA’s shift on fossil fuel demand

The International Energy Agency’s latest outlook indicates that oil demand could continue to rise into the middle of the century; This reflects a sharp shift in tone in the world’s energy watchdog and raises further questions about the future of fossil fuels.

On the flagship World Energy OutlookThe Paris-based organization on Wednesday laid out a scenario in which oil demand would rise 13% from 2024 levels to 113 million barrels per day by 2050.

The IEA has previously predicted that global fossil fuel demand will peak before the end of this decade and said there should be no new investment in coal, oil and gas projects to reach net zero emissions by 2050.

The concept of peak oil refers to the point at which global crude oil production reaches its highest point and then enters an irreversible decline.

The IEA’s forecast for peak oil by the end of the decade set off a long-running war of words with OPEC, an influential group of oil-exporting countries, which accused the IEA of fear-mongering and risking destabilization of the global economy. Meanwhile, US Energy Secretary Chris Wright said, labeled IEA’s assumption of peak oil demand is “absurd”.

The IEA’s latest forecast for rising oil demand is summarized in the “Current Policies Scenario”, one of a series of scenarios outlined by the IEA. This assumes there are no new policies or regulations beyond those already in place.

CPS was abolished five years ago and then reintroduced amid energy market turmoil during the coronavirus pandemic pressure From the Trump administration.

Earlier this month the IEA in question Now that the world is recovering from the pandemic and global energy crisis, “it pays to revisit the CPS.”

The agency said that increased oil demand will primarily be driven by demand for petrochemical products and jet fuel, as well as the slowdown in the growth of electric vehicles.

Analyst Gregory Brew from Eurasia Group’s Energy, Climate and Resources team said the IEA’s withdrawal from peak oil demand represented a “major shift” in the group’s position over the past five years.

“Justifications given for the switch include policy changes in the US, where slow EV penetration points to strong oil [consumption]“But it is also linked to expected increases in petrochemical and aviation fuels in East and Southeast Asia,” Brew told CNBC via email.

“With the Trump administration criticizing the group’s alleged bias in favor of renewable energy, the agency is unlikely to adjust based on political pressure — and the shift reflects a broader skepticism that oil demand will peak any time soon,” he added.

In the statement published on OPEC’s website in question: “We hope that the IEA’s World Energy Outlook represents a return to energy fact-based analysis and that we have passed the peak of the misguided ‘peak oil’ concept.”

Alongside the CPS, the IEA has also put forward projections called the “Specified Policies Scenario” (STEPS) that reflect the current direction of travel for the global energy system.

Under this assumption, the IEA said it expects oil demand to peak at 102 million barrels per day around 2030 before gradually falling. In this scenario, global electric car sales are much stronger compared to CPS.

The IEA said its multiple scenarios explore a range of outcomes resulting from various policy choices and should not be treated as predictions.

Grant Hauber, an energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), stated that the IEA’s CPS looks like a “capitulation” scenario by the US administration and that current energy market trends are somewhat flattened.

“This is leading to what almost looks like a false dawn of LNG demand, which could embolden those invested in the U.S. LNG export boom. CPS is ‘creating’ enough global LNG demand to justify growth through 2035,” Hauber said.

“However, one only has to look at the STEPS scenario to see how fragile this outlook is. The supply-demand match quickly evaporates over the same time period, leading to a glut of LNG. This is happening even with more modest additions to STEPS’ renewable energy, efficiency and electrification measures,” he added.

The energy watchdog predicted global temperatures would rise by more than 1.5 degrees Celsius in all of the IEA’s scenarios.

scientists He has repeatedly warned that global average temperatures should not rise by more than 1.5 degrees Celsius to avoid the worst of the climate crisis.

This threshold is considered a very important long-term target because tipping points are more likely to occur beyond this level. Tipping points can lead to dramatic changes or potentially irreversible changes Some of the largest systems in the world.

Extreme temperatures, the main cause of which is the climate crisis burning fossil fuels.

Lars Nitter Havro, head of energy macro at Rystad Energy, said the IEA’s reintroduction of the CPS represented a “tonal shift” but should not be seen as a “wholesale rollback” of peak oil.