World demand for oil is likely to drop off sharply over the next five years, the International Energy Agency said Wednesday, as a shift to electric vehicles and other cleaner technologies brings growth in global oil use almost to a complete halt.
“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,” said Fatih Birol, the agency’s executive director, in a news release.
The assessment, which foresees global gasoline use declining after 2026, will make gloomy reading for the Organization of the Petroleum Exporting Countries and other petroleum producers. It raises the long-debated prospect of “peak oil” — the point at which oil production peaks and starts to decline — but in this case the leveling off would be due to weakening demand rather than shrinking petroleum supplies.
And the forecast comes amid a lingering slump in oil prices, which have failed to respond to recent cuts in output orchestrated by Saudi Arabia.
Prices for Brent crude, now about $75 a barrel, are about a dollar below levels before Riyadh announced a cut of one million barrels a day, or about 1 percent of global supplies, on June 4.
Unease about prospects for global oil demand may account for this market malaise, analysts say. The agency’s report is likely to add to fears among oil traders that China, for decades the key driver of global oil demand growth, no longer performs this role.
China is by far the world’s largest market for electric vehicles, and its economic recovery from “zero Covid” lockdowns has not been as strong as some economists predicted. Growth in its consumption of oil is expected to slow, especially in the latter years of the forecast, which runs through 2028.
There is a “dawning realization that China’s economic recovery from Covid isn’t producing the same sort of oil demand growth that China had prepandemic,” said Henning Gloystein, a director at Eurasia Group, a political risk firm.
The International Energy Agency, which monitors energy trends on behalf of industrialized nations, predicts that by the end of 2028, more than 155 million electric vehicles will have been sold globally, half of them in China. These vehicles will mean that three million barrels a day of oil a day that might have been consumed will instead remain in the ground.
The agency is more positive for oil’s short-term outlook than some other forecasters. The report predicts that world demand will jump by a strong 2.4 million barrels a day in 2023, a modest increase from a report published last month and a view that some analysts consider overly optimistic.
In later years, though, the agency sees growth trailing off, especially in road transportation, thanks to increasing numbers of electric vehicles, the growth of so-called biofuels (which generate energy from sources like agricultural waste and used cooking oil) and greater efficiency.
Gasoline consumption, which accounts for about a quarter of world demand for oil products, will decline after 2026, the agency forecasts.
The growing aviation industry, for which substituting for oil is difficult, and demand for petrochemicals (used to make a wide variety of materials including plastic bags, patio furniture and auto parts) will be the mainstays of any future growth, the agency says.
The agency said plans for investment in oil and gas production were 47 percent below 2014 levels in real terms, reflecting the prospects of declining growth of oil demand and the impact of the pandemic. However, the industry is expected to increase such spending 11 percent in 2023.
Much of the spending is occurring in the Middle East, where Saudi Aramco and ADNOC, the Abu Dhabi national oil company, are boosting capacity.
Some European oil giants have been allowing their oil output to gradually fall, although Shell said Wednesday that it would keep production steady until the end of the decade in order to keep raking in cash.