If the sparks flying from clashing op-eds could be harnessed, we would have a limitless source of energy. The world’s two leading intergovernmental energy bodies have radically different views on the future of the three main fossil fuels – oil, gas and coal – to the end of this decade.
Are new technologies and climate policies really going to bring a decline in demand, and what happens if they do or don’t?
On September 12, Fatih Birol, executive director of the International Energy Agency, wrote in the Financial Times that “demand for each of the three fossil fuels is set to hit a peak in the coming years … the first time that a peak in demand is visible for each fuel this decade”.
Opec responded on its website and secretary-general Haitham Al Ghais said: “It is an extremely risky and impractical narrative to dismiss fossil fuels, or to suggest that they are at the beginning of their end.”
Recent history should make us wary of any confident predictions.
In 2019, BP foresaw a likely peak in oil demand in the 2020s. But with the outbreak of the Covid-19 pandemic in 2020, with its epic slump in demand, BP’s forecast seemed to bring this prospect even nearer.
Yet, total demand of just more than 100 million barrels per day pre-Covid is set to reach 102.1 million bpd this year and 104.3 million bpd in 2024, according to the Vienna-based Opec. Even if they are overly optimistic, we are already at a record high.
Without diving into the minutiae of forecasts, the following seems reasonable.
If there is another major global crisis, particularly one that hits China's economy, coal, oil and probably gas will see a decline in demand, one that will not be regained.
Even if global growth remains good or moderate, a peak in coal this decade is likely – the dirtiest fossil fuel has been on a bumpy plateau of demand since 2011 and its use is sustained only by China, India and a few other emerging Asian economies.
Climate policy, the growing competitiveness of renewables, more gas supply to Asia, and a revival of nuclear power will all conspire to see off the black rock.
A near-term peak in oil is possible, but much more doubtful. Electric vehicle sales are surging, and the 44 per cent of oil used in ground transport is indeed vulnerable. But modern cars have long lives, so the electric share of fleets grows only slowly.
Meanwhile, a peak in gas before 2030 is very hard to imagine. Gas is called on to replace coal in Asia. International prices, which were very high in 2022, have moderated and should fall further with more supply from 2026. Gas does face competition from renewables in power generation, but it is used in Asia in industry and home heating more than electricity. Gas has three key applications with minimal greenhouse emissions: carbon capture and storage, the manufacture of long-lived chemicals and plastics, and conversion into “blue” hydrogen and ammonia.
What if, nevertheless, there is a peak in demand for each fossil fuel by 2030? The exact date is not that important and, anyway, will be visible only in retrospect. In the absence of a crisis, the decline in one year may be small, and could be followed by a partial revival.
The shape of decline is more crucial. If decline in demand for oil and gas is slower than the natural drop-off in field production, the industry can adjust by exploring and developing only a few new fields. Average field decline rates are about 4.5 per cent annually.
Even the IEA’s net-zero scenario, doubtful of achievement, has an average annual drop in demand of 4 per cent. Decline rates for shale oil without new drilling are much higher – 20 per cent to 28 per cent per year – so it will be the key balancing factor even as its overall output falls.
High-cost, high-carbon and geopolitically controversial producers will be squeezed out, while low-cost competitors, notably in the Gulf, will gain market share. They will have a choice of restricting output to maintain prices, at the cost of faster loss of demand, or to pursue a strategy of higher volume.
Ancillary functions, meanwhile – oil storage, refining and shipping – will suffer badly as capacity utilisation drops, particularly in areas where the drop in consumption is steepest, most likely Europe and Japan. They may still perform reasonably in remaining growth markets, notably India.
What about the opposite case, that demand for oil and/or gas keeps growing beyond 2030? That is the situation that most concerns Mr Al Ghais. “What makes [peak demand] predictions so dangerous is that they are often accompanied by calls to stop investing in new oil and gas projects … Such narratives would lead to energy chaos on a potentially unprecedented scale, with dire consequences for economies and billions of people across the world,” he said in a recent statement.
The claim that “no new oil and gasfields can be developed” in a world on track for climate goals was unhelpfully implied by the IEA in 2021 and seized on by anti-fossil environmental groups. That was before Russia’s invasion of Ukraine closed off a big chunk of global hydrocarbons. It confuses the global aggregate situation with specifics – where some high-carbon fields are closed in favour of cleaner output elsewhere. And it ignores the potential non-emitting uses of oil and gas.
Instead of rubbing these op-eds together until they mutually combust, the most constructive approach is to look at a peak in consumption, not as some kind of geological inevitability, but as a result of choices. We need to reach peak emissions immediately and see rapid declines thereafter. That indeed means almost certainly a sharp drop in coal use and, later, oil, then gas.
We need policies to phase out the uses of fossil fuels that create emissions, providing viable low-carbon alternatives, not promoting fossil fuel output but not unnecessarily restricting it either. The market and prices will then settle the peak demand question decisively.
Robin M. Mills is chief executive of Qamar Energy and author of 'The Myth of the Oil Crisis'