Energy transition will bring down costs, says IEA

Energy transition will bring down costs, says IEA
Moving away from oil and gas set to benefit consumers.
OCT 16, 2024
By 

The world is heading into an era of cheaper energy prices as a shift towards electricity use leaves behind surpluses of oil and gas, the International Energy Agency predicted.

Global demand for all fossil fuels will stop growing this decade, while supplies of oil and LNG are set to climb, the IEA forecast in its annual long-term report. Meanwhile, an ongoing surge in electricity consumption led by China is on track to accelerate, it said. 

“The world is set to enter a new energy market context in the second half of this decade because underlying market balances for oil and gas are easing,” IEA Executive Director Fatih Birol said in an interview. “Bar major geopolitical conflicts, we will be entering a period where prices will see significant downward pressures.”

It would mark a turning point from the early years of the decade, when surging energy costs following Russia’s 2022 invasion of Ukraine fed into a brutal wave of inflation. Prices have already shown some signs of cooling, with crude futures down 20% from this year’s highs to less than $75 a barrel despite the conflict in the Middle East.

Electricity use has grown at twice the pace of total energy demand over the past decade, and, driven by China, will increase six times as fast during the coming 10 years, according to the agency. Electric vehicles will account for 50% of new car sales worldwide by 2030, up from 20% currently, it predicted.

“In energy history, we’ve witnessed the Age of Coal and the Age of Oil – and we’re now moving at speed into the Age of Electricity,” said Birol.

The agency reiterated its view that demand for oil and gas will hit a plateau this decade. Nonetheless, oil supplies are climbing amid new output from the US, Brazil, Canada and Guyana, and there is a looming “wave” of liquefied natural gas projects.

A “huge addition” of around 270 billion cubic meters of new LNG capacity is scheduled by 2030, according to the report. Even some clean energy technologies, like solar photovoltaic, will see a surplus.

“The stage is set for a buyers market,” said Birol. 

Crude prices can continue to trade between $75 and $80 a barrel, but only if OPEC and its allies restrain output further, according to the report. 

Led by Saudi Arabia, OPEC+ is already holding back record spare capacity of around 6 million barrels a day following a series of production cutbacks, a level that the IEA expects will reach 8 million barrels by 2030.

“The rise of electric mobility, led by China, is wrong-footing oil producers,” it said. 

Others in the energy industry aren’t as convinced that fossil fuels face such an imminent sunset. 

OIL MAJORS

Some major oil companies have pivoted back to their traditional businesses after a brief orientation towards renewables, with BP Plc last week reportedly scrapping targets to cut oil and gas output by 2030. Goldman Sachs Group Inc. forecasts that oil demand will continue rising through to 2034. 

And while the IEA’s projections for subdued oil demand this year look increasingly vindicated, some of its past predictions have missed the mark, such as its expectation of a supply crunch a decade ago, or forecasts that Russian output would plunge after the invasion of Ukraine.

With more than half of the world’s electricity to be generated from low emissions sources by 2030, progress towards limiting climate change is being made. Global carbon dioxide emissions are “set to peak imminently,” according to the agency.

Yet the world still isn’t on track to meet international environmental goals, it cautioned. By the end of the century, temperatures are set to increase by 2.4 degrees Celsius above pre-industrial levels, instead of the 1.5 degree limit envisioned by the Paris Agreement. 

Temperatures have hit records this year, which has been marked by extreme weather from a deadly heat wave in India to devastating floods across Africa and Europe, and wildfires from Greece to Brazil’s Amazon rainforest.

“The costs of climate inaction, meanwhile, grow higher by the day as emissions accumulate in the atmosphere and extreme weather imposes its own unpredictable price,” it warned.

 

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