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IEA Insists Demand For Oil Will Fall From 2030 :: Uganda Radionetwork

IEA Insists Demand For Oil Will Fall From 2030

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The fall in demand will mainly be driven by China which has been consuming more than two-thirds of the global oil demand.
23 Apr 2024 17:42
Drilling rig at the Kingfisher Development Area long Lake Albert. Wont the peak in demand for oil by 2030 affect Uganda's oil?

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The International Energy Agency Chief Dr. Fathi Birol has insisted that global oil and gas demand will start to fall before 2030, marking the “beginning of the end” of the fossil fuel era. 

The International Energy Agency (IEA) in November last year raised hopes of an end to the fossil fuel era when it predicted that the consumption of oil, gas, and coal would peak before 2030 and begin to fall as climate policies took effect. 

Armed with fresh data about the growth of electric vehicles globally, Birol said the journey to the peak of oil, gas, and coal has begun.

The idea behind 'peaking oil' is that global production will reach a peak and then decline. Dr. Birol told journalists on Tuesday that several drivers would bring global oil demand peaking by 2030. He said the key among those will be the electrification of the transportation sector.            

“And here, the electric cars play a critical role. But it is not the only one. Another driver in my view is that many of us may not consider it, as much as it deserves is the Chinese economy,” he said.

He says during the last decade, more than two-thirds of the global energy demand increase came from China.             

“China was the driver of more than two-thirds of the global oil demand. And the Chinese economy in the last ten years or so increased by more than six percent average per year,” he said.             

Looking into the years to come, Birol said there is a consensus among all the institutions including the Chinese government that the Chinese economy will slow down considerably and the structure of the economy will be much lighter or less energy intensive than before.        

“Which means that it will have significant implications. The slowing down of the economy, change in the structure of the economy for the Chinese oil demand growth together with electric car penetration around the world,” Birol explained.   

The rollout of electric vehicles globally is expected to start eroding the demand for road fuels, which make up about 50% of the oil demand in developed countries.       

He said the improving energy efficiency in combustion engine vehicles around the world would be another factor. “So putting all these things together and the number of Electric Vehicles sold in China and globally, we believe that global oil demand will peak by 2030.    

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Predictions about when demand for fossil fuels has been made before last year’s UN Climate Change Conference in Dubai.

There had been an argument by some academics that the peaking had already begun. Some oil industry players predicted a period later than 2030 because of the amount of global oil reserves that were still in the ground.  

At the time, there was no global consensus about the need to phase out oil production. COP 28 in Dubai, however, closed with an agreement that the UN Convention on Climate Change (UNFCCC) secretariat said signaled the “beginning of the end” of the fossil fuel era. 

The agreement laid the ground for a swift, just, and equitable transition, underpinned by deep emissions cuts and scaled-up finance.    

“While we didn’t turn the page on the fossil fuel era in Dubai, this outcome is the beginning of the end,” said UN Climate Change Executive Secretary Simon Stiell in his closing speech. “Now all governments and businesses need to turn these pledges into real-economy outcomes, without delay.”

However, even before the outcome of COP28, Dr. Birol had insisted that the peak in demand for each of the three fuels was visible going by the surge of solar and wind in the growth of electricity grids. 

The shift is primarily driven by the spectacular growth of clean energy technologies such as solar panels and electric vehicles, the structural shifts in China’s economy, and the ramifications of the global energy crisis,” he said. Now Birol says the outcome of COP28, together with the demand trajectories in oil and gas could lead oil companies to take very unhealthy, unwise economic and climate risks.       

Some of the issues raised by IEA have ramifications for countries like Uganda that are about to get their oil gas finds out of the ground. 

Uganda and other countries said they should be allowed to exploit such resources to power the transition to cleaner energy options.   COP28 suggested a gradual transition from oil and gas. Uganda expects to begin in 2025, which is just five years away from the predicted peak in oil demand. 

One major concern has been whether Uganda’s oil will still be profitable by 20230 at the time of the peak in global demand for oil According to the Petroleum Authority’s Executive Director, Earnest Rubondo Energy investments to arrive at the energy transition will require four trillion dollars per year globally.“And this is what is required between 2024 and 2030. This is a lot of money. It is not clear whether this money will be made available. And by saying it is not clear we are actually being polite. I think it will not be wrong to say that this money will not be made available,” he said

He is of the view that the transition will have to take longer than anyone would like. “It is worth noting that globally there is an increasing investment in oil and gas activities. Especially to address the energy security challenges following the COVID-19 and the Russia-Ukraine war. 

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The transition issue came up at the just concluded ninth Oil and Gas Convention 2024 held in Kampala. TotalEnergies EP Uganda (TEPU), General Manager, Philippe Groueix spoke about the just energy transition with the scope of the Tilenga project.   

He said TotalEnergies has the responsibility to develop the resources “In a different compared to what has been done before in other countries in a more sustainable way” So when developing the Tilenga and EACOP projects, they have to be developed with the lowest possible emissions. 

“What we call scope one and two. And I can tell you we have been working Tilenga, Kingfisher, and EACOP to make sure that they are the best in the world in CO2 emissions” he said. The United Nations Environment Programme estimates that for the world to have a chance of keeping global warming below the 1.5C target set out in the Paris Agreement, emissions will need to fall by about 9% every year.

The Oil and Gas Industry in Net Zero Transitions analyzed the implications and opportunities for the industry. It said in transitions to net zero, oil and gas was set to become a less profitable and riskier business over time.   

The report’s analysis found that the current valuation of private oil and gas companies could fall by 25% from USD 6 trillion if all national energy and climate goals are reached and by up to 60% if the world gets on track to limit global warming to 1.5 °C. The report noted that the oil and gas sector was well placed to scale up some crucial technologies for clean energy transitions. 

“Some 30% of the energy consumed in 2050 in a decarbonized energy system comes from technologies that could benefit from the industry’s skills and resources – including hydrogen, carbon capture, offshore wind, and liquid biofuels,” it said. However, that would require a step-change in how the sector allocates its financial resources.  

The oil and gas industry invested around USD 20 billion in clean energy in 2022, or roughly 2.5% of its total capital spending. 

The IEA said  producers looking to align with the aims of the Paris Agreement would need to put 50% of their capital expenditures towards clean energy projects by 2030, on top of the investment required to reduce emissions from their operations.