Opec believes oil demand could peak within 13 years if the Paris climate agreement’s targets are fully implemented, sounding a warning to its members just days after the accord to curb global warming came into force.
The 14 members of the oil cartel are heavily reliant on energy revenues and have already been grappling with a prolonged downturn in prices, which has slashed budgets and pushed many producer countries into recession.
Though not the first to argue oil demand could be nearing a peak as momentum for further action to reduce emissions builds, the forecast carries additional weight coming from a group that collectively pumps more than a third of world oil supplies.
It will probably be welcomed by environmental campaigners as evidence that the energy industry itself recognises the threat posed by the Paris accord’s goal to spur government efforts to cut fossil fuel pollution.
“The uncertainties associated with energy and environmental policies at both national and international levels cloud the outlook for energy demand and supply, especially in the long term,” Opec said in its annual global oil market report, which forecasts scenarios for the next 25 years.
“In particular, possible climate policies following COP21 have the potential to reduce energy consumption levels and alter the energy mix substantially.”
The COP21 climate agreement struck in Paris last December seeks to prevent average global temperatures from rising more than 2C above pre-industrial levels through individual country pledges to limit their greenhouse gas emissions.
Opec’s long-term outlook contains several models for tracking the oil market’s trajectory, some of which see crude demand rising further into the future. Its standard “Reference” case, which sees countries pursue attempts to curb emissions less aggressively, sees oil demand continuing to rise until at least 2040.
But in its “Scenario B” — which envisages countries meeting their targets on time, including those from poorer nations that are conditional on financial support — oil demand peaks in 2029 at 100.9m barrels a day and then declines to 98.3m b/d by 2040, more than 10 per cent below the level in their reference case.
The first batch of pledges for the Paris accord are largely based on what countries believe will be possible to achieve and will not prevent 2c of warming this century, according to the UN. However, the agreement requires these plans to be ratcheted up every five years so global emissions are cut.
The COP21 agreement came into force in record time, less than 12 months after its adoption in Paris. The 1997 Kyoto protocol, by comparison, took more than seven years to take effect. A fresh round of two-week UN climate talks began in the Moroccan city of Marrakesh on Monday, where delegates will work on the rules for updating countries’ pledges.
“Policies geared to accelerate fuel efficiency improvements and a faster penetration of alternative fuel vehicles have the potential to significantly reduce oil demand,” Opec said in the report.
Opec said it expected a “progressive decline in total energy demand when moving towards more carbon-restricted scenarios” as countries opt for more efficient fuels, consumers change their behaviour and new technological developments take place — such as a further push towards alternative fuel vehicles.
Some industry analysts have forecast that by 2040 more than a third of new car sales worldwide and a quarter of the global car fleet will be electric cars, which displaces 13m b/d of oil or nearly 14 per cent of current demand.
While Opec has said it “welcomes” the Paris agreement it acknowledges increased focus on climate change mitigation has already made an impact on power generation where renewables are increasingly favoured over coal and even gas.
“There remain many questions concerning the possible implementation path of such an agreement,” the cartel said.
Khalid Al Falih, Saudi Arabia’s energy minister and de facto leader of Opec, has remained resolute about the world’s appetite for oil and gas, saying last week demand would continue to grow despite greater momentum to curb climate change.
Opec is due to meet in Vienna on November 30 to try to cement supply cuts to shore up a price that has more than halved since 2014 to near $45 a barrel. The long-term report said lower prices had boosted demand despite slower economic growth and efficiency measures.
In Opec’s reference scenario oil and gas is still anticipated to meet more than half of the world’s energy needs by 2040 but should either of the alternative scenarios play out, fossil fuels’ share of the mix will be lower.
Additional reporting by Pilita Clark
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