Have we already passed peak fossil fuels?

2019 remains the record year for fossil fuel consumption. Might it turn out to be the year fossil fuels peaked?

By Nick Ferris  energymonitor.ai 7 October 2022

Peak demand for horses in the US came in 1905; for gas lighting in the UK in 1907; for UK steam power in 1910; and for UK coal heating around 1960, according to the think tank RMI. Time and again, legacy energy systems have followed a pattern of rapid growth in consumption, followed by a plateau of a number of years, then a rapid decline. This last period is associated with falling prices, collapsing profits, stranded assets and companies going bust. The cost of capital rises for peaking industries, starving them of the ability to invest, and accelerating their subsequent decline. 

Environmentalists everywhere are waiting for the moment when fossil fuels will follow this pattern. The conditions are beginning to take shape: renewable power is now cheaper than fossil fuels in most countries. Last year, the cost of levelised electricity production from major renewable energ... compared with the year before, including onshore wind (down 15%), offshore wind (down 13%) and solar (down 13%). 

However, following the dip in energy demand during the Covid-19 pandemic, coal, oil and gas demand all rebounded considerably in 2021, with more gas consumed than ever before. Most energy analysts still maintain we are a long way off peak fossil fuels: S&P Global Commodity Insights’ most recent forecast pins 2038 as the year fossil fuels will peak, with peak coal coming in 2024, peak oil coming in 2035 and peak gas coming after 2050. 

Yet delve into the data a little deeper and it becomes clear we are not simply witnessing business-as-usual growth in fossil fuel consumption as the global economy recovers. 

Data from BP’s Statistical Review of World Energy shows Europe, the US, Canada and Japan – collectively responsible for the majority of the world economy and the majority of historic emissions – peaked fossil fuel consumption in the year 2005. The 163.9 exajoules (EJ) of coal, oil and gas consumed across those regions in 2021 was 14.6% below the 191EJ consumed 16 years previously. 

Economic growth in these wealthy economies has become more energy efficient and renewables have taken an ever greater share of the energy mix each year. In Europe, for example, solar and wind now provide 32.1% of electricity, compared with 10.6% a decade ago. These countries have set a clear example of what peak fossil fuels will look like – and many have also laid out comprehensive plans of how they aim to nearly fully eliminate them from the energy mix by 2050.

Following the coronavirus pandemic and renewed climate optimism around COP26 – which coincided with more than 90% of the global economy pledging to reach net zero by around mid-century – a number of more optimistic forecasts for peak fossil fuel have been released. 

Consultancy McKinsey & Company forecast in April of this year that global fossil fuel demand will likely peak before the year 2030. The International Energy Agency, meanwhile, said in October 2021 it believes fossil fuels will peak by 2025 if countries actually meet their stated climate pledges. 

RMI is even more optimistic. Research led by senior principal Kingsmill Bond finds the current record year for fossil fuel demand – 2019 – is likely to be the year global fossil fuel demand peaked. Bond believes we are at a plateau of relatively stable demand, before the inevitable structural decline. 

“There is no question that a structural shift is going on from fossil fuels to renewables,” says Bond. “The question is simply when is the peak of fossil fuels. 

“Country after country has seen peak fossil fuel demand, from Brazil to Thailand to South Africa. We calculate that 60% of the world saw peak fossil fuel demand by 2019.”

Data backs up Bond’s pronouncements. Global coal demand has plateaued since 2014, and with 40 countries pledging to phase out the fuel – which remains the world’s main source of electricity – and China, India and the US all now undertaking ambitious carbon reduction plans, it seems safe to bet that coal will likely never grow again.

Meanwhile, data from BP’s Statistical Review of World Energy shows that record oil demand occurred in 2019, with increased demand during the economic recovery of 2021 unable to top that. BP’s data shows that around half of the world’s oil market has already passed peak oil – and with electric vehicle uptake crossing a mass adoption tipping point in m..., it seems inevitable the oil market is on the precipice of structural decline. 

"Recent high oil prices, along with policy progress through programmes like the Inflation Reduction Act in the US, is likely to bring forward the date of peak demand for oil,” adds Andrew Logan from the US think tank Ceres. “Companies within the sector itself, from BP to Equinor, all anticipate peak oil demand arriving within a decade, and given the rapid pace of technological advancement, it is quite possible that peak demand will actually arrive sooner.” 

Predicting peak gas is a little more complicated: the fuel is half as carbon-intensive to burn as coal and still considered a ‘transition fuel’ in some quarters. However, sky-high gas prices over the past year and significant pressure on the global liquefied natural gas market, is leading countries to move away from gas more rapidly than they were anticipating just one year ago. 

“While there is a role for gas in the near term in displacing coal, longer-term it is too expensive, too volatile and too carbon intensive to play a major role in the energy transition,” says Logan. “While scenarios differ wildly in the role of gas to 2030 or even 2035, they are fairly unanimous that gas demand needs to decrease substantially thereafter if the world is to have any hope of achieving the goals of the Paris Agreement.” 

An economic inevitability

Were the world in a healthy economic place, it might be harder to confidently predict a drop in fossil fuel consumption. However, the sputtering global economy adds credibility to the theory that 2019 may have been the peak year for fossil fuel demand. 

Tumultuous global economic conditions triggered by all manner of factors – Covid-19, supply chain crisis, Brexit and war in Ukraine, to name a few – mean there is now a 98% chance of a global recession, according to a probability model run by economists at Ned Davis Research, a provider of independent investment research. After the 1973 oil crisis and 2008 financial meltdown, oil consumption fell 2%; after the 1979 oil crisis and 2020 Covid-19 pandemic, it fell by around 10%. It often takes several years for fossil fuel markets to recover from such a shock – but if such a shock were to take place right now, it is uncertain they would ever fully recover, given how much cheaper and more reliable renewable energy sources now are. 

Even if recession is avoided, it is widely accepted that much of the world is entering a period of low growth, which will in turn require less energy to power it. 

Every year that passes, an ever greater share of global energy growth is met by solar and wind capacity additions. Recent years have seen solar power consumption grow by an average of more than 20% each year, while wind power grows by 10–15% each year. If you overlook the shock to the energy supply recorded in 2020, and compare figures for 2021 to 2019 – the current record year of peak fossil fuel consumption – then total energy supply has grown by 8EJ, of which 7EJ is solar and wind and 1EJ is from other non-fossil fuels.

The trend of new renewables crowding out fossil fuels continues: the latest Global Electricity Insights report from the think tank Ember finds that the 3% global electricity demand growth recorded in the first half of 2022 was met entirely by renewables

No room for complacency

If peak fossil fuel demand has already happened, some significant economic headwinds could be on the way for many countries. Policymakers in the vast majority continue to plan for a future of increasing fossil fuel demand. Recent Energy Monitor investigations have shown that hundreds of billions of dollars of new gas infrastructure is being built across Africa and Asia, all of which poses significant stranded asset risk if a rapid decline in fossil fuel consumption is around the corner. 

Crossing peak fossil fuels also does not mean that the climate crisis is solved. Consumption of oil, gas and coal must decline to nearly zero by mid-century if the world is to have a good chance of limiting global warming to 1.5°C and avoiding the most catastrophic impacts of climate change. Market forces will likely ensure this decline takes place – but it will not happen quickly enough if those in power are planning for a different future. 

“We cannot leave this to markets alone: sure, current high prices are destroying fossil fuel demand and shifting investment decisions toward clean energy, but we cannot rely on a recession to bring down fossil fuel demand long-term,” says Lorne Stockman, co-research director from the NGO Oil Change International. “We need clear, decisive government action that ends support for fossils and guarantees support for renewable energy and energy efficiency – and we need clear plans for winding down the industry in a just and equitable way that supports workers.” 

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Replies to This Discussion

A.  There is no connection between your cost of electricity and renewables.  Your bill is high because natural gas costs three times what it did sixteen months ago.

B. If you have energy reliability problems, the chances that renewables are the reasons are slim and none.

C.  I don't work for the industry, never have.  I work for individuals, families and trusts that own mineral rights.  My job to keeping the industry from cheating them and making sure they get what they are owed.  None of those clients are anti-industry but many are concerned, as I am, that disputing climate change and dragging their feet to address emissions is a sure way to shorten the timeline to peak fossil fuels.  And royalty income.

Any rational person would look at the impact of climate change and think we must do something. That rational person would also recognize that we need to manage the cost of energy for the benefit of consumers and business.  That means continuing to use oil and natural gas for the foreseeable future while transitioning to cleaner energy sources.

Of course the term, rational, does not apply to climate deniers.

Mr. Peel,

As someone who has worked in electrical power generation for 31 years I believe I have a lot better understanding of what affects the price and reliability of electricity than you do.  This is what I went to school for, I didn't just jump into this industry when the "Haynesville Boom" showed up and some friend said, "Hey, you ever tried being a landman?"  I realize it's unimaginable to you that the "left leaning" articles you read about renewables and electrical generation are not always true. 

If you will READ what I typed above, I NEVER said you worked for the fossil fuel industry.  What I said was without the fossil fuel industry you would not have your current job and I can only hope for your clients sake that you know a lot more about your current line of work than you do about electrical generation.  If I believed in Climate Change/Global Warming/Whatever it might be called tomorrow, when someone came to me about leasing, I would tell them that they are a horrible individual for even considering leasing their property to these slimeball companies that are going to cause millions of tons of CO2 to be released into the atmosphere. 

Everyone doesn't deny the climate is changing.  It was changing before mankind and will change AFTER mankind.  Hey, I own almost every attachment EGO makes to go with their power tools.  If that's helping the environment, then so be it.

I would caution anyone reading any article about anything to always watch for 2 words - "may" or "could"  these should always throw up red flags.

Everyone have a wonderful day and enjoy the earliest freeze in the history of Shreveport tonight that will be caused by global warming, sorry, climate change. 

    

Mr. EgiB, you still don't get it but thanks for outing yourself as a climate denier.  That puts much in perspective.  I think my fifteen years doing what I do is more than sufficient to have an informed opinion.  As to being a liberal, well yes, I am on some issues however I am a registered Independent who has a middle of the road take on the O&G industry.  An industry you didn't work in.  At least as none other than an electrician.  I am for drilling wells as it is to the benefit of my clients.  What I object to is the intransigence of the industry to take the actions most likely to prolong the life of such drilling.  Operators who wish to drill for a few more decades have largely ignored their emissions and their obligations to return the environment to its condition before development.  That can be sustained for only a short time as public opinion and governmental policy is changing.  At the current rate of climate related weather disasters, you will find yourself in an even smaller minority that the one in which you exist today.  When much of south Louisiana can no longer afford home owner's or flood insurance, if any is available at any price in some locations.  When the Mississippi is no longer navigable for months of the year and Midwest farmers are bankrupt because of the drought.  When cities in California lose access to potable water.  When all these and the missing Snow Crabs in Alaska cause voters to see climate actions as a necessity long past addressing, I hope you're still here and we will discuss again.  Have a nice day.

Back to the SPR, huh.  Okay, let's inform the members and provide a little perspective.

History of SPR Releases

The following provides a brief description of the times when crude oil has been released from the Strategic Petroleum Reserve (SPR).  Anyone interested can click on the link at the bottom of the reply to view the history of SPR withdrawals.

Emergency Drawdowns:  The SPR exists, first and foremost, as an emergency response tool the President can use should the United States be confronted with an economically-threatening disruption in oil supplies.  

 

https://www.energy.gov/ceser/history-spr-releases

I think interested members can form their own opinions by reading the history of the SPR. The facts dispute all your assertions.

I think that members have access to many news sources and they will choose the ones they feel trust in. In the age of the internet, anyone can quickly have access to facts and data through sources other than the two you mention. Either of which by the way are much more accurate than Fox News even with their somewhat lefty lean. I have paid subscriptions to the Washington Post and The New York Times. I also subscribe to state news sources such as The Baton Rouge Business Report, hardly a left leaning publication. I have internet alerts that bring me articles on my key topics from numerous sources which include S&P Platts, RBN Energy and other industry analytic companies. The accusation that someone who doesn't agree with you must be getting tainted information is a real stretch. Anyone who cares to read the facts on the SPR will realize that the President's use of it is in line with other presidents and with the history of withdrawals. Those that don't care to do a little research, as easy as that is these days, and who lean as hard right as you do may just choose to believe your hair on fire partisan talking points concerning the SPR. Your years in the industry seems to have done nothing but blind you to the dangers of our climate situation. Oh, I realize there are still a lot of people that have non-factual views of the climate situation. It's just that they have not been a majority of Americans for twenty years and their minority position is shrinking more rapidly as the effects of climate altered natural disasters impact more regions. There is hardly any state now that isn't facing some critical weather related impact of one kind or another. This is what climate scientists have been predicting for decades. We just had to wait until it slapped us in the face to start doing anything substantive about it.

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