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Global demand for fossil fuels is likely to peak before the end of the decade, with mounting shocks to the global energy system caused by geopolitical uncertainty hastening the move to renewable energy, according to the International Energy Agency.
The IEA, a Paris-based group of some of the world’s biggest energy users, said demand for coal, oil and natural gas should all peak this decade, with increasing use of electric vehicles and renewable energy offsetting demand for carbon-based fuel sources.
The IEA said this is the first time it has forecast that demand for all three major fossil-fuel sources would peak before 2030, with much of the shift hastened by energy shocks such as the war in Ukraine and the current conflict in the Middle East. It cited the latter as an example of why energy systems need to be diversified and strengthened. By 2050, half of Middle Eastern seaborne oil flows are likely to be sent to Asia, up from 40% today, it said. “The global energy crisis was not a clean energy crisis, but it has focused attention on the importance of ensuring rapid, people-centered and orderly transitions.”
A legacy of that crisis “may be to usher in the beginning of the end of the fossil-fuel era,” it said Tuesday. Under a scenario in which stated government policies increase renewable energy usage, the share of coal, oil and natural gas in the global energy supply should fall to 73% by 2030 from around 80%, where it has remained for decades, it said.
In particular, the IEA said coal demand is likely to fall sharply within the next few years from a record level in 2022 due to lower coal-based power generation and increased use of electric-arc furnaces in steel production.
The Paris based body said “this was an important shift,” but warned that if there are unexpected spikes in demand for fossil fuels, such as that for coal during last year’s natural-gas crisis in Europe, it is unlikely that peak demand will be hit this decade. The IEA also said that continued investment in fossil fuels would be needed or energy-demand needs would not be met by 2030.
However, significant steps have been made in terms of the global shift to renewable energy sources, spurred by policies such as the U.S. Inflation Reduction Act, the IEA said. The agency now expects half of all new cars sold in the U.S. to be electric by 2030–a significant increase from its 2021 report in which it forecast that just 12% of cars would be battery powered by that date.
Additionally, by 2030, renewable energy is set to account for 80% of newly installed energy capacity, based on stated policies, with solar power accounting for roughly half of this, the agency said.
While noting the progress of solar power in particular, the IEA said more needed to be done in terms of investment. “There is significant scope for further growth given manufacturing plans and the technology’s competitiveness. By the end of the decade, the world could have manufacturing capacity for more than 1,200 gigawatts of panels per year. But in the Steps [stated policy scenario], only 500 gigawatts is deployed globally in 2030.” The IEA said strengthening electricity grids and building out battery storage would help to boost generation.
The report also said that diversifying sources of critical minerals would be key in enabling the transition. “Alongside investments in diversified supply, policies encouraging innovation, mineral substitution and recycling can moderate trends on the demand side and ease market pressures. They are vital components of critical minerals security,” it said.
Write to Yusuf Khan at yusuf.khan@wsj.com
