IEA & Oilprice.com See Peak Oil Happening This Decade

Back in 2019 — before the Covid pandemic hit — the International Energy Agency (IEA) said it had peered into the future and could see no sign of “peak oil” happening any time soon. There was simply no end to the demand for oil and other fossil fuels in sight. A lot has happened since then. Covid brought a sharp decline in economic activity. Then the Russian invasion of Ukraine disrupted Europe’s decades-long dependence on cheap Russian methane gas.

In June, the IEA took another look into the future and announced “peak oil” was in fact on the horizon. Here’s what its latest prognostications had to say.

“Growth in the world’s demand for oil is set to slow almost to a halt in the coming years, with the high prices and security of supply concerns highlighted by the global energy crisis hastening the shift towards cleaner energy technologies, according to a new IEA report released today.

“The Oil 2023 medium-term market report forecasts that based on current government policies and market trends, global oil demand will rise by 6% between 2022 and 2028 to reach 105.7 million barrels per day (mb/d) — supported by robust demand from the petrochemical and aviation sectors. Despite this cumulative increase, annual demand growth is expected to shrivel from 2.4 mb/d this year to just 0.4 mb/d in 2028, putting a peak in demand in sight.

“In particular, the use of oil for transport fuels is set to go into decline after 2026 as the expansion of electric vehicles, the growth of biofuels and improving fuel economy reduce consumption.”

IEA Executive Director Fatih Birol said in June, “The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance. Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition.”

Defining “Peak Oil”

It is an article of faith among those of us at CleanTechnica global headquarters that the key to keeping the Earth habitable for humans in the future is to stop the extraction, transportation, processing, and burning fossil fuels — today. My colleague Michael Barnard has written extensively on the topic of “peak oil,” and readers are encouraged to check out his articles, which are insightful and cogent.

In March, he reported that orders for new supertankers — known as Very Large Crude Carriers — have plummeted recently. Indeed, only one of those giant ships is scheduled to be launched between now and the end of 2025. The business case for putting an asset in service when the need for it is likely to disappear before the end of its useful life is the very definition of a stranded asset. See more on that topic below.

Last week, Oilprice.com came to the same conclusion for different types of assets. In its analysis, it finds that energy demand grows less than half as much as economic growth but slightly faster than an increase in population.

“It is difficult to argue convincingly that something will come along big enough to upend these relationships over the short term. After all, the bulk of the buildings, vehicles, machinery and people that account for most of the energy consumption are already in place, and demand patterns change slowly. In 2012–2022, global real GDP grew at 3.0% per year, energy demand at 1.4% per year, and population at 1.1% per year,” it said.

The Growth Of Renewable Energy

Here’s an interesting statistic from the Oil Price folks. They say that over the last ten years, oil consumption has grown 0.8% per year, natural gas 1.7% per year, but renewables have grown at a whopping 12.5% per year rate. That makes it pretty clear what the future has in store. The bottom line for Oil Price is that they expect demand for fossil fuels to peak in 2027 — which is roughly in line with what the IEA said in June.

The surge in renewable energy is largely a result of Putin’s failed aggression in Ukraine. Deprived of cheap methane gas from Russia, Europe has made a hasty and largely unplanned switch to wind and solar power. (The UK is heading in the opposite direction, sadly.)

Once renewables get into service, they go to the front of the line in the power dispatch queue, displacing fossil fueled generation either because they have a preference or they are cheaper. That means they will have an immediate impact on usage of coal and methane gas, both electricity-generating fuels, rather than on oil, which does not count much in electric generation.

For that reason, Oil Price believes fossil fuels — especially methane and coal — will be displaced more quickly in the power generation sector than oil will be displaced in road transportation. Nevertheless, the bottom line is that fossil fuel consumption as a whole will slow down and peak in 2027, with “peak oil” lagging a few years behind coal and methane gas.

Oil Price cites several imponderables and unknowables that might alter its projections. A stronger world economy would require more energy. Since the supply of hydro and nuclear power is fixed and since large-scale renewables require several years to come online, fossil fuels would be left to fill the gap. A weaker global economy, on the other hand, would require less fossil fuel consumption. The recent focus on green hydrogen could dampen demand for fossil fuels and there is always the possibility that other wars will upend all projections and predictions.

Stranded Assets

Remember the talk about oil tankers and stranded assets above? Here’s the corollary. Oil Price warns, “If you are planning a big project, something like a pipeline for Vaca Muerta or to connect eastern Mediterranean gas to Europe, think about the implications of dumping a big new supply into a barely growing market. Will you get the price you want and your money out quickly enough?” Clearly, the publication is seeing a high probability of projects like that becoming economically unfeasible long before their useful life is up.

Peak Or Plateau?

Michael Barnard wrote in March of this year, “Many are pretending that peak oil demand will result in a decades-long plateau, but that’s wishful thinking. Why?

“80% of fuel demand is for ground transportation, and that’s all going to electrify. That’s low-hanging fruit. As I published recently, India is at 83% heavy rail electrification with a target of 100% within a few years. China is at 72% and climbing. Europe is at 60% and climbing. China’s 600,000 electric buses and 500,000 electric trucks make it clear that all but niches of off-road will be electric. Pipelines will see dwindling crude, gas, and diesel loads, with bankruptcies and consolidation, done strategically and well in some jurisdictions, and badly with fuel shortages in others.

“In western countries, new car sales are dropping, not rising. In a recent review of the statistics, I saw only one country, Germany, with any rise at all year over year, and that was 1%. Asian purchases are rising, especially in China, but China is already buying well over 60% of plug-in vehicles annually. Electric airplanes and electric ships will eat into fuel requirements for those segments steadily over the next 30 years, and biofuels will eat most of the rest.”

The Takeaway

People have been writing about “peak oil” for 50 years, but that tipping point is still elusive. The difference today is that commercial-scale wind and solar power are widely available and electric vehicles are traveling rapidly up the S-curve toward becoming mainstream. No one can say with precision when the high point of fossil fuels will occur, but the certainty that such a time is rapidly approaching gets stronger with each passing day.

There is little each of us as individuals can do to affect global demand for fossil fuels, but we can tend to our own garden. That means switching over to more efficient heating and cooling equipment, driving an electric car, making our homes more energy efficient, or possibly installing rooftop solar with a backup battery to lessen the amount of thermally generated electricity we use in our personal space.

It also means voting for representatives who will push the green energy agenda forward, regardless of what our personal grievances are against “them,” “the other,” liberals, and so forth. We are all in this together and it will take all of us to make the world safe for human habitation for millennia to come.

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