In a recent article published in the Financial Times, Fatih Birol, the Executive Director of the International Energy Agency (IEA), offers a fresh perspective on the future of fossil fuels. Challenging the long-standing belief in the energy sector, Birol provides insights that suggest a shift in the trajectory of fossil fuel demand.
Birol states, “There’s a taboo in the traditional energy sector against suggesting that demand for the three fossil fuels — oil, gas and coal — could go into permanent decline.” He further emphasizes the significance of the current era by noting, “This year’s report… shows the world is on the cusp of a historic turning point.” Reflecting on the broader implications, Birol observes, “The peaks in demand we see based on today’s policy settings don’t remove the need for investment in oil and gas supply… but the energy world is changing fast and for the better.”
These quotes underscore the essence of Birol’s message: the energy sector is undergoing a transformation, driven by technological advancements, policy changes, and global events. The IEA’s annual World Energy Outlook, which Birol references, reveals that we are at the brink of a historic shift. Even without introducing new climate policies, the demand for each of the three fossil fuels is predicted to reach its zenith this decade, sooner than many experts had predicted.
This shift is attributed to the rapid rise of clean energy technologies, such as solar panels and electric vehicles, changes in China’s economic structure, and the global energy crisis’s aftermath. Despite coal’s persistent global demand, its peak is imminent, with significant investments waning outside China. Even in China, the world’s top coal consumer, the surge in renewables and nuclear power, coupled with economic slowdowns, suggests a forthcoming decline in coal consumption.
Post-pandemic, some speculated that global oil demand had reached its pinnacle. Although the IEA initially approached such claims with caution, current data indicates that the proliferation of electric vehicles, particularly in China, will likely cause oil demand to peak before 2030. The growth of electric buses and other electric vehicles in emerging economies further diminishes demand.
The “Golden Age of Gas”, as termed by the IEA in 2011, is also drawing to a close. Advanced economies will witness a decline in demand by the end of this decade, primarily due to renewables outpacing gas in electricity production and Europe’s swift transition from gas post Russia’s invasion of Ukraine.
While these peaks in fossil fuel demand are promising signs of a shift towards cleaner energy systems and progress in combating climate change, challenges remain. The projected demand declines, based on current policies, are insufficient to limit global warming to 1.5C, necessitating more robust governmental action.
Regional variations in fuel demand will exist, with some emerging economies still experiencing growth, especially in gas. However, the overarching trend is evident: low-emission electricity, fuels, and energy efficiency enhancements are progressively meeting global energy demands.
It’s crucial to note that the decline in demand won’t follow a straight path. External factors, like heatwaves and droughts, can induce temporary surges in coal demand. Moreover, as fossil fuel demand decreases, energy security remains a concern. Investments in oil and gas supply are still essential, but the economic and environmental risks of new projects are undeniable.
In conclusion, as the fossil fuel peaks become more apparent, policymakers must remain agile. The transition to clean energy might gain even more momentum with enhanced climate policies. The energy landscape is evolving rapidly, and undeniably, for the better.
Source: IEA& ft.com