The world is on the verge of abandoning oil

According to the International Energy Agency, oil consumption will peak in a few years, and gasoline use will decline after 2026.

After that, global oil demand is likely to decline dramatically, and in the next 5 years, the transition to electric cars and other cleaner technologies will almost completely halt the growth of global oil consumption.

Is this a reality or a pipe dream of "eco-concerned" citizens?

Let's find out if global oil demand is really slowing down.

The IEA's Oil 2023 medium-term report sees a decline in gasoline consumption, which accounts for about a quarter of global demand for petroleum products, after 2026. Meanwhile, overall oil consumption will remain steadily high, supported by robust demand from the petrochemical and aviation sectors.

While the growing aviation industry still cannot find a substitute for oil, the petrochemical industry is driven by demand for products used to manufacture a wide range of consumer goods, including plastic bags, garden furniture, and automobile repair parts.

As a result, oil demand will even slightly increase in absolute terms, as the report says: "based on current government policies and market trends, global oil demand will rise by 6% between 2022 and 2028 to reach 105.7 million barrels per day."

However, despite this cumulative increase, annual demand growth is expected to shrivel from 2.4 mb/d this year to just 0.4 mb/d in 2028, putting a peak in demand in sight to be followed by a decline.

The global energy crisis is another factor that has contributed to the de facto "freezing" of global oil demand growth. Consistently high prices and problematic supply security are the risk factors forcing a painful but inevitable transition to cleaner energy technologies and cooling interest in oil, the report says.

Clean energy vs fossil fuels

“The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance,” said IEA Executive Director Fatih Birol.

Thus, the growing number of electric vehicles, the overall increase in energy efficiency, including the optimization of fuel efficiency of internal combustion engines, and the expansion of biofuels that produce energy from sources such as agricultural waste and used oil will be significant factors in reducing oil use as a transportation fuel after 2026.

If the trend keeps up after 2026, the use of oil as a transportation fuel will decline even more rapidly. Electric vehicles, biofuels, and modern engines are likely to reduce both the scope of fuel use and its consumption.

The International Energy Agency, which monitors energy trends on behalf of industrialized nations, predicts that by the end of 2028, more than 155 million electric vehicles will have been sold globally, half of them in China. These vehicles will mean that three million barrels a day of oil a day that might have been consumed will instead remain in the ground.

Black swans in the oil market

Global oil markets are still slowly recovering after three years of black swans. First, the global Covid-19 pandemic caused destabilization, followed by Russia's unprovoked, bloody war against Ukraine and finally the global energy crisis caused by the war in Ukraine led to an unprecedented redistribution of global trade flows.

Production cuts by the OPEC+ alliance are restraining the growth of global oil supplies which could potentially lead to a significant decline in global oil markets in the short term.

“Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition,” said IEA Executive Director Fatih Birol.

However, there is also good news: IEA analysts predict that "multifaceted strains on markets look set to ease in the following years."

China was the last major economy to lift its stringent Covid-19 restrictions at the end of 2022, leading to a post-pandemic oil demand rebound in the first half of 2023. However, according to analysts, China, which has been a key driver of global oil demand growth for decades, is no longer playing this role.

According to Henning Gloystein, Director of Eurasia Group, there is a dawning realization that China’s economic recovery from Covid isn’t producing the same sort of oil demand growth that China had prepandemic.

According to forecasts, demand growth in China will slow markedly starting from 2024 onwards. In the last years of the forecast, covering the period up to 2028, this trend will intensify.

Another marker of the inevitable decline in oil demand is the attention of investors.

2023 will mark the peak of global investment in oil and gas exploration, production and refining reaching the highest levels since 2015, growing 11% year-on-year to USD 528 billion.

Gloomy prospects for oil traders

The forecast comes amid a prolonged slump in oil prices, which have failed to respond to the recent production cuts organized by Saudi Arabia. The price of Brent crude oil, averaging $75 per barrel, is about a dollar below the level before Riyadh announced on June 4 that it would cut production by one million barrels per day, or about 1 percent of global supply.

In an article for the New York Times, Stanley Reed calls the prospect of global gasoline use declining after 2026 "gloomy reading for the Organization of the Petroleum Exporting Countries and other petroleum producers, raising the long-debated prospect of 'peak oil'" - the point at which oil production peaks and starts to decline.

Meanwhile, E&Y analysts have already developed relevant recommendations for the industry, which is facing upheaval.

The key recommendations include:

– analysis of consolidation opportunities to improve operational efficiency and reduce competition for investment capital;

– acquisitions - a tool for American independent companies that have the ambition to take advantage of the energy crisis in Europe and play their game in the European liquefied natural gas market;

– focusing on the intersection of independent companies' capabilities with sustainability needs, such as carbon capture and storage;

So, while companies are adjusting their forecasts to take into account the decline in oil production, ordinary citizens can rejoice - it seems that humanity has finally set its course for clean energy and the environment.