Is a new world order on the horizon for the energy sector?

The world must act quickly on climate change, says the International Energy Agency.

To meet the net-zero emission targets and limit the worst impacts of climate change, a sprint is absolutely essential, says the Paris-based IEA, the energy watchdog for the Organization for Economic Co-operation and Development (OECD).

Reaching net-zero emissions will require a huge decline in the use of fossil fuels, falling from almost four-fifths of total energy supply today to slightly more than one-fifth by 2050, the agency added.

To meet the emission targets, the report underlines that oil demand can never rebound to its 2019 peak of 88 million barrels per day (bpd) and must decline nearly 75 per cent to 24 million bpd by 2050. It also envisions a 90 per cent reduction in coal use and a drop in natural gas usage by 55 per cent by 2050.

All this means the world needs to stop developing new oil, gas and coal fields today, or face a dangerous rise in global temperatures, the IEA warned in its report.

The report was prepared for the COP26 climate talks scheduled for November. It pointed out that climate pledges by governments to date – even if fully implemented – will fall well short of what’s required to meet global carbon dioxide emissions reduction goals.

Fatih Birol, the IEA’s executive director, stressed that to hit net-zero objective and achieve the 1.5 degrees Celsius target, the global energy order “requires nothing short of a total transformation.”

The IEA laid out more than 400 recommendations spanning all energy sectors and technologies for what needs to happen, and when, to transform the global economy from one dominated by fossil fuels into one powered predominantly by renewable energy.

No new coal-fired power stations should be built unless they include technology to capture their emissions, it said.

By 2030, it says, solar and wind should be scaling up at four times the speed they did in 2020. And by 2035, there should be no sales of new internal-combustion passenger cars. The report identifies batteries, hydrogen electrolyzers and direct-air CCUS (carbon capture, utilization and storage, a method using chemical reactions to capture carbon dioxide from the atmosphere) as the largest opportunities to reduce emissions.

Sales of new cars with internal-combustion engines would have to end by 2035, with the role of electric vehicles expanding from five per cent of the global fleet today to 60 per cent by 2030, the IEA said. And almost 90 per cent of electricity should be generated by renewable sources by 2050. Wind and solar should account for nearly 70 per cent of that, with most of the rest coming from nuclear sources.

Every month from 2030 onward, it recommends that 10 heavy industrial plants be equipped with CCUS and that three new hydrogen-based industrial plants be built.

It says bans on new fossil fuel boilers in buildings need to start being introduced globally in 2025, driving up sales of electric heat pumps.

It’s a bombshell report for energy producers. In an internal briefing, seen by Reuters, the Organization of Petroleum Exporting Countries (OPEC) said: “The claim that no new oil and gas investments are needed post-2021 stands in stark contrast with conclusions often expressed in other IEA reports and could be the source of potential instability in oil markets.”

Several Asian energy officials were also reported as disputing the assumption of no new investments in the oil, gas and coal sectors, deeming it as too narrow.

And the Abu Dhabi National Oil Company CEO stressed that oil demand has already increased since the worst of the pandemic and the global crude market is beginning to rebalance.

Oil demand has grown but will it ever grow beyond 2019 levels?

That may be a moot point. The energy order seems to be in for a major transformation.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris.

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