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The International Energy Agency (IEA) has warned that the world faces a “staggering” oil surplus worth millions of barrels per day by the end of the decade as oil companies increase production and OPEC+’s ability to control crude prices is undermined.
Demand is forecast to peak by 2030, but continuing investment by oil producers, led by the United States, will create more than 8 million barrels per day of spare capacity by then, the IEA said in its annual oil industry report published on Wednesday.
This “vast cushion of excess crude” could “upend” OPEC+ efforts to manage the market and usher in an era of lower prices, the IEA said, adding that the level of spare capacity would be unprecedented outside the coronavirus pandemic.
“Oil companies may need to ensure that their business strategies and plans are prepared for the changes that are occurring,” the agency’s director-general Fatih Birol said.
The Paris-based organization, which was set up to advise on energy security in the aftermath of the 1970s Arab oil embargo, said last year that the world was at “the beginning of the end” of the fossil fuel era. Demand for oil, natural gas and coal would all start to decline over the next decade because of the mass adoption of renewable energy and electric vehicles, it said.
But the company’s forecasts have been criticized by the oil industry, particularly by oil producers in the Middle East and the United States, who are increasing investments in crude production.
Global capital investment in oil and gas fields is set to rise to $538 billion in 2023, the highest level in real terms since 2019. The increase in investment was mainly driven by Middle Eastern national oil companies and China, which doubled spending from a decade ago.
OPEC Secretary-General Haitham Al-Ghaith described the IEA’s forecast as “dangerous” and warned that “energy disruptions of unprecedented proportions could occur” if producers stop investing in new oil and gas.
In a new report, the IEA questioned whether OPEC+ will be able to expand production in the future, given continued pressure from countries outside the alliance, particularly the United States.
“this year, [the Opec+] “OPEC+’s deep production cuts have caused its oil market share to fall to 48.5%, the lowest since the group was founded in 2016,” the IEA said. Even if OPEC+, the broader grouping that includes Russia, continues with its deep production cuts, “production will likely exceed crude demand to varying degrees between 2025 and 2030,” it added.
The IEA said most of the world’s oil demand through 2030 will come from India, where gasoline use is soaring as more people drive, and China, which is building huge new petrochemical plants.
In contrast, oil demand in OECD countries, which peaked in 2007, will fall to 1991 levels by 2030. The IEA assumes annual growth of the world economy of 3% for the remainder of the decade.
The IEA warned that its projected decline in oil demand could be reversed by “relatively small changes” — for example, a 0.3% annual increase in global GDP growth, a $5 annual fall in real oil prices, or a 15% slowdown in EV adoption would see oil consumption growing again after 10 years.