Is The IEA Too Optimistic About The Energy Transition?

Is The IEA Too Optimistic About The Energy Transition? 1

By Irina Slav, a writer with more than a decade covering the oil and gas industry. Originally published at

In its latest World Energy Outlook, the International Energy Agency stated that thanks to the energy crisis rattling the world right now, demand for fossil fuels would peak, speeding up the transition to renewable energy. But is this just a case of wishful thinking?

The IEA—for the first time ever—sees this happening—across all of the scenarios it devised for its forecast. According to even the Stated Policy Scenario—usually the most conservative of the scenarios—demand for fossil fuels would begin permanently declining in the mid-2020s “by an annual average roughly equivalent to the lifetime output of a large oil field.”

Coal will be the first to go—and in just a few short years from now. Following that comes the end of natural gas, which will plateau by 2030. Oil, meanwhile, should be squeezed out by the influx of electric vehicles.

But will it, really?

The energy crisis that began last year in Europe with short gas supplies fully unfolded this year after Russia slashed exports of the commodity to the EU. This disruption has pushed demand for fossil fuels higher than it was before the pandemic.

At the time, BP was forecasting that peak oil had already occurred in 2019. According to the oil major, oil demand would never again return to 2019 levels. On to of that, everyone who’s anyone in forecasts said that coal demand would never grow globally again, and gas would be a bridge fuel to the renewable energy future. Then gas started getting demonized along with oil as dirty and inappropriate. But that was then—before the crisis.

Now, coal demand has risen because of the gas squeeze in Europe, with countries reopening mothballed coal-powered plants, boosting oil production, and even converting gas-fired power plants to coal for the winter.

Politicians—along with the IEA—seem to believe that this is a short-term demand boost that will expire the moment gas markets return to normal. The problem with this belief is that gas markets will not return to normal in a week or even a month. In fact, it is unlikely that gas markets in Europe will ever return to normal because normal means getting 40 percent of the EU’s gas from Russia.

With new U.S. LNG supply slow to come online and replace the lost Russian pipeline flows, we could see strong coal demand for a few more years. And then China and India, and other Asian economies will continue using coal because it will remain cheaper than gas, especially liquefied gas, whose price has been driven sky-high by thirsty European buyers.

On the subject of oil demand, the IEA appears to believe that EVs will kill it beginning in the mid-2030s. Yet this would necessitate the production, sale, and use of many millions of EVs, which is far from certain because of the looming shortages in the metal and mineral world.

Warnings about copper supply have been coming from the mining industry and from analysts for months now. Trafigura was the latest to add its voice to them, saying earlier this month that global copper stocks had fallen to dangerously low levels, equal to about 4.9 days of global consumption. By the end of the year, Trafigura said at an FT event, this will be reduced to 2.7 days.

“It is not accidental that the EU has decided to bring forward the target of doubling its solar capacity from 2030 to 2025. All that requires a lot of copper,” Kostas Bintas, Trafigura co-head of metals and minerals trading, said.

“Look at electric vehicles everywhere, [the numbers on the road] are surprising to the upside. That’s a lot of copper too. As a result, we’ve been drawing down stocks throughout this very difficult year.”

What all these warnings are suggesting is pretty simple: there may not be enough raw materials for all the EVs—and solar farms and wind parks—that need to be sold to kill oil demand and usher in the renewable energy future.

According to the IEA, the transition is a matter of energy security, and the war in Ukraine has highlighted that and would likely act as a catalyst for a quicker transition. Indeed, the more locally produced energy a country has, the more secure it is. The problem is that the forms of renewable energy chosen to drive the transition are not very good at providing energy security.

The latest to make that clear was Goldman Sachs’ Jeffrey Currie, who told CNBC this week that some $3.8 trillion was invested in renewables over the past decade, and this massive investment only moved the share of fossil fuels in the global energy mix from 82 percent to 81 percent.

Now, Currie went on to note, this share might well be back at 82 percent because of the energy squeeze that has spurred more coal consumption. He also pointed out that the investments in renewables have been in capacity, but the capacity utilization factor of wind and solar installations tends to be quite low. This is what prevents wind and solar from providing the energy security the IEA’s Fatih Birol was talking about.

The International Energy Agency has become quite notorious in the past few years as a champion for the energy transition rather than an energy agency open to all forms of energy. Its emphasis on the transition needing to happen as fast as it can and it having zero causal links with the energy crisis has drawn some skepticism, most notably after the publication of its Road Map to Net Zero.

At the time, Saudi Arabia’s energy minister mocked the plan calling it “La La Land.” Interestingly, since the publication of the road map, demand for fossil fuels has indeed increased and has prompted the IEA itself to call for more investment in them after saying in the road map that we had no more need to invest in additional oil and gas production.

Like that road map, this latest WEO might go down in history as the latest IEA installment of wishful thinking rather than a reflection of any remotely plausible reality.

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