IEA expects large oil and gas surplus in next five years

The International Energy Agency (IEA) expects a global fuel and gas surplus in the next five years. Although the energy crisis has led to scarcity and sky-high prices in recent years, the IEA expects just the opposite in the second half of the decade.

That could be good news for Europe, where the energy crisis has left deep wounds among consumers and caused an energy-intensive industry to collapse. However, could it also jeopardize Europe’s Green Deal ambitions, as lower fossil fuel prices might be tempting to postpone the energy transition?

Demand continues to decline

Global oil demand will continue to decline, partly due to weak oil demand from China, which has been the driving force behind global oil consumption for years. “But Chinese oil demand is lagging expectations and is the main drag on overall growth,” the IEA said.

According to the IEA, global oil demand will rise by 860,000 barrels per day this year, 40,000 barrels per day less than the previous forecast. Next year, a demand increase of 1 million barrels per day is expected, about 50,000 barrels per day more than expected.

Oil prices have risen sharply in recent weeks on concerns that Israel might shut down Iran’s oil facilities. However, on Tuesday, oil prices fell by more than five percent after reports that Israel will spare those Iranian oil installations.

Historic highs, falling prices

The IEA, which manages industrialized countries’ emergency oil stocks, says reserves exceed 1.2 billion barrels, and OPEC+’s spare capacity is also at historic highs. “Oil supply continues to flow, and without a major disruption, the market will face a significant surplus next year,” the IEA concludes.

The global production capacity of liquefied natural gas will increase by 50 percent by 2030, while it is uncertain whether there will be sufficient demand. The greater oil and gas supply – or even a surplus – will lead to falling prices.

Need to switch to renewables

Lower fuel prices can allow policymakers to increase investments in the transition to clean energies and phase out inefficient subsidies for fossil fuels. However, the IEA warns that cheaper gas could delay structural green changes. It would make it less attractive for consumers to switch to electric heat pumps or for the industry to evolve toward alternatives such as biomethane, hydrogen, or electricity.

Nevertheless, cheaper gas and fossil fuels will not slow down the energy transition in the IEA scenario. On the contrary, the low prices will give countries more room to phase out support for fossil fuels and increase investments in renewable energy. Geopolitical tensions have exposed the vulnerability of energy supplies, increasing the need to switch to renewable energy.

Global warming

According to the IEA forecast, renewable energy capacity, mainly from solar power, would increase worldwide from 4,250 gigawatts today to 10,000 gigawatts in 2030. That is not the tripling promised at the climate summit in Dubai, but it is sufficient to reduce fossil fuels. Despite lower prices, demand in Europe for natural gas would fall by 10% by 2030, for oil by 15 %, and for coal by 50 %.

This does not yet mean that the climate target of limiting global warming to 1.5°C will be achievable. Globally, fossil fuels will peak, but the subsequent decline will be slow.

Today, the energy mix still consists of 80% fossil fuels; by 2030, this would be 75%. Therefore, the IEA warns that the world is heading for a temperature increase of 2.4°C by the end of the century.