IEA forecasts ‘Age of Electricity’ as fossil fuel demand nears peak

The International Energy Agency (IEA) has released its annual World Energy Outlook report, painting a picture of a global energy landscape on the cusp of significant transformation. According to the report, released on Wednesday, the world is approaching an “age of electricity” as fossil fuel demand is projected to reach its peak by the end of this decade.

IEA Executive Director Fatih Birol highlighted the potential for surplus oil and gas supplies to drive investment into green energy solutions. “In the second half of this decade, the prospect of more ample – or even surplus – supplies of oil and natural gas, depending on how geopolitical tensions evolve, would move us into a very different energy world,” Birol stated in the release accompanying the report.

This shift towards abundant fossil fuel supplies could lead to lower prices, potentially enabling countries to allocate more resources towards clean energy initiatives. However, the IEA also emphasised the high level of uncertainty surrounding these projections, citing ongoing conflicts in the oil and gas-producing Middle East and Russia, as well as upcoming elections in countries representing half of the global energy demand in 2024.

The report underscores the strain on the current energy system, exacerbated by geopolitical tensions. Recent conflicts in the Middle East have highlighted the vulnerability of oil supplies and the urgent need for investment in “cleaner and more secure technologies,” according to the IEA.

Despite these challenges, the agency reported record-high levels of clean energy deployment globally last year, with over 560 gigawatts (GW) of renewable power capacity added. The IEA projects that approximately USD 2 trillion will be invested in clean energy in 2024, nearly double the amount invested in fossil fuels.

However, the growth in clean power generation has not kept pace with the rising global electricity demand. This imbalance is expected to persist from 2023 to 2030, resulting in a slower decrease in coal power usage than previously anticipated. Consequently, the IEA has adjusted its forecast for the share of fossil fuels in the global energy mix by 2030. Under the current policy scenario, fossil fuels are expected to account for 75% of the energy mix in 2030, compared to 80% today. This represents a slight increase from last year’s report, which projected fossil fuels would make up 73% of the energy mix by 2030.

In terms of oil demand, the IEA’s scenario based on current government policies predicts a peak before 2030 at just under 102 million barrels per day (mb/d). This demand is then expected to fall back to 2023 levels of 99 mb/d by 2035, primarily due to decreased demand from the transport sector as electric vehicle adoption increases.

The report also explores the potential impact of stricter environmental policies on future oil prices. Under the current policies scenario, oil prices are projected to decline to USD 75 per barrel in 2050 from USD 82 per barrel in 2023. However, if government actions align with the goal of achieving net-zero emissions in the energy sector by 2050, oil prices could plummet to USD 25 per barrel.

Regarding natural gas, the IEA forecasts an increase in demand for liquefied natural gas (LNG) of 145 billion cubic metres (bcm) between 2023 and 2030. However, this growth is expected to be outpaced by an increase in export capacity of around 270 bcm over the same period. This potential oversupply could lead to a highly competitive market, with prices in key importing regions averaging USD 6.5-8 per million British thermal units (mmBtu) through 2035, significantly lower than the current Asian LNG benchmark price of around USD 13 mmBtu.