(Montel) Global oil demand growth to slow on green transition – IEA

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Global oil demand will reach a record 105.7m bbl/day in 2028, thanks to robust appetite from India and China, although the pace of growth will slow in two years’ time as more consumers opt for cleaner energy, the International Energy Agency said on Wednesday.

The Paris-based agency expected global oil demand to grow by 2.4m bbl/day this year, 0.9m bbl/day in 2024, 1m bbl/day in 2025 before slowing to 0.7m bbl/day in 2026 and 0.5m bbl/day and 0.4m bbl/day in the subsequent two years.

It attributed the slowdown in growth to an acceleration of the low-carbon transition amid energy security concerns largely triggered by Russia’s war on Ukraine.

“The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles (EVs), energy efficiency and other technologies advance,” said the IEA’s executive director, Fatih Birol, in a statement.

As such, demand from OECD countries may crest this year, with North American and European oil demand slowing to a halt as soon as 2023-2024.

“Moving forward, high EV sales and slower petrochemical additions will see the pace of growth in China slow in the final years of the forecast,” Toril Bosoni, head of the IEA’s oil industry and markets division, told journalists in a call on Tuesday.

“This is where we see India, by 2027, taking over as the main driver of growth in global oil demand.”

On the supply front, total capacity is set to record a net increase of 5.9m bbl/day to 111m bbl/day by 2028, but overall growth will ease annually from about 1.9m bbl/day in 2022-2023 to just 0.3m bbl/day by that same year as additions in the US – the world’s biggest producer and consumer of oil – slow.

The deceleration of output capacity building “largely reflects the global pivot towards cleaner energy and a corresponding weaker demand outlook,” the IEA said, noting a spare capacity cushion of about 4.1m bbl/day, concentrated in the Middle East.

Russia capacity should also fall as Western-led sanctions over its war on Ukraine limit its exporting ability, further tightening oil markets in the coming months.

Decarbonisation road

According to the IEA, post-pandemic consumption for gasoline should peak by 2023, road transport by 2025 and total transport in 2026, on the back of higher vehicle efficiencies and electrification, and a growing use of biofuels.

“Growth in road transport fuel use, long the mainstay of oil demand … will only narrowly surpass its pre-crisis high point,” it said.

From 2022 to 2028, efficiency gains occurring in all transport segments are projected to lower oil demand growth by roughly 0.79m bbl/day each year, and by 4.8m bbl/day in total. Added to new EV sales, savings will amount to 7.8m bbl/day.

Upstream investments

Keisuke Sadamori, head of energy markets and security at the IEA, told the press call that upstream oil and gas investments were on track to recover to their highest levels since 2015, with nearly 6m bbl/day set to come online by 2028.

“The industry needs to continue to invest,” Bosoni stated as investments will reach USD 528bn this year. “Given the current policy context and our projections for demand, the increase in investments will be required throughout the forecast period.”

Bosoni added: “Efforts should be on governments, on consumers to reduce the demand for oil.”