Signal vs noise: unpacking the energy sector’s path to rising demand

“Tune out the noise, track the signal,” was the counsel of H.E. Dr. Sultan Ahmed Al Jaber, UAE Minister of Industry and Advanced Technology and ADNOC Managing Director and Group CEO, to the ADIPEC conference in Abu Dhabi. The world's largest energy event was dominated by the talk of more: more energy needs, more oil and gas demand, and more AI. But distinguishing short-term hype from a fundamental shift is one of the hardest problems through the history of the energy business.

The talk in 2019 was of “peak oil demand”, given an additional boost by the Covid pandemic a year later. In 2020, bp promised to reduce its oil and gas output 40% by 2030. A post-pandemic resurgence in hydrocarbon use, combined with the return to power of President Donald Trump, has shifted the zeitgeist again. bp dropped its target and scaled back its renewable ambitions last October. Larger competitor Shell has also refocussed on traditional petroleum.

Need for more energy

H.E. Dr Al Jaber has repeatedly stressed the need for more energy, not just for data centres, but to power developing countries, and bring modern living standards such as air-conditioning to all. And in its latest World Energy Outlook, the International Energy Agency (IEA) has responded to recent criticism, including by former employees and by OPEC, and to American pressure. It has brought back a “Current Policies Scenario” (CPS), in which world oil consumption rises from about 101.4 million barrels per day last year to 113 million bpd by 2050.

It retains its “Stated Policies Scenario” (SPS), where governments continue delivering on aims to limit greenhouse emissions. In this, oil demand peaks around 2030, but remains pretty robust even to 2050, at 96.9 million bpd. Given the IEA’s recent work on oilfield decline rates, even the SPS represents an outlook requiring substantial continuing investment for the industry.

Energy addition

US Interior Secretary Doug Burgum – a crucial figure in controlling leasing of 500 million acres of American land for oil, gas, coal and renewable energy – told ADIPEC, “There is no energy transition. There is only energy addition.” He was referring to the idea that new forms of energy layer in on top of older ones, which continue their growth even if at lower rates.

But real energy transitions do occur, and can be rapid in specific countries and sectors. In the 1960s, oil very quickly replaced coal as a fuel for trains and a feedstock for the chemical industry. After a temporary peak in 2012, the UK got completely off coal by October 2024, for the first time in 142 years. Coal consumption in Secretary Burgum’s country is only a third of its 2005 record high. Gas and renewables have filled the gap in both cases.

Does this apply to oil? Sales of new energy vehicles – including battery and plug-in hybrid cars – reached 56.5% of sales in China in October.

Rising oil demand

It is worth interrogating what the IEA has to assume to result in an outlook of rising oil demand to mid-century. We can, of course, first consider the realism of a scenario in which there are no new energy or climate policies from anyone, and no significant technical advances, over the next 25 years that would diminish hydrocarbon demand or encourage alternatives. It is a useful benchmark, and the agency is right to reintroduce it. But it should not in any way be interpreted as a “most likely” or “business-as-usual” case.

In its CPS, the market share of electric vehicles outside the EU and China does not rise on its 2024 level. The global market share plateaus around 40% after 2035. This is despite the ever-improving range, affordability and choice of EVs. Growth in sales is driven by market factors, not primarily government policy. The rise in purchases in important emerging markets such as Turkey, Vietnam and Indonesia was very rapid in the first half of this year.

AI-driven economic growth

Efficiency gains in trucking, cars and aeroplanes slow dramatically versus historic levels. This happens although the CPS has a high assumed oil price, $90 per barrel by 2035, which should logically accelerate efficiency gains versus its “stated policies”. We cannot call on data centres and air-conditioning to help the oil market here. Oil is little-used in power generation, and the biggest global consumer, Saudi Arabia, which burns about a million barrels per day in its electricity generation, is phasing it out in favour of gas and renewables.

It is plausible that oil use in trucking, rail, aviation and petrochemicals will rise substantially under current policies. Or, economic growth, turbocharged by AI, might be much faster than in the agency’s parameters, driving energy use overall. Overall, the IEA has to make some quite implausible assumptions to yield a rather puny oil demand growth of less than 0.5 percent annually to 2050.

So what is signal? The growing competitiveness of non-hydrocarbon technologies, the rise of AI and its energy appetite, and the developing world’s need for energy. What is noise? Political vacillations and media narratives.

• Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis