IEA: Oil Demand to Peak No Sooner Than 2040

The International Energy Agency expects global oil consumption to peak no sooner than 2040, leaving its long-term forecasts for supply and demand unchanged despite the 2015 Paris Climate Change Agreement entering into force.

The Paris accord to cut harmful emissions seeks to wean the world economy off fossil fuels in the second half of the century in an effort to limit the rise in average world temperatures to "well below" 2 degrees Celsius above pre-industrial times, Reuters reported.

But while demand for oil to power passenger cars, for example, may drop, other sectors may offset this fall.

"The difficulty of finding alternatives to oil in road freight, aviation and petrochemicals means that, up to 2040, the growth in these three sectors alone is greater than the growth in global oil demand," the IEA said in its annual World Energy Outlook.

In the report, the IEA looks at three scenarios for oil supply and demand. Its central, or "New Policies", scenario assumes signatory countries will attempt to meet the requirements set by Paris, as well as existing environmental legislation, while its "450 scenario" assumes signatories will adhere to the agreement and oil demand will fall off sharply and the "current policies" scenario does not factor in the Paris deal.

The IEA's central scenario assumes demand will reach 103.5 million barrels per day by 2040 from 92.5 million bpd in 2015, for which India will be the leading source of demand growth and China will overtake the United States to become the single largest oil-consuming nation.

"In the New Policies Scenario, balancing supply and demand requires an oil price approaching $80 a barrel in 2020 and further gradual increases thereafter," the IEA said, leaving its price forecast under this scenario unchanged from last year's World Energy Outlook.

The IEA's "450 scenario" forecasts rising use of electric vehicles and consumption of biofuels that will cut oil demand.

On the supply side, in both the New Policies and 450 scenarios, the IEA expects the Organization of Petroleum Exporting Countries (OPEC) to maintain its strategy of controlling output in order to support prices.

It sees a gradual decline in OPEC production out to 2040, when it expects the group's output to be around 10% lower than its current level of 33.8 million bpd, but says this drop will be much slower than the decline in non-OPEC production, which it expects to fall by nearly a third in this time.