Forecasts Point to Oil Demand Peak Coming Faster

Many energy outlook modelers now foresee oil demand peaking much sooner than previously expected — around 2030 rather than 2040 — indicating that a phaseout of fossil fuels is already accelerating despite political and diplomatic clashes on the topic. In the past six years, it's become clear that factors such as transport electrification and accelerated renewable power deployment have permanently depressed oil and gas outlooks.

Projected oil demand in 2040 is generally lower now than it was in 2019, even though the latest data published this year tends to be slightly higher than in 2022-23. Green energy faces the opposite trend. Renewable electricity generation projections are generally up significantly, typically 20%-25% for 2040 supply in 2024 versus 2019 outlooks. Solar, wind and battery costs keep falling — despite the recent supply chain crisis — and policymakers keep pushing renewables — as the recent G20 pledge to triple capacity by 2030 illustrates.

This is not enough, however, to put the world anywhere near carbon neutrality by midcentury. Average energy-related emissions in eight reference scenarios examined by Energy Intelligence amount to 27 billion tons in 2050, down almost 30% from the current 38 billion tons, but very far from net zero. Modeling from the Intergovernmental Panel on Climate Change (IPCC) suggests this would lead global warming to reach 2.5°C from the preindustrial era instead of the Paris Agreement's 1.5°-2°C target.

Carbon capture and storage (CCS) would only play a marginal role in those reference scenarios and reduce gross emissions by just a few percent. By contrast, Paris-compliant scenarios assume gross emissions and fossil fuel demand are slashed by around 70% from today. CCS and direct air capture would then address some two-thirds of residual emissions — or around 10 billion tons of CO2 per year — while the last bit would be addressed by nature-based solutions such as forestry projects.

Oil Bulls and Bears

Opec and the US Energy Information Administration (EIA) remain by far the most bullish forecasters for oil, both in absolute terms and trend, with no hint of a peak anytime soon and no significant change over 2019-24. In contrast, Exxon Mobil now sees oil demand plateauing this decade with little incremental growth left due to higher assumed penetration of electric vehicles and biofuels.

Likewise, TotalEnergies' Momentum scenario sees oil demand in 2040 now 17% below 2019 — but also 17% above the very low 2021 version of the scenario. Momentum, which is not a forecast, assumes the transition accelerates, a trend Total is less confident about than it used to be. Indeed, the French supermajor published a new, more conservative Trends scenario this year, as "insufficient technology substitution and international cooperation limit decarbonization of final demand." In Trends, oil demand still peaks around 2030, but the post-peak decline is much slower than in Momentum — minus 17% over 2030-50 instead of minus 33%.

Gaps on Gas

Gas demand projections have been following a trend similar to oil, with 2040 numbers now lower than five years ago — and only one exception, the almost unchanged US EIA. Interestingly, there is a relative — and persistent — agreement among modelers within a fairly narrow interval at 140-180 exajoules now for gas demand in reference cases for 2040, down from 160-200 EJ five years ago (and up from 145 EJ in 2023).

The IEA has been much criticized in the oil and gas industry for its massive reductions in gas demand projections. These mostly took place in 2021-22 and result from more ambitious electrification assumptions. The agency's latest 2040 number at 142 EJ is 10%-20% lower than those of the other reference scenarios.

Total, known for its optimism on future gas demand, has revised its Momentum scenario by almost as much as the IEA between 2019-24 — minus 21% versus minus 24% — but the new Trends scenario foresees moderate growth until 2045 instead of a 2030 peak. Its 2040 supply assumption, at 167 EJ instead of 159 EJ, remains significantly lower than those of the US EIA, Exxon and Opec, at 186 EJ, 180 EJ and 176 EJ, respectively.

Rising Renewables

While most forecasts and scenarios now anticipate a plateau for oil and slower growth for gas, they all see fast growth for renewables but at different speeds across sources. This is causing 2040 projections to cover a wide range, from Exxon's 150 EJ to BP's 230 EJ — up from around 100 EJ now.

Once again, the US EIA is an outlier with post-Covid-19 renewable projections to 2040 lower than in 2019. This is mostly due to energy security considerations leading to slower than previously expected coal power retirement in some countries, notably in Asia.

Philippe Roos is a senior reporter and senior analyst at Energy Intelligence. A version of this article originally appeared in EI New Energy.