June 16, 2024 - 6:00pm

The International Energy Agency forecast this week that on current track, the world will be awash in cheap oil by 2030. That raises a tantalising prospect of renewed growth in moribund economies: cheap energy would lower production costs, bring down inflation and revitalise cost-constrained industries. It would also provide a fillip to emerging technologies, in particular artificial intelligence, which are ravenous consumers of it.

No small number of economists, sometimes described as techno-optimists, have been saying the world is on the cusp of an energy revolution — one which will power the next industrial revolution. Driving it is the rapid progress being made in renewable energy technology. The rapid improvement in its efficiency, and in particular of solar PV, means that it is now often the cheapest form available. Meanwhile, the expansion of Chinese capacity in the production of solar panels has lowered their price, making it much cheaper to install them.

Battery technology is showing similar progress, enabling EVs (electric vehicles) to drive greater distances on fewer charges and making the intermittency problem in renewable energy less of an obstacle to adoption. China’s aggressive support for its EV industry, coupled with its economic strategy of exporting its way out of its economic slump, has produced an excess global supply of cheap, high-quality EVs.

All of this could herald a sharp drop in demand for oil. Opec and the oil industry, however, beg to differ. The current slowdown in demand for EVs (electrical vehicles) in western markets, coupled with recent political turns against renewable energy and ESG investing, are giving oil companies sufficient confidence to ramp up their production plans. Meanwhile it’s expected that even as western countries reduce their oil and gas demand as their growth slows and they shift to renewable energy, the industrialisation of the developing world will ensure demand for fossil fuels would keep rising for decades.

However, recent developments throw that assumption into question. To prevent Chinese EVs and solar panels swamping their own producers, western countries have begun imposing tariffs on them. That will make them even less expensive, and thus more attractive, to developing countries looking to accelerate the expansion of their energy production. As China finds western markets increasingly closed off, it may be even more likely to concentrate on the development of new markets in the countries with which it has already partnered through its Belt and Road Initiative.

It was always assumed that the energy transition would first move through the developed world and then radiate outwards. But recent reports that Chinese demand for fossil fuels may already have peaked could herald a new development: that developing countries start to leapfrog the energy transition. In that case, the IEA projections may be borne out.

There are possible flies in the ointment of this forecast. In particular, the widespread adoption of AI is creating enormous new demand for the energy to power data centres. Being that it is such a new technology in the early throes of adoption, it’s hard to predict just how far this will go, but it’s possible that future energy demand will outstrip the supply available from new renewable generation.

This is why forecasts for future oil demand will always have a high margin of error. It’s too soon to bank on a future, permanent collapse of global oil prices. But it is starting to at least become conceivable.


John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a religion (Simon & Schuster, 2017).

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