(Bloomberg) — The world is heading toward an era of cheaper energy prices as a shift toward electricity use leaves behind surpluses of oil and gas, the International Energy Agency predicted.
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Global demand for all fossil fuels will stop growing this decade, while the supply of oil and LNG will increase, the IEA predicts in its annual long-term report. Meanwhile, the ongoing increase in electricity consumption led by China is on track to accelerate, the report said.
“The world will enter a new energy market context in the second half of this decade as underlying market balances for oil and gas relax,” IEA Director Fatih Birol said in an interview. “Barring major geopolitical conflicts, we will enter a period where prices will experience significant downward pressure.”
It would mark a turning point from the early years of the decade, when rising energy costs following Russia’s invasion of Ukraine in 2022 culminated in a brutal wave of inflation. Prices have already shown some signs of cooling, with crude futures down 20% from this year’s highs to below $75 a barrel, despite conflict in the Middle East.
Electricity consumption has grown twice as fast as total energy demand over the past decade and, driven by China, will grow six times as fast in the next decade, the agency said. Electric vehicles will account for 50% of new car sales worldwide by 2030, up from 20% currently, it has been predicted.
“In energy history, we have witnessed the age of coal and the age of oil – and we are now rapidly entering the age of electricity,” Birol said.
The agency reiterated its position that oil and gas demand will reach a plateau this decade. Nevertheless, oil supplies are rising, with new production coming from the US, Brazil, Canada and Guyana, and a looming “surge” of liquefied natural gas projects.
According to the report, a “massive addition” of approximately 270 billion cubic meters of new LNG capacity is planned by 2030. Even some clean energy technologies, such as solar photovoltaics, will have a surplus.
“The stage is set for a buyer’s market,” Birol said.
According to the report, crude oil prices could continue to fluctuate between $75 and $80 per barrel, but only if OPEC and its allies further cut production.
Led by Saudi Arabia, OPEC+ is already holding back record spare capacity of around 6 million barrels per day after a series of production cuts, a level the IEA expects to reach 8 million barrels by 2030.
“The rise of electric mobility, led by China, is putting oil producers on the wrong foot,” the report said.
Others in the energy industry aren’t so convinced that fossil fuels face such an impending sunset.
Oil majors
Some major oil companies have returned to their traditional activities after a brief orientation towards renewables, with BP Plc last week reportedly scrapping targets to cut oil and gas production by 2030. Goldman Sachs Group Inc. predicts that oil demand will continue to rise until 2034. .
And while the IEA’s forecasts of subdued oil demand this year appear increasingly justified, some past predictions have missed the mark, such as the expectation of a supply shortage a decade ago, or the prediction that Russian production would plummet after the invasion of Ukraine.
With more than half of the world’s electricity set to come from low-emission sources by 2030, progress is being made toward mitigating climate change. According to the agency, global carbon dioxide emissions will “peak soon.”
Yet the world is still not on track to meet international environmental targets, the report warned. By the end of the century, temperatures are expected to rise by 2.4 degrees Celsius above pre-industrial levels, instead of the 1.5 degrees limit envisioned in the Paris Agreement.
Temperatures have reached records this year, marked by extreme weather events, from a deadly heatwave in India to devastating floods in Africa and Europe, and forest fires from Greece to the Amazon rainforest in Brazil.
“The costs of inaction on the climate, meanwhile, are growing higher by the day, as emissions build up in the atmosphere and extreme weather imposes its own unpredictable price,” the report warned.
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