As COP27 comes to a close, the opposing challenges from the urgent need to do more to reduce global emissions and the escalating cost of living, the energy crisis and political upheaval brought on by Russia’s war in Ukraine remain. The turmoil in energy markets has clearly weakened environmental targets in the short term, with the US administration being forced to ask domestic crude producers to increase production and Europe being pressed to turn back to coal plants for electricity generation. However, the current crisis could potentially speed up the transition to greener fuels in the long term, not least due to rising global investment in renewable energy, the introduction of the US Inflation Reduction Act, increased ambitions of the EU’s Fit for 55 policy and China’s accelerating electrification of its car fleet.
Recently, the International Energy Agency (IEA) published its annual long term energy outlook, updating three main scenarios. The Stated Policies Scenario (STEPS) is based on the prevailing policy settings, in other words; measuring what governments have actually put in place. In STEPS, global oil demand climbs above 2019 level in 2023 and increases to 102.4 mbd by 2030. Demand in developing and emerging economies is dominated by rapid growth in China, India and South East Asia, increasing by 8 mbd due to growing car ownership and rising petrochemical demand. In contrast, oil consumption in advanced economies declines by 3 mbd over the period, primarily on the back of accelerating electrification of their car fleets. Globally, oil demand peaks around 2035 and then edges down marginally to 102.1 mbd by 2050 as falling demand in advanced economies is just enough to offset continued growth in developing countries.