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.
