The Organization of the Petroleum Exporting Nations (OPEC) and the International Energy Agency (IEA) published their respective long-term energy outlooks for 2050 in October, revealing a wide gap in forecasts for oil demand growth. The IEA stuck to its previous assessment that oil demand will peak before the end of the decade, while OPEC sees oil demand climbing to a record by mid-century. The difference between the two forecasts amounts to 27 million barrels per day (bpd), which is equal to the current production of OPEC’s 12 members.
Near- and long-term projections
If the IEA is correct, it would have implications for OPEC and the broader OPEC+ alliance. Near-term signals have been bearish. In its October Monthly Oil Market Report, OPEC revised down its growth forecast for 2024 by 110,000 bpd to below 2 million bpd for the first time this year — the third straight downward monthly revision — largely because of tepid demand from China. The IEA sees demand growth below 1 million bpd.
China also looms large in the long-term forecasts, with OPEC far more bullish about demand growth in the world’s second-largest economy.
The IEA uses three scenarios in its outlook though the base case Stated Policies (STEPS) scenario is modeled on the assumption of full implementation of government policies and is used for the purposes of comparison with OPEC’s Reference Case scenario.
OPEC extended its timeline to 2050 from 2045 this year, so it’s not possible to compare with the previous year’s projection. It now sees oil demand rising to a record 120.1 million bpd and possibly higher by 2050 and does not expect a peak on the horizon. The IEA revised down its estimate this year and sees oil demand peaking at 101.7 million bpd by 2030 and declining thereafter to 93.1 million bpd.
Two years ago, OPEC and the IEA were closely aligned in their calculations of future demand. Still, they have since diverged over the speed of the transition, the rate of electrification of the energy complex, and expectations of Chinese economic growth.
Energy demand and investment needs
China is the world’s biggest importer of crude oil—it imported 11.1 million bpd in September, but volumes have fallen in the last five months. If this proves to be a structural decline, it would have a significant impact on oil balances. According to the IEA, Chinese oil demand is expected to fall from an average of 17.4 million bpd in 2030 to 11.8 million bpd by 2050.
“China has been the engine of oil market growth in recent decades, but that engine is now switching over to electricity: The country’s oil use for road transport is projected to decline in the STEPS, although offset by a large increase in oil use as a petrochemical feedstock,” the IEA says in WEO. Electric Vehicle (EV) penetration in China is already at 50 percent of new car sales, higher than the current world average of 20 percent. If the share of EVs globally rises to 50 percent, it would displace 6 million bpd of oil demand, according to the IEA.
China accounted for 60 percent of renewable energy capacity that was added globally in 2023 and with penetration of solar photovoltaic (PV) generation alone China is “on course to exceed, by the early 2030s, the total electricity demand of the United States today,” the IEA report says.
As Chinese demand growth slows, India will emerge as the largest driver of oil demand growth, adding some 2 million bpd to 2035, according to the IEA’s estimates. OPEC acknowledged India’s potential and said it extended its outlook to 2050 to factor in Indian demand growth. India alone will add 8 million bpd to its oil demand during the forecast period while China’s demand is projected to increase by only 2.5 million bpd, it said.
Impact of global economic and population growth
OPEC assumes that global economic and population growth will drive energy growth higher by 24 percent during the forecast period with demand for all sources of energy except coal increasing. To meet the world’s energy requirements will require investments of $17.4 trillion in the oil sector alone, without which the world would experience a supply shock, it warned. However, the IEA sees total investments required to meet its demand projection as 20 percent lower in 2035 than in 2024.
OPEC, whose relations with the IEA have soured since the latter published its Net Zero by 2050 report in 2021, responded to the WEO report, warning that “due regard should be given to consequences of underinvestment in the oil and gas industries, especially those related to energy security.”
The IEA, on the other hand, sees a risk of overinvestment in new oil output capacity as demand slows and alternative fuels displace oil in aviation and shipping along with a revival of nuclear power. It sees the next decade as ushering in the Age of Electricity, noting that electrification has accelerated, having grown at twice the rate of overall energy demand in the past decade, driven by China.
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What’s driving electricity
Where the IEA and OPEC diverge significantly is in their projections for the growth in EVs. OPEC expects internal combustion vehicles to make up more than 70 percent of the global fleet by 2050. Where the IEA sees energy efficiency and EVs eroding the share of oil in the transportation sector, OPEC expects an increase of 4.6 million bpd by 2050 in demand for road transportation. However, it does account for fast growth in the EV segment. The other main contributors to demand growth are petrochemicals, with 4.9 million bpd, and aviation by 4.2 million bpd, according to OPEC’s estimates.
The IEA singles out demand for air conditioning as one of the biggest drivers of electricity as a result of more frequent heat waves and higher household income in the developing world. This has implications for the Middle East as the region that consumes the most oil for power generation, particularly during the peak summer demand season. OPEC’s WOO suggests this trend will continue as it projects only a modest decline from 1.5 million bpd in 2023 to 1.2 million bpd in 2050.
The conflicting outlooks from OPEC and the IEA underscore the uncertainty surrounding the future of oil in the global energy mix. These differing views emphasize the challenges faced by the oil industry, where balancing investment, energy security, and environmental concerns will be critical in the decades ahead.
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