Global oil demand growth will taper off over the next few years as high prices and Russia’s invasion of Ukraine speed up the transition away from fossil fuels, the International Energy Agency (IEA) said.
Next year, the consumption will grow at half the rate compared to the prior two years, and there will be an ultimate limit for demand in place this decade as electric vehicles send the cars that use gasoline into decline, the Paris-based IEA predicted in a medium-term outlook. With production capacity still growing, markets will remain “adequately-supplied” through to 2028, it said.
The agency is of the view that the growth in global demand for oil is set to slow almost to a halt in the coming years. “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," it said.
Nations have been engaging in transitioning to greener and cleaner energy alternatives to limit greenhouse emissions in order to combat climate change. That ambition that was fortified when oil and gas prices soared after Russia launched its attack on Ukraine in early 2022.
The short-term and long-term outlooks differ greatly. World oil markets may tighten “significantly” over the next few months as China’s fuel consumption rebounds from the COVID-19 pandemic, while OPEC+ producers led by Saudi Arabia reduce production, the agency said. Oil is trading near $75 a barrel in London.
Next year also looks tight, particularly in the second half, with oil inventories set to decline even as global demand growth drops to 860,000 barrels a day, compared with 2.4 million barrels a day this year, or around 2 percent.
Yet the subsequent years will bring a world less dependent on hydrocarbons. Global growth in fuel consumption will dwindle to just 400,000 barrels a day in 2028, the IEA’s report stated. The global demand will reach 105.7 million barrels a day by that point.
The use of gasoline — the second-biggest oil product — will decline from 2023, and the same for oil as a transport fuel too three years later. Its growth will largely be confined to petrochemicals and aviation fuel, the IEA has forecast. The need for combustible fossil fuels will hit an absolute peak of 81.6 million barrels a day in 2028.
Oil expansion
While demand is slowing, investment in new supplies is rebounding. The so-called upstream spending will surge 11 percent in 2023 to an eight-year high of $528 billion, helping ensure that output comfortably keeps pace with demand for the rest of the decade.
Output is set to grow by 5.9 million barrels a day, or about 6 percent, by 2028. That’s broadly in-line with the expansion in demand over the same period, thanks to rising capacity in the US, Brazil and Guyana. Capacity in the OPEC+ alliance will increase by just 800,000 barrels day, led by Middle East heavyweights Saudi Arabia and the United Arab Emirates, the IEA said.
The anticipated leveling-off in oil consumption still won’t be enough for governments to meet the ambitions for limiting carbon emissions. An IEA report two years ago had said that the energy industry woul dneed to halt investments in all new oil and gas projects in order to achieve “net zero” emissions by 2050..
The Organization of Petroleum Exporting Countries has pushed back against the IEA’s road-map to reduce oil consumption, insisting that greater investment in supplies is needed to avert price spikes and ensure affordability of energy for developing economies.
Yet the IEA’s analysis indicates the energy transition has gathered momentum as the attack by Russia — a member of OPEC+ — on neighboring Ukraine spurs alarm among consumers over their reliance on oil imports. More than $2 trillion of investment in clean energy has been lined up through to 2030, according to the report.
“Russia’s invasion of Ukraine sparked a surge in oil prices and brought security of supply concerns to the fore, helping accelerate deployment of clean energy technologies,” it said.
Also Read: India should take the lead in facilitating global clean energy transition: IEA chief Fatih Birol
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