The International Energy Agency expects that the end of the oil era is closer than expected. It explained in its annual report that the demand for all types of fossil fuels will stop growing during this decade with the global transition to clean energy and greater reliance on electricity, which the agency described as the “age of electricity.”
The agency also indicated its expectations for a decline in oil and gas prices in the coming years due to the accumulation of surplus supplies, which will lead to a significant decline in prices.
The agency said: “We have witnessed the age of coal and the age of oil, and here we are rapidly moving towards the age of electricity.”
This comes in light of the decline in oil prices, as the recent tensions between Israel and Iran, one of the major oil powers, only affected prices slightly, as prices remained near $75 per barrel. In the past, such tensions pushed prices to triple-digit levels, but the situation is different now, which reflects the decline in the attractiveness of oil in global markets.
“We may enter a very different energy world in the second half of this decade, with the possibility of more abundant or even surplus supplies of oil and natural gas, depending on geopolitical tensions,” IEA Executive Director Fatih Birol said in a statement accompanying its annual report.
Birol added that surplus fossil fuel supplies would likely lead to lower prices and may enable countries to allocate more resources to clean energy and thus move the world into the “age of electricity.”
According to the agency, the share of fossil fuels in the global energy mix is expected to reach 75% in 2030 under the current policy scenario, compared to 80% now.
peak oil
The agency stated that if current government policies continue, global oil demand is expected to peak before 2030 at just under 102 million barrels per day and then decline to year-on-year levels.
2023 at 99 million barrels per day by 2035, largely due to reduced demand from the transportation sector with increased use of electric vehicles.
The report also shows the potential impact on oil prices in the future if stricter environmental policies are implemented globally to combat climate change.
Based on the scenario of continuation of current government policies, the agency expected crude oil prices to fall to $75 per barrel in 2050 from $82 in 2023.
On the other hand, it expected the price to fall to $25 per barrel in 2050 if governments follow policies consistent with the goal of reducing energy sector emissions to net zero by that time.
Gas demand
Although the report expects an increase in demand for liquefied natural gas by about 145 billion cubic meters between 2023 and 2030, it stated that the increase in export capacity by about 270 billion cubic meters will exceed the increase in demand during the same period.
“It appears that the surplus in liquefied natural gas production capacity will create a very competitive market… as prices in the main importing regions will average between $6.5 and $8 per million British thermal units until 2035,” the report said.
Asian LNG prices, which are considered an international standard, currently stand at about $13 per million British thermal units.
Bounces
This report is expected to have a significant impact on the upcoming discussions within OPEC during its annual meeting scheduled for December. Members of the organization are expected to discuss the increasing challenges facing the oil market in light of the decline in demand and the continued shift towards alternative energy sources. The IEA report may become a focal point in shaping the organization’s future policies.
According to Bloomberg, these new expectations may prompt oil-producing countries to reevaluate their strategies to face new challenges in energy markets. As the world enters the “age of electricity,” it seems that the need to rethink the role of oil as a major source of energy has become more urgent than ever.
