World needs no new oil, gas projects under path to net-zero emissions by 2050: IEA

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Highlights

Global to shrink by 75% under net-zero scenario

IEA still expects oil demand to recover from pandemic hit

OPEC market share would jump, revenues slide under net-zero shift

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London —
The world needs no new developments and global oil demand would collapse by 75% under an energy scenario needed to put the world on a path to net-zero emissions by 2050, the International Energy Agency said May 18.

Outlining its first roadmap for how the global energy sector can achieve net-zero emissions, the IEA said “immediate and massive” deployment of all available clean and efficient energy technologies would be needed to upend the dominance of fossil fuels in the energy mix over the coming decades.

“Our pathway requires vast amounts of , innovation, skillful policy design, and implementation, deployment, infrastructure building, international cooperation and efforts across many other areas,” the IEA said.

With the immediate end to spending on new upstream projects and an expected shutting-in of higher-cost production, global oil supplies would shrink by more than 8% each year, the IEA estimates under its Net-Zero Emissions by 2050 Scenario, or NZE. Oil demand will never again reach its historic peak in 2019 before shrinking to 24 million b/d in 2050, from around 90 million b/d in 2020, the IEA’s scenario showed. Gas demand would also decline by 55% over 2020 levels to 1,750 Bcm by 2050.

As a result, oil prices would drop to around $35/b by 2030, from current levels close to $70/b, and then drift down slowly towards $25/b in 2050, it said, creating a significant risk of stranded capital and stranded value especially for any upstream projects unable to capture CO2 emissions.

Peak demand

The IEA’s base case assumption for global oil demand, however, is that it will continue to rebound from 2020 lows in the coming years rather than entering a structural decline.

In March, the IEA said it expects global liquids demand, including biofuels, will recover to reach 103.2 million b/d in 2025, up from 91 million b/d in 2020 and almost 100 million b/d in 2019.

Indeed, in addition to massive levels of green spending and “unwavering” policy focus on climate change, the IEA said its net-zero scenario would need “huge leaps” in clean energy innovation to achieve.

“The scale and speed of the efforts demanded by this critical and formidable goal – our best chance of tackling climate change and limiting global warming to 1.5 °C – make this perhaps the greatest challenge humankind has ever faced,” IEA Executive Director Fatih Birol said. “Moving the world onto that pathway requires strong and credible policy actions from governments, underpinned by much greater international cooperation.”

S&P Global Platts Analytics expects global liquids consumption, including biofuels, to return to pre-pandemic levels in 2023 and continue to rise to around 114 million b/d in 2040 under a “most likely case” scenario.

In its latest long-term energy market outlook published in October, the IEA said it expects oil demand to flatline above 100 million b/d rather than peak in the coming two decades hitting 104.1 million b/d in 2040. The base case ‘Stated Policies’ scenario, however, does not model hitting national net-zero pledges.

OPEC market share

Under the IEA’s NZE scenario, sales of conventional passenger cars would be banned from 2035 globally. The pathway also requires about 60% of global car sales in 2030 to be , and 85% of heavy-duty trucks sold in 2040 would be EVs or fuel cell vehicles.

Downstream, refiners would see their average crude runs fall by 85% between 2020 and 2050, triggering plant closures, as oil demand for gasoline and drops to less than 15% in 2050, compared to around 55% currently.

“A huge amount of work is needed to turn today’s impressive ambitions into reality, especially given the range of different situations among countries

and their differing capacities to make the necessary changes,” the IEA said.

The radical contraction of oil and gas demand under the scenario will have a major impact on the world’s current oil and gas producing countries and companies, the IEA said.

With no new oil and gas fields needed in the scenario, supplies will become concentrated in a small number of low-cost producers. As a result, the IEA said OPEC’s share of global oil supply would grow from around 37% in recent years to 52% in 2050, the highest ever in the history of oil markets.

But with global demand shrinking to just 25 million b/d by 2050, oil revenues in low-cost OPEC producers would be severely hit.

Speaking last year, the IEA’s Birol said the rise of clean, over the coming decades also raises key risks to oil states, which rely heavily on oil revenues to guarantee social and political .

Even outside oil and gas producer countries, a net zero pathway would see tax revenues from oil and gas sales plummet by about 40% between 2020 and 2030, the IEA concludes, requiring long-term fiscal planning and budget reforms to make up the shortfall.

Author

Robert Perkins

Editor

Kshitiz Goliya

Commodity


Electric Power, 
Natural Gas, 
Oil, 

Source: Platts

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