With Fossil Fuels, ‘Peak Demand’ Isn’t What It Sounds Like

This may sound paradoxical, but the International Energy Agency is both the gold standard in global supply-and-demand energy statistics and a poor forecaster of the same data. The sum of all that’s good and bad is its annual flagship report, the World Energy Outlook — thus, take it both seriously and with skepticism.

Last week, IEA Executive Director Fatih Birol announced that the next edition of the report, expected in October, would show the world is on what he called “the cusp of a historic turning point”: Demand for coal, oil, and natural gas is set to peak before 2030.

Over the years, I have learned the hard way that when it comes to the energy market, there’s much truth in the cliché “it is difficult to make predictions, especially about the future.” If the prediction is about an inflection point, then it’s even more difficult.

The IEA should have learned the lesson, too. Historically, it underestimated — and by quite a lot — the growth of wind and solar; it all but missed the birth of the US oil shale revolution; and prematurely called the end of coal’s golden age in China by at least a decade (and still counting).

Peak fossil-fuel consumption will be a cause for celebration. But I’m skeptical it’s as near as the IEA has said, especially for gas. Interestingly, Birol hedged his words quite carefully: “Although fossil fuels are set to hit their peaks this decade in structural terms, there can still be spikes, dips and plateaus on the way down.”

Here, “structural terms” does quite a lot of heavy lifting. And if there can be spikes in demand after the peak, well, let’s not call the first high point a peak. Because it wouldn’t be.

The debate about when the peak would be reached is intriguing — but, to me, it’s a distraction. We wouldn’t know for sure until several years after demand has actually peaked. What really matters is the shape of the curve in the years before and after demand reaches its zenith. The amateur mountaineer in me sees a peak as the beginning of a frequently quite abrupt descent. One treks higher, suffering and sweating, pauses a bit at the mount’s summit and then enjoys an easier downward climb. With most mountain ranges, going up is as steep as coming down. That’s what “peak” sounds like to many others.

Not in the world of energy.

For oil, coal and gas, the fall may be gentle and slow. After summiting, for a hiker, it’s like the other side of mountain turns into a high-altitude plateau rather than your typically rapid Alpine descent. For many years, fossil-fuel consumption may hover close to its maximum point. How long? Maybe five or 10 years or even as long as two decades. That’s incompatible with what’s needed for the world to achieve its net-zero emissions target by 2050. Equally, demand growth may slow to a crawl for several years before reaching its ultimate peak, wrong-footing those bullish fossil-fuel investors who bet on continued historical growth rates.