Potential Global Recession Makes Energy Markets Vulnerable


  • STEPS predicted that the use of oil for aviation and as a petrochemical feedstock will continue to grow but only until the mid 2030.
  • They also predict that Russian oil production will fall by 2 million.
  • WEO also investigated that the government emission targets are met in full and on time.

The Stated Policies Scenario (STEPS), which is based on current policies around the world, predicts that by 2030, global oil demand will increase to 102.4 million barrels per day from 94.5 million last year, with more than 60% of that increase coming from China, India, and southeast Asia.

Increasing demand

Demand then peaks in the mid-2030s at around 103 million barrels per day as reductions in advanced economies outweigh growth in emerging and developing economies, before falling to 102.1 million barrels per day by 2050.

“The use of oil for aviation and shipping, as a petrochemical feedstock, and as heavy truck fuel will continue to grow, but only until the mid-2030s.”

“This is more than offset by declining oil use in other sectors, particularly passenger cars, buildings, and power generation,” the IEA said.

Falling supply

On the supply side, the STEPS model assumes that Russian oil production will fall by 2 million barrels per day in the short term as a result of European and US sanctions, but will remain well below pre-Ukraine war projections in the long term.

The biggest increases in production this decade have come from the US, Middle Eastern Opec producers, Guyana, and Brazil. Moreover, Opec’s share of global oil production increases from 35% in 2021 to 36% in 2030 and 43% in 2050.

Emission targets

The WEO investigates two other scenarios. The Announced Pledges Scenario (APS) assumes that government emissions targets are met in full and on time.

The Net Zero Emissions by 2050 Scenario (NZE) lays out a plan to keep global warming to 1.5°C and achieve “universal access to modern energy by 2030.”

High consumption

Under the APS, the world’s oil consumption peaks in the middle of the next century at 98 million barrels per day, with faster electrification in the building and transportation sectors assisting governments in keeping their climate commitments.

In this scenario as opposed to the STEPS, the use of oil for petrochemical feedstocks grows more slowly.

According to the NZE scenario, oil demand peaked in 2019 and will fall by 20 million barrels per day between 2021 and 2030, with advanced economies accounting for 15 million barrels per day of that drop.

Global energy crisis

The WEO highlights the magnitude of disruption in energy markets this year, noting that low investment in 2015-20 made the sector much more vulnerable than it would have been otherwise.

“The world is in the midst of the first truly global energy crisis,” IEA executive director Fatih Birol said.

Birol blames Russia for the invasion of Ukraine and denies that accelerated transition targets have jeopardized energy security.

Inflation and recession

“When people falsely blame climate and clean energy for today’s crisis, they are, whether they realize it or not, diverting attention away from the true cause — Russia’s invasion of Ukraine,” he said.

Due to “unceasing geopolitical and economic concerns,” such as rising inflation, a potential global recession, and a “huge $2 trillion windfall for fossil fuel producers above their 2021 net income,” the IEA notes that energy markets remain “extremely vulnerable.”

However, it also signals the emergence of longer-term measures to safeguard consumers against the energy crisis, highlighting government initiatives to lower inflation, set clean energy goals, and raise the proportion of nuclear and renewable resources in national energy mixes.

Under the STEPS, these programme increase global clean energy investment by more than 50% from current levels to more than $2 trillion/year by 2030.

However, this is insufficient to meet the Paris climate agreement goals. In the Net Zero Emissions by 2050 Scenario, it would have to be above $4 trillion by that time, according to the IEA.

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Source: Argus Media