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The International Energy Agency expects demand for oil to fall by almost half by 2050 if governments follow through on pledges to clean up energy supply, warning that oil and gas investments are no longer “safe or secure” for countries or consumers.
Fatih Birol, the head of the west’s energy watchdog, said the energy crisis triggered by Russia’s full-scale invasion of Ukraine, rising tensions in the Middle East, and record temperatures this year demonstrated the risk of continuing to rely on fossil fuels. The remarks come as the IEA publishes its annual World Energy Outlook report.
Birol was unapologetic about his longstanding call for new oil and gas investments to end, despite growing animosity from many producers in the sector, from energy executives in the US to the Opec cartel.
“Looking at the world today or tomorrow, no one can convince me that oil and gas represent safe or secure energy choices for countries and consumers worldwide,” Birol told the Financial Times.
Birol’s comments come after the second supersized oil deal this month, with Chevron agreeing to buy Hess for $53bn on Monday following ExxonMobil’s purchase of Pioneer, in a clear bet by two of the largest western oil and gas producers on the longevity of fossil fuels.
Chevron chief executive Mike Wirth criticised the IEA directly for forecasting fossil fuel demand will peak before the end of this decade, saying he did not think it was “remotely right”.
Asked about the deals, Birol said “larger-scale fossil fuel investments” not only posed a “risk for our climate but also have some business risks as the world may not need an increase of oil production”.
The IEA said in its report that risks stemming from over-investment in fossil fuels have “evolved” as governments sought to bolster energy security following the war in Ukraine, including by increasing investment in liquefied natural gas to replace Russian flows.
While “an unprecedented surge” in new LNG projects from 2025 would ease concerns about supply, the prospect of over-investment means “the fears expressed by some large resource-holders and certain oil and gas companies that the world is underinvesting in oil and gas supply are no longer based on the latest technology”.
As reported by the FT in September, the IEA’s 2023 report is its first annual outlook to project that global oil, natural gas and coal demand will all see a peak before 2030.
According to the IEA’s latest scenarios, which are based on government policies and proposals, it expects oil demand to drop to 92.5mn barrels per day by 2030 and 54.8mn b/d by 2050, if all pledges announced by governments are met. Oil demand rose above 100mn b/d for the first time in 2019.
But the IEA’s scenarios also paint a more troubling picture for the environment if governments fail to follow through on pledges and stick with existing policies, showing oil demand would barely fall by 2050, declining to just 97.4mn b/d.
Opec earlier this month forecast oil demand would rise to 116mn b/d by 2045, in a sign of the stark divergence between producers and the IEA.
If all government pledges are met, the IEA believes “unabated” fossil fuels’ share of global energy supply in 2050 will amount to just 32 per cent, compared with 80 per cent in 2022.
Renewables, biomass, nuclear, and coal and gas generation where carbon emissions are captured and stored would make up 66 per cent of global energy generation.
The body hailed progress and investment in clean energy that have put renewables on course to power this transition. However, government policies needed to become far more ambitious to limit global warming to 1.5 degrees Celsius, the critical threshold of the 2015 Paris agreement.
Global emissions are still set to remain high enough to push up global average temperatures by about 2.4 degrees Celsius this century, the IEA said, leading to “very widespread and severe impacts from climate change”.
The prospect of exceeding the 1.5 degrees Celsius target would make the upcoming COP28 climate conference in the UAE “maybe as important” as the 2015 meeting where the target was agreed, Birol said.
Under the IEA’s most ambitious “net zero” scenario, which could allow the 1.5 degrees Celsius limit to be maintained, unabated fossil fuels would make up only 12 per cent of global energy demand by 2050.
Referencing wars involving Ukraine and Israel, he said: “The biggest challenge is fragmentation.”
