Making forecasts on energy consumption can be a thankless and difficult job, modern economies are extremely complex organisms and reflect various factors, some of which are impossible to predict, such as pandemics or wars.
Today, with a geopolitical framework that is fragmented to say the least, defining how much oil the world will need between now and the end of 2025 can certainly be the subject of divergent opinions such as those of the International Energy Agency (IEA) and the Organization of the Exporting Countries of oil (OPEC).
The point of course is the question: will it go up or down?
OPEC's plan to gradually raise production targets to match rising demand clashes with IEA predictions that the world will need less oil than it is pumping today.
In the short term, the decision by some OPEC members to partially reduce the production cuts announced last year is conditioned by the materialization of robust growth in demand. But in the medium-long term the two visions are substantially different: for the IEA, by the end of the decade, the world will face a surplus stunning of oil equal to millions of barrels per day and the increase in production will undermine OPEC's ability to manage crude prices.
The IEA was established by industrialized nations to monitor and ensure the security of oil supplies after the oil crisis of 1973-1974, when, due to the Arab oil embargo, oil prices increased by 400%. Once the crisis was over, it became clear to everyone that the future could pose new challenges to energy security and that risk assessment and preparation for consequences started from the management of accurate and credible data. In 2015, the IEA expanded its mission to integrate the energy transition alongside the purpose for which it was founded: energy security, and in 2022 it further expanded its mandate”to guide countries in building net-zero emissions energy systems to meet climate goals.”
There are those who believe that the Agency has lost its impartiality and has become acheerleaderof the energy transition” to use the words of Senator Barrasso, member of the US Senate Committee on Energy and Natural Resources, and the chair of the House Committee on Energy and Commerce, McMorris Rodgers. In their lettersent to Dr. Fatih Birol, Executive Director of the IEA, highlight conflicting interests in the Agency's global energy forecasts particularly in its mission to protect energy security.
In fact, Dr. Birol's position seems aligned with that of the International Institute for Sustainable Development (IISD) which pushes Western governments to legislate to block the development of new investments in fossil fuels, considering it an easier solution, politically, economically and legally, than closing operational projects early. According to the IISD, current fossil fuel capacity is sufficient to meet energy demand as the planet transitions to “green” energy and no new fossil fuel projects will be needed. Theses developed in the 2021 IEA report “Net Zero by 2050”, its path towards a low-emission planet, and reiterated, in May 2021, at the dawn of the European energy crisis, by Dr. Birol: “No new oil and natural gas fields are needed in the net zero pathway, and supplies become increasingly concentrated in a small number of low-cost producers.”
What happened next raised inevitable doubts about the forecasting capabilities of the IEA whose position, in turn, has evolved given that three years later, in the World Energy Outlook 2023, the IEA claims that “Continued investment in fossil fuels is essential in all our scenarios.”.
In fact, in terms of time, we are about halfway through the energy transition which should bring the planet to zero emissions in 2050 and the share of fossil fuels in global primary energy consumption has gone from 86% in 1997 to 82%. in 2022. While the consumption of energy from fossil sources continued to grow: in 2022 the world consumed almost 55% more than in 1997.
Supporting positions like those of the IISD is legitimate cheerleader of the energy transition, has little to do with an Agency responsible for energy security.
Weakening the action of Western oil companies in the global context by forcing them to protect themselves from the judicial claims of climate extremists, stopping their investments in hydrocarbon exploration and production or conditioning their access to credit will only succeed in damaging our energy security and ferrying us towards the uncertainty, not towards climate neutrality.
Returning to forecasts for global oil demand, even in the short term, to 2025, there are significant doubts: last year the IEA underestimated demand, only to then increase its estimates by 520,000 barrels per day, five times in January. the rise of OPEC.
Errare humanum est?
It seems rather perseverare diabolicum: For twelve of the last fourteen years, the IEA has chronically underestimated global oil demand relative to its initial expectations and has on average revised its estimates by as much as 800,000 barrels per day. According to Goehring and Rozencwajg, if the agency's mistake were a country, it would be the 21st largest oil consumer in the world.
In the Agency's forecasts, the increase in energy efficiency plays a key role: as in the case of air transport where the increase in efficiency is slowing down fuel consumption. And yet the International Air Transport Association (IATA) forecasts fuel consumption of 99 billion gallons by the global airline industry this year, up 3% from 2019.
The effects of what is called the “Jevons paradox” are overlooked: historically, greater efficiency increases consumption and the resulting demand accelerates economic growth.
A further aspect destined to have medium-long term consequences on the demand for oil is the growth of emerging and developing economies: India has entered a phase in which the demand for energy in general, and for oil in particular, it is growing faster than GDP, an aspect that the IEA models do not seem to capture.
From 2005 to 2022 these countries went from 30% to 45% of global real GDP and will soon exceed 50%, their economies are essentially concerned with access to energy, the engine of their growth, using the cheapest energy sources available and above all they replace their energy systems based on market laws, not on the basis of models, prescriptions or ideological norms.
A corollary of this aspect directly impacts Western-led efforts towards “Net Zero” from IEA analyzes: currently the population of emerging and developing economies, equal to over 4.5 billion, has the lowest annual CO emissions2 per capita, approximately 3.1 gigatonnes (Gt) per billion people. Demographic growth alone could be enough to make the West's 2050 climate objectives fail. If their carbon footprint were to align with ours, achieving decarbonisation would become problematic at the very least, certainly impossible in the timescales outlined by the IEA.
Today, more than ever before, more and more countries are moving towards energy-intensive economic growth and this will guarantee a growing demand for energy in the decades to come.
