Why the IEA Now Thinks Oil Demand Will Keep Rising Until 2050

The International Energy Agency (IEA) predicted in 2023 that the global peak in oil demand would likely take place by 2030, as governments worldwide introduced plans for a green transition and fossil fuel companies began to diversify their portfolios to include renewable alternatives. However, this month, the IEA has backtracked on this prediction, stating that oil demand could continue growing through to 2050. This reflects a U-turn by many countries on climate commitments and by oil and gas companies on energy diversification efforts.

In the IEA World Energy Outlook, published in November, the organisation backtracked on its previous prediction by suggesting that the global oil and gas demand could continue growing until the mid-century, 20 years longer than previously anticipated. Demand will be driven by industry, residential power and the tech industry, as several companies invest heavily in power-hungry data centres to support the rollout of advanced technologies, such as artificial intelligence (AI).

Under the current policies scenario (CPS), the IEA expects oil demand to reach as much as 113 million barrels by 2050, marking an increase of 13 percent from 2024 consumption, as governments prioritise their energy security over a shift to green. This year, for the first time since 2019, the IEA used a scenario based on existing government policies rather than climate ambitions, following mounting pressure from the Trump administration to return to this assessment method. The previous, more ambitious scenarios considered the green transition aims of governments worldwide, including the accelerated uptake of electric vehicles in some regions of the world.

The IEA previously warned that to achieve net-zero emissions by 2050, there must be no new investments in coal, oil, and gas projects. However, many countries continue to invest heavily in fossil fuels to meet their rising energy demand.

Several new LNG projects have been approved this year, which are expected to result in roughly 300 billion cubic metres (bcm) of new annual LNG export capacity coming online by 2030. The IEA now expects the global LNG market to rise from about 560 bcm in 2024 to 880 bcm in 2035, and to 1,020 bcm in 2050. This increase responds significantly to the rising power demand from tech companies looking to power data centres.

Several fossil fuel industry players have long criticised the IEA 2030 peak oil demand prediction, instead suggesting that the world will rely heavily on oil and gas for several more years, as countries slowly ramp up their renewable energy capacity. In 2023, following the IEA prediction, the U.S. oil major ExxonMobil forecastthat oil and gas would contribute over half the world’s energy mix in 2050, at around 67 percent.

The CEO of Saudi Arabia’s state-owned oil company, Aramco, Amin Nasser, called for more realistic predictions. “A transition strategy reset is urgently needed, and my proposal is this: We should abandon the fantasy of phasing out oil and gas and instead invest in them adequately, reflecting realistic demand assumptions,” he stated in 2023. Meanwhile, OPEC accused the IEA of fearmongering and threatening the stability of the global economy, while the U.S. Energy Secretary Chris Wright said the IEA’s peak demand outlook was “nonsensical”.

Now that the IEA has updated its prediction, based on the CPS scenario and the rising global demand for power, the question is what that will mean for the world as it continues to guzzle vast quantities of fossil fuels. The IEA also predicts that we will fail to meet the Paris Agreement target to limit global warming to 1.5 degrees Celsius above pre-industrial times. The 1.5-degree threshold was established as it reflected the “tipping point” recognised by climate scientists, with any temperature higher than this potentially causing irreversible changes to some of Earth’s largest systems.

Nonetheless, some energy experts remain optimistic about the outlook. The IEA said that it decided to move back to the CPS approach, not because of pressure from the U.S., but as the world has passed through the pandemic and global energy crisis and “there is merit in revisiting the CPS.” However, Dave Jones, the chief analyst at energy research firm Ember, explained, “There’s a revolution happening right now and it’s in renewables and electrification”, and “Scenarios based on policies and legislation are behind the curve of technology change.”

The rate of renewable energy uptake and the speed of the shift away from fossil fuels will depend greatly on the ability of countries to diversify their energy sources and invest in battery storage to boost the stability of green energy operations. Meanwhile, the move away from clean energy commitments by the United States is expected to have a knock-on effect on the international green transition, as it continues to be the world’s biggest emitter of carbon dioxide.

By Charles Kennedy for Oilprice.com

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