Comment: Even nearing ‘peak oil,’ its decline won’t be steep

By Javier Blas / Bloomberg Opinion

This may sound paradoxical, but the International Energy Agency is both the gold standard in global supply-and-demand energy statistics and a poor forecaster of the same data.

The sum of all that’s good and bad is its annual flagship report, the World Energy Outlook; thus, take it both seriously and with skepticism. Last week, IEA Executive Director Fatih Birol announced that the next edition of the report, expected in October, would show the world is on what he called “the cusp of a historic turning point”: Demand for coal, oil, and natural gas is set to peak before 2030.

Over the years, I have learned the hard way that when it comes to the energy market, there’s much truth in the cliché “it is difficult to make predictions, especially about the future.” If the prediction is about an inflection point, then it’s even more difficult. The IEA should have learned the lesson, too. Historically, it underestimated — and by quite a lot — the growth of wind and solar; it all but missed the birth of the U.S. oil shale revolution; and prematurely called the end of coal’s golden age in China by at least a decade (and still counting).

Peak fossil-fuel consumption will be a cause for celebration. But I’m skeptical it’s as near as the IEA has said, especially for gas. Interestingly, Birol hedged his words quite carefully: “Although fossil fuels are set to hit their peaks this decade in structural terms, there can still be spikes, dips and plateaus on the way down.”

Here, “structural terms” does quite a lot of heavy lifting. And if there can be spikes in demand after the peak, well, let’s not call the first high point a peak. Because it wouldn’t be.

The debate about when the peak would be reached is intriguing; but, to me, it’s a distraction. We wouldn’t know for sure until several years after demand has actually peaked. What really matters is the shape of the curve in the years before and after demand reaches its zenith. The amateur mountaineer in me sees a peak as the beginning of a frequently quite abrupt descent. One treks higher, suffering and sweating, pauses a bit at the mount’s summit and then enjoys an easier downward trek. With most mountain ranges, going up is as steep as coming down. That’s what “peak” sounds like to many others. Not in the world of energy.

For oil, coal and gas, the fall may be gentle and slow. After summiting, for a hiker, it’s like the other side of mountain turns into a high-altitude plateau rather than your typically rapid Alpine descent.

For many years, fossil-fuel consumption may hover close to its maximum point. How long? Maybe five or 10 years or even as long as two decades. That’s incompatible with what’s needed for the world to achieve its net-zero emissions target by 2050. Equally, demand growth may slow to a crawl for several years before reaching its ultimate peak, wrong-footing those bullish fossil-fuel investors who bet on continued historical growth rates.

The history of fossil-fuel consumption suggest the years after the peak wouldn’t be the expectation of a quick descent.

Take coal. The IEA initially thought that demand for the world’s dirtiest fuel had reached an apex in 2013. Since then, consumption has largely leveled off and last year started climbing again, setting a fresh peak. Under current trends, demand is likely to set a fresh all-time high in 2024 and 2025.

The gap between the most likely consumption path after reaching the crest and the net-zero models is incredibly wide; so broad that discussing the exact date of the peak is redundant.

Consider oil. The IEA itself says global oil demand needs to drop to 75 million barrels a day by 2030 to be on track to achieve net zero. It’s impossible to see that happening. Why? Because demand is more than 103 million barrels now, and all suggests continued growth over the next five years, reaching 105 million to 106 million barrels a day by 2028 or 2029. Even if that marks the oil market’s peak, the gulf between reality and the model would exceed 30 million barrels a day; equal to the combined daily consumption of China, India, Japan, Germany, the U.K., France and Italy.

The day when the world’s use of fossil fuels reaches its maximum is nearer than ever. For oil and coal, perhaps it’s as close as the IEA says. For gas, it’s further away. But the eye-catching bit is on the summit’s other side. And, I’m afraid, anyone thinking about a rapid decline after an extended ascension would be disappointed.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former editor at the Financial Times, he is co-author of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”