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Global oil demand will plateau around 2030, according to a major new report, but the decline in demand is way too slow to head off the worsening effects of climate change.

Oil demand begins to flatten out in the 2030s "under pressure from rising fuel efficiency and the electrification of mobility," The International Energy Agency (IEA) said in its widely-anticipated annual World Energy Outlook.

However, the agency does not see a peak in CO2 emissions through 2040, even in a scenario that incorporates some intended policy targets. The IEA says that an expanding economy and growing global population outweigh efforts to cut emissions. Reducing emissions will require "significantly more ambitious policy."

"The dissonance between the rising trend for CO2 and the commitment of countries to reach an early peak in emissions was especially striking in the light of the latest scientific findings from the Intergovernmental Panel on Climate Change," the IEA said, referring to the rather dire conclusions from the IPCC report in 2018, which found that the world is running out of time to make deep and far-reaching cuts to emissions.

As Reuters reports, some groups criticize the IEA for consistently predicting strong oil demand growth. "The IEA is effectively creating its own reality. They project ever-increasing demand for fossil fuels, which in turn justifies greater investments in supply, making it harder for the energy system to change," Andrew Logan, senior director of oil and gas at Ceres, told Reuters.

With that said, renewable energy is growing fast and taking a growing slice of all new investment. The IEA sees solar becoming the single largest source of installed electricity capacity by 2040, surpassing coal in the 2030s. Related: A Bull's Guide To Oil Markets

But, impressive growth for renewables and missed climate targets are two things that can be true at the same time. The clock is ticking and the world needs solar and wind to grow at a much faster rate.

The IEA noted that the world is adding around 100 GW of solar each year, enough solar to cover 200,000 football fields. However, it would take 200 years at that pace to satisfy global energy demand at 2018 levels. Worse, demand is not stagnant, but growing. At 100 GW of new solar each year, solar would only satisfy 20 percent of annual growth in power demand going forward.

In other words, while growing rapidly, solar is merely "dampening" growth in consumption from other sources.

Alternatively, in the IEA's Sustainable Development Scenario, which foresees deep emissions reductions in order to meet climate goals, solar needs to grow more at the rate of 300 GW per year. Needless to say, that is going to require some major policy changes.

As for oil, the IEA sees demand growing at a 1 million-barrel-per-day (mb/d) rate through 2025, before flattening out by 2030. Because of depletion of existing sources of supply, the IEA sees prices rising to around $90 per barrel by 2030, despite the steady deceleration in demand.

The U.S. accounts for 85 percent of the total global increase in oil supply over the next decade, growing from 6 mb/d in 2018 to 11 mb/d in 2030. The agency sees the current slowdown in shale output as temporary.

"The shale revolution has stimulated more than $1 trillion in new investment over the last ten years - nearly $900 billion in the upstream, and the rest on new pipelines and other infrastructure, including LNG export terminals," the IEA wrote. "This has not, for the moment, been a profitable business for many of the companies involved: as of 2018, the upstream shale industry as a whole has yet to achieve positive free cash flow." Related: Aramco's Breakeven Costs Are The Lowest In The World

That's a notable conclusion since the IEA itself has repeatedly predicted the imminent profitability of shale in recent years, although the agency is not alone in getting that wrong.

Nevertheless, while U.S. shale has burned through cash, it has indeed produced a lot of oil. Shale output is now slowing down as investors lose interest, but the IEA says "the shale race is not yet run; many of the most profound impacts of the shale revolution still lie ahead." The IEA sees shale continuing to grow in the years ahead, although a few analysts question that optimism.

Overall though, it might be the climate predictions that garner the most attention. Against the backdrop of IPCC warnings, it's a bleak outlook. "The world needs a grand coalition encompassing governments, companies, investors, and everyone who is committed to tackling the climate challenge. In the absence of this, the chances of reaching climate goals will be very slim," the IEA's Fatih Birol said. "The world urgently needs to put a laser-like focus on bringing down global emissions."

By Nick Cunningham of Oilprice.com

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Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon.  More