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Peak oil by 2030? It’s possible, but we won’t know until much later

The International Energy Agency's forecast sparked a strong reaction, but oil, gas and coal are in very different places

Iraqi oil workers at the Al Tuba field in Basra. The IEA believes the rise of competitive alternatives to fossil fuels will reverse demand Reuters
Iraqi oil workers at the Al Tuba field in Basra. The IEA believes the rise of competitive alternatives to fossil fuels will reverse demand

The exact date of “peak oil” – when global demand will start to slump – has been hotly contested for decades.

British energy giant BP once claimed this tipping point would be reached in 2020. However worldwide demand this year is set to reach 101.8 million barrels per day, up from 100.8 million bpd in 2019. 

Last week the International Energy Agency weighed in. The Paris-based oracle says demand for oil, gas and coal will start falling permanently before 2030.

The agency’s executive director Fatih Birol, writing in the Financial Times, points to three key drivers: first, the rise of competitive alternatives to fossil fuels, notably renewable energy, electric vehicles, heat pumps and, in China, nuclear power.

Second, the slowing of the Chinese economy, which drove the remarkable surge in coal and oil use over two decades from 2003. Third, Europe’s attempts to get off gas – Russian gas in particular – following Moscow’s invasion of Ukraine.

These are strong factors, especially given the accelerating pace of technological change and the urgency of tackling greenhouse gas emissions.

Solar power, in particular, is set for a remarkable boom over the next few years, with its global installed capacity likely to double over 2023 to 2024.

Electric vehicles are reaching take-off: 5 percent of new-car sales, identified as a crucial tipping point, was achieved in the US last year. Twenty-four countries have now passed that level.

Opec, not surprisingly, responded strongly. The Vienna-based oil exporters’ group said “consistent and data-based forecasts do not support this assertion” and criticised “an extremely risky and impractical narrative”.

Its confidence is understandable. World oil demand was unusually slow in 2019, which perhaps misled BP, and it fell precipitously in the pandemic year of 2020.

Other than that, and the recessionary years of 2008-9 and 1998, oil demand has risen at least 800,000 barrels per day every year for the past three decades. 

Coal’s demise has been repeatedly foretold, but in fact its use has been on a bumpy plateau since 2011. For gas, the cleanest and newest of the fossil fuels, consumption has fallen in just four of the years since 1966: those years are 2022, because of the Russian shut-off, 2020, 2009 and 1997.

The case for coal and gas

So, the end to growth for all three fossil fuels in the same decade would be a remarkable turnaround. We can say with confidence that, if there is a major Chinese economic crisis or recession, fossil fuel demand will indeed decline. India and the smaller Asian emerging economies will not be enough to drive expansion on their own.

Coal is almost entirely an Asian story: the continent accounts for 81 percent of global consumption, of which China alone uses 55 percentage points and India another 12.

As a polluting, high-carbon fuel with several superior alternatives, its days do look numbered – even though cheapness, energy security advantages and entrenched coal lobbies in some countries have kept it around.

The peak in gas is much harder to imagine. Gas has its environmental problems – notably, leaks of methane, which is a strong greenhouse gas. But otherwise, it is clean at the point of use.

Gas is complementary to coal in power, industry and heating so, as Asian countries get off coal, they are likely to get on to gas as well as renewables. They use gas for industry such as steel, cement and fertilisers much more than for electricity, and there are few viable non-fossil options there today.

European gas demand has slumped because of very high prices in 2022 and geopolitical concerns, but the continent accounts for only 11 percent of world consumption.

Europe’s deindustrialisation is likely to be accompanied by (re)industrialisation elsewhere, including the US, Middle East and Asia, with strong support from gas.

Drivers for oil demand

Oil is the most complex case and the one most likely to concern Opec.

Almost half (44 percent) of oil globally is used in ground transport – cars, lorries, buses and motorcycles.

This is the domain most challenged by electric vehicles. Research group BloombergNEF calculates that electric vehicles have already displaced 1.5 million barrels of oil per day – a figure that will increase to 2.5 million bpd by 2025.

Yet the average age of a US car is now more than 12 years, so even high levels of electric vehicle sales translate to a slow fleet turnover. In Norway, the most electrified country on the planet, the fleet is approaching half electric. However, road fuel demand, held up by heavy vehicles and a strong economy, has dropped only about 10 percent since 2017.

Not all the oil “displacement” is necessarily a real loss – the lower fuel costs of electric cars means people may use them when they would not have driven a petrol alternative.

Another 1 million bpd displaced over three years is not enough to reverse demand growth, which is forecast to be 2.25 million bpd globally next year.

Around 12 percent of oil goes to ships and planes, which have viable large-scale alternatives emerging in the 2030s, but not really today. Another 14 percent is used in petrochemicals – a solidly growing sector with few alternatives. The remainder is used in power generation, heating and industry, where it does face competition from gas and renewables.

So, global oil demand in the next few years will continue to be dominated by the macroeconomy and fuel prices. The signal of declining consumption due to electric cars will be masked by noise. A peak in demand by the late 2020s is possible – but we won’t know until it is well in the rear-view mirror.

Before then, premature predictions and the duelling narratives of the International Energy Agency and Opec will give plenty of room for criticism by backseat drivers.

Robin Mills is CEO of Qamar Energy and author of The Myth of the Oil Crisis

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