Demand for oil will keep growing for decades even if the Paris climate agreement is fully implemented, the International Energy Agency has predicted, putting it at odds with a chorus of voices forecasting a quicker shift away from fossil fuels.
The global energy advisory body said that, while the UN accord would accelerate the uptake of clean technologies such as electric cars, it would not prevent oil consumption continuing to rise until at least 2040.
“Peak oil demand is not in sight,” said Fatih Birol, the IEA’s executive director. “Demand will increase at a slower rate than in the past but it will still increase.”
His comments, ahead of the publication of the agency’s annual energy market outlook on Wednesday, will intensify debate over how much longer oil will remain a dominant source of global energy. The question is attracting increasing attention from investors as oil companies wrestle with how to respond to the changing landscape.
One of the scenarios mapped out in a long-term forecast by the Opec producers group last week predicted that demand might peak within 15 years if the Paris agreement were fully implemented and alternative fuels displaced petroleum in cars.
Royal Dutch Shell, one of the world’s biggest producer companies, recently said peak demand could come within five to 15 years. Meanwhile Fitch, the credit rating agency, warned of a “resoundingly negative” threat to the oil industry if electric vehicles took off quickly.
However, Mr Birol said that, even if the number of electric cars increased from 1.3m last year to 150m in 2040, as predicted in the IEA’s main scenario, other sources of demand would keep pushing oil consumption higher. These included road freight, aviation and chemicals manufacturing — areas where oil is harder to substitute.
Trucks alone would account for one-third of oil demand growth between now and 2040, the IEA predicted, with much of the increase coming in China, which is on course to overtake the US as the world’s largest oil consumer in the early 2030s.
There is growing consensus that an irreversible transition to clean energy is under way as part of international efforts to tackle climate change and air pollution. However, the IEA report largely sides with those who expect this to be a gradual rather than sudden process.
“The collective signal sent by governments in their climate pledges … is that fossil fuels, in particular natural gas and oil, will continue to be a bedrock of the global energy system for many decades to come,” the IEA said.
Mr Birol said a more immediate problem for the oil industry than peak demand was lack of investment in new production.
Next year was likely to see a third consecutive annual decline in capital expenditure by oil producers, he predicted, as the industry continued to retrench from the crude price crash that got under way in 2014.
This would be the longest investment downturn in industry history and threatened renewed supply shortages and price spikes in years ahead.
“We are entering a period of great oil price volatility,” Mr Birol said, noting that the equivalent of Iraq’s entire annual oil production needed to be added to global supplies every two years simply to replace the decline in existing reserves.
The collective signal sent by governments in their climate pledges … is that fossil fuels, in particular natural gas and oil, will continue to be a bedrock of the global energy system for many decades to come
Even though growing domestic production of shale oil would allow the US to all but eliminate net oil imports by 2040, the world as a whole would become more dependent than ever on Middle Eastern oil, the IEA said. The region accounted for 35 per cent of global supplies last month, the highest in 40 years.
Like Opec’s report last week, the IEA issued a range of scenarios using different assumptions about how aggressively the world would pursue carbon reduction targets and how quickly clean technology would advance.
The main Opec scenario also envisaged continued growth in oil demand for decades to come — but, unlike the IEA, its forecast did not assume full implementation of the Paris agreement.
The accord was ratified in September by the US and China, the world’s biggest polluters, but US commitment has since been thrown into doubt by the election of Donald Trumpas president. He vowed during the campaign to “cancel” the agreement.
Mr Birol said that, assuming US support continued, the world was on course to fulfil the obligations agreed in Paris last year but these would not be enough to keep the average rise in global temperatures below 2 degrees Celsius — the limit targeted by the UN accord.
A “step-change in the pace of decarbonisation and energy efficiency” would be required to have any chance of staying below the 2 degree target, the IEA said. Should that happen, oil demand could peak as soon as 2020, it added.
“The fossil fuel industry cannot afford to ignore the risks that might arise from a sharper transition,” the report said.
Meeting the more aggressive 1.5 degree limit agreed in Paris as the most desirable target, would require “radical” action “employing every known technological, societal and regulatory decarbonisation option”.