IEA Predicts Steady Rise In Global O&G Demand Through 2050: What It Means For Energy Markets

The International Energy Agency (IEA) has projected that peak oil demand might not be reached for another 25 years, given the current policy environment. This outlook is influenced by changing US decarbonization goals, rapid electricity consumption growth, and a slowdown in electric vehicle adoption.

The IEA forecasts that global oil consumption will continue to rise until 2050, with prices potentially exceeding $100 per barrel by then. Global oil demand, including biofuels, could increase from 100 million barrels in 2024 to 105 million barrels by 2035, and further to 113 million barrels by 2050.

Despite a short-term supply surplus of over 3 million barrels per day (b/d), declining production from mature fields may pose investment challenges if demand remains strong. The IEA estimates that an additional 25 million b/d in new projects will be needed over the next decade to maintain market balance.

Emerging economies are expected to drive energy consumption growth outside China, which accounted for more than half of the world's oil and gas growth between 2010 and 2024. Although China has surpassed peak production in its energy-intensive industries, countries like India and Indonesia are projected to increase their consumption by over 3% annually over the next decade.

The IEA's "current policies scenario" (CPS) suggests that total energy demand will rise by another 90 exajoules or 15% by 2035. In contrast, the "stated policies scenario" (STEPS) forecasts slower growth at an 8% rate. Achieving net-zero emissions by 2050 would require a decline in energy consumption over the next decade.

Electric Vehicle Adoption

Electric vehicle (EV) adoption remains crucial for transitioning away from oil dependence. Under CPS, EVs' share in the global car market is expected to double to about 40% before stabilizing around 2035. STEPS projects a higher EV penetration of 50% by the same year, indicating broader implications for reducing oil demand.

The US withdrawal from the Paris Agreement has affected renewable investments and transport electrification spending. Changes in US policy could lead to a reduction of up to 30% less renewable capacity being installed over the next decade compared with previous projections. Additionally, the number of EVs on US roads may be significantly lower than anticipated.

Net-Zero Challenges

The IEA continues to model a net-zero emissions scenario for 2050 but warns that achieving this target is becoming increasingly difficult. The report states that it is almost certain that global warming will exceed 1.5 degrees Celsius within a decade or less. In 2024, global surface temperatures were recorded at their highest level ever at 1.55 degrees Celsius above pre-industrial levels.

The updated forecasts follow a year of record-breaking energy consumption across all fuel types in 2024 due to rising air conditioning demand and increased fossil fuel use in emerging economies. Global energy demand rose by more than 2% in that year, surpassing the average annual growth rate recorded between 2010 and 2023.

Future Projections

The IEA plans to publish its announced policies scenario later once it gathers more comprehensive data on country-level pledges. Meanwhile, fossil fuels still account for nearly four-fifths of total energy demand—a proportion largely unchanged over the past quarter-century.

"The world remains thirsty for energy," stated the report as it highlighted ongoing high levels of fossil fuel use despite efforts towards cleaner alternatives. The buildings sector has consistently contributed additional energy demand growth since 2010.

Despite declining internal combustion engine vehicle sales—down by nearly one-quarter since their peak in 2017—Chinese EV sales have helped reduce diesel- and gasoline-powered vehicles' market share globally according to IEA data from recent years.