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Nick Cunningham

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. 

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IEA Sees $90 Crude Ahead Of Oil’s Downfall

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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  • Mamdouh Salameh on November 14 2019 said:
    The International Energy Agency (IEA) has always been known for representing mostly western consumers of oil and voicing opinions favourable to its masters in Washington DC. Its reports in general including its annual World Energy Outlook are full of discrepancies, excessive hype about the potential of US shale oil, unsubstantiated peak oil demand claims and ludicrous projections based on faulty assumptions which can’t stand close scrutiny. All in all, such reports are no more than a collection of conflicting views expressed by other experts around the world and masquerading as serious research.

    Examples abound. The claim by the IEA that Global oil demand will plateau around 2030 is as hollow as their other claim a year ago that US shale oil production will be bigger than the combined production of Russia and Saudi Arabia by 2025.

    There is also the claim that the United States’ combined crude oil and natural gas production will be bigger than Russia’s by 2025. Such a claim is false. Given the development of Russia’s huge oil and gas reserves in the Arctic and a projected steep decline in US shale oil and gas production, the combined Russian oil and gas production by 2025 is projected to average 12.00 million barrels a day of crude oil (mbd) and 2.15 million barrels oil equivalent (mboe) of natural gas giving a combined total of 14.15 mboe compared with a projected US oil production of 9.00 mbd and 2.60 mboe of gas giving a total of 11.60 mboe.

    A third claim is that the IEA expects growing US production to bring down OPEC’s and Russia’s combined share of the global oil market to 47% in 2030 from 55% currently. Contrary to such a claim, the combined OPEC’s and Russia’s share in global oil production is projected to grow from 55.6% in 2018 according to the 2019 BP Statistical Review of World Energy to 62% by 2030 whilst US share would have declined from 13.18% in 2018 to 9.23%.

    A fourth claim is that the IEA sees shale continuing to grow in the years ahead. This is despite numerous authoritative and credible reports confirming the onset of a steep slowdown in US shale oil production even in the Permian which is the heart of shale oil production.

    A fifth claim is that the IEA has for ages been predicting the imminent profitability of shale in recent years when everyone in the oil industry knew that the US shale oil industry hasn’t been a profitable one since its inception and that if judged by the standard commercial criteria by which other profitable companies are judged, it would have been declared bankrupt years ago. The IEA’s hype about shale oil is starting to read like a promotion plan by the US Department of Energy.

    The IEA should get it into its head that based on substantiated evidence from the global oil market and other professional research from around the world, there are three major NOs which the IEA should take note of: NO post-oil era, NO peak oil demand either throughout the 21st century and far beyond and NO imminent energy transition for the foreseeable future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • greg zak on November 14 2019 said:
    The price of oil will likely hit 90 at some point in the next ten years. But as mentioned EIA predictions are not that useful. Economic predictions (which oil follows) are like weather forecasting basically fairly good short term, pretty useless long term. On the demand side, if a world wide recession comes up in the next year, expect a good drop in oil prices. On the supply side, war in the middle east will create a surge. Oil supply is not necessarily elastic so a surge in the economy can drive prices much higher in the short term. The Saudis being the low cost producer and also largest supplier can substantially decrease or increase pricing. Oil and gas have to compete with electrification so likely hydrocarbon pricing will stay at a reasonable level longer term. Unless an very cheap alternative source of fuel becomes viable (i.e. fusion reactors, solar) oil and gas are here for a while.
  • Bruce Foley on November 14 2019 said:
    I am continually amazed by how little knowledge people have about our elements. Does anyone realize how ludicrous it is to talk about CO2 affecting climate? I lived next to mount st. Helens when it blew approximately 10 million tons of CO2, not to mention radon gas, radiation, carbon monoxide (much more poisonous than CO2) and other gases. CO2 is required for plants. Plants consume CO2 and emit oxygen. Anyone who directly puts CO2 as the decline of our well being clearly didn't consider a laser point on becoming somewhat intelligent..

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