IEA Optimistic About Energy Transition
…Since the IEA laid out its roadmap for net-zero 2050, oil consumption has only increased.
The International Energy Agency has said in its latest World Energy Outlook that demand for fossil fuels would peak, speeding up the transition to renewable energy, thanks to the energy crisis rattling the world right now.
The IEA said in a report yesterday that, for the first time ever, it sees this happening cross all of the scenarios it devised for its forecast.
According to even the Stated Policy Scenario, usually the most conservative of the scenarios, demand for fossil fuels would begin permanently declining in the mid-2020s “by an annual average roughly equivalent to the lifetime output of a large oil field.”
The report went further, stating that coal will be the first to go, and in just a few short years from now. Following that, comes the end of natural gas, which will plateau by 2030. “Oil, meanwhile, should be squeezed out by the influx of electric vehicles,” the report said
The energy crisis that began last year in Europe with short gas supplies fully unfolded this year after Russia slashed exports of the commodity to the EU. This disruption has pushed demand for fossil fuels higher than it was before the pandemic.
At the time, BP was forecasting that peak oil had already occurred in 2019. According to the oil major, oil demand would never again return to 2019 levels. On top of that, everyone who’s anyone in forecasts said that coal demand would never grow globally again, and gas would be a bridge fuel to the renewable energy future. Then gas started getting demonized along with oil as dirty and inappropriate. But that was then—before the crisis.
Coal demand has now risen because of the gas squeeze in Europe, with countries reopening mothballed coal-powered plants, boosting oil production, and even converting gas-fired power plants to coal for the winter.
Politicians—along with the IEA—seem to believe that this is a short-term demand boost that will expire the moment gas markets return to normal. The problem with this belief is that gas markets will not return to normal in a week or even a month.
In fact, it is unlikely that gas markets in Europe will ever return to normal because normal means getting 40 percent of the EU’s gas from Russia.
With new U.S. LNG supply slow to come online and replace the lost Russian pipeline flows, we could see strong coal demand for a few more years. And then China and India, and other Asian economies will continue using coal because it will remain cheaper than gas, especially liquefied gas, whose price has been driven sky-high by thirsty European buyers.
On the subject of oil demand, the IEA appears to believe that EVs will kill it beginning in the mid-2030s. Yet this would necessitate the production, sale, and use of many millions of EVs, which is far from certain because of the looming shortages in the metal and mineral world.
Warnings about copper supply have been coming from the mining industry and from analysts for months now. Trafigura was the latest to add its voice to them, saying earlier this month that global copper stocks had fallen to dangerously low levels, equal to about 4.9 days of global consumption.
By the end of the year, Trafigura said at an FT event, this will be reduced to 2.7 days. “It is not accidental that the EU has decided to bring forward the target of doubling its solar capacity from 2030 to 2025. All that requires a lot of copper,” Kostas Bintas, Trafigura co-head of metals and minerals trading, said.
“Look at electric vehicles everywhere, [the numbers on the road] are surprising to the upside. That’s a lot of copper too. As a result, we’ve been drawing down stocks throughout this very difficult year.”
What all these warnings are suggesting is pretty simple: there may not be enough raw materials for all the EVs—and solar farms and wind parks—that need to be sold to kill oil demand and usher in the renewable energy future.
According to the IEA, the transition is a matter of energy security, and the war in Ukraine has highlighted that and would likely act as a catalyst for a quicker transition. Indeed, the more locally produced energy a country has, the more secure it is. The problem is that the forms of renewable energy chosen to drive the transition are not very good at providing energy security.