Oil demand to peak by 2030: IEA

Oil demand will continue growing up to 2028 but at a much slower pace than this year and will peak by 2030 as the energy transition gathers pace, according to the IEA.

In its medium term outlook Oil 2023 the Paris-based energy watchdog estimates global oil demand growing from 99.8mn b/d in 2022 to 105mn b/d in 2028. Beyond that, the report's author Toril Bosoni said the agency is "pretty confident" demand would peak by the end of the decade.

For this year, the IEA revised up its demand estimate by 250,000 b/d compared with last month's estimate, to 102.25mn b/d. Demand in the second half of 2023 is now seen growing by an additional 380,000 b/d compared with the previous OMR. That brings its 2023 oil demand growth projections up to 2.45mn b/d, surpassing Opec's latest estimate of 2.35mn b/d.

But annual demand growth will slow to 900,000 b/d in 2024 and just 400,000 b/d by the end of the 2023-28 forecast.

"The slowdown has been hastened by Russia's invasion of Ukraine amid heightened energy security concerns and by governments' post-Covid recovery spending plans, with more than $2 trillion mobilised for clean energy investments by 2030," the IEA said.

Demand growth will be led by Asian economies, notably China and India, while the OECD "may crest its peak this year" mostly because of vehicle efficiencies and electrification.

Much of the global oil demand growth will come from continued increases in petrochemical feedstock and air travel use, both highly concentrated in Asia-Pacific, the agency said. LPG and naphtha demand is seen growing by 3.2mn b/d over 2022-28 and jet fuel by 2mn b/d, while gasoline demand is set to fall by 300,000 b/d.

Supply to meet demand

World oil supply capacity is estimated to rise by 5.9mn b/d to 111mn b/d by 2028, comfortably meeting the demand growth, the IEA said. Supply growth is dominated by the US shale and other producers in the Americas such as Brazil, Guyana and Argentina.

The IEA forecasts global upstream oil and gas investment to rise by 11pc to $528bn this year, the highest since 2015 and, the IEA said, sufficient to meet estimated demand growth between 2022-28. It sees the world's spare oil production capacity at 3.8mn b/d in 2028, mainly concentrated in the Middle East members of the Opec+ alliance, such as Saudi Arabia and the UAE that are undertaking large capacity addition projects.

"Given current investment and market trends, the Middle East's share of world oil production looks set to increase over the longer term," the IEA said.

But overall production capacity from the 23 members of the Opec+ alliance only rises by 800,000 b/d by 2028, weighed down by losses from smaller, non-Middle East members, as well as Russia. The latter's output capacity is seen falling by 700,000 b/d between 2021-28 because of western sanctions.

"Moscow's ability to self-finance its oil industry operations and its access to Chinese equipment and services may stave off a far steeper decline," the IEA said.

The global refining industry will undergo a marked change in the 2022-28 period, as road transportation fuel demand peaks and jet fuel demand continues to grow, the IEA said. This will prompt a structural shift towards middle distillate product yields and petrochemical feedstocks. Total refining capacity is on course to grow by 4.4mn b/d on a net basis up to 2028, with most of the increase coming East of Suez, and China in particular. Spare global refining capacity is seen at 8mn b/d in 2028.

The IEA caveats its forecast by noting several risks.

"Uncertain global economic conditions, the direction of Opec+ decisions and Beijing's refining industry policy will play a crucial role in the balancing of crude oil and product markets," it said.

By Aydin Calik