Whom Should You Believe About Energy Demand?
Fossil fuel producers and OPEC have rained on the IEA’s parade, offering wildly different projections for future energy demand.
Sign up for smart news, insights, and analysis on the biggest financial stories of the day.
Depending on whom you ask, peak oil is either around the corner or beyond the horizon.
This year, the International Energy Agency (IEA) came out with a heartening prediction: Fossil fuel demand will peak in 2030, just six years from now. In recent months, however, fossil fuel producers and the Organization of the Petroleum Exporting Countries (OPEC) have rained on the IEA’s parade, offering wildly different projections. OPEC can’t even agree with the IEA about oil usage for this year, which is nearly over.
Written in the Wells
This summer, a handful of fossil fuel producers amended their guidance for how much oil and gas the world will need over the next few decades. ExxonMobil issued a forecast in August that said oil demand will remain unchanged through 2050; in July, BP said that while it still thinks oil will plateau this decade, demand will remain stronger for longer than it previously predicted. OPEC said late last month that oil demand will keep climbing for the next two decades. This is a long way off from IEA’s prediction of peak oil in six years’ time. So where is the disparity coming from?
Mark James, interim director of the Institute for Energy and the Environment at Vermont Law and Graduate School, told The Daily Upside that the IEA updated its modeling methodology in 2021, and its forecasts for peak demand have been trending downward. James added that in some regions and sectors, like the combustion engine sector, peak demand has already arrived. James said that when it comes to large oil concerns’ forecasts, there is an argument that companies need to “talk their book”:
- “They’re going to value themselves based upon the reserves that they have in the ground times what the forecasted oil price is going to be,” James said. “So in order to maintain that valuation, there’s a bias toward ensuring a forecast that says we’re going to continue to have demand that will take up and use the supplies that we have.”
- James added that many of oil firms’ forecasts rely on arguments that countries in the global south will experience mounting energy demand, but he believes it’s naive to assume that fulfilling that demand will be the same process as it was in the US or Europe. “In 1973 in the OPEC oil embargo, there weren’t alternatives,” he said. James pointed to Pakistan, which has seen a huge boom in consumers and businesses installing rooftop solar panels.
Stop-Start: China and India are two massive markets where fossil fuel producers have predicted an upswing in demand. On the bright green side, James believes that as renewable energy sources become cheaper and provide an alternative to growing economies, they will rapidly start to displace demand for fossil fuels. “I don’t think [fossil fuel companies] are properly grasping the way that energy transitions emerge, that it is not linear in the way that they develop,” James said.