Last week, the International Energy Agency (IEA) released its World Energy Outlook (WEO) for 2022. The WEO is an annual publication presenting medium-term global energy market analysis and projections under various scenarios.
- The Stated Policies Scenario (STEPS) shows the trajectory based on current government policy, and those that are under development, around the world.
- The Announced Pledges Scenario (APS) shows the trajectory if governments meet all aspirational climate targets on time.
The WEO also includes a third scenario—Net Zero Emissions by 2050 Scenario (NZE)—which maps out the trajectory required to achieve a 1.5°C world by 2030. This scenario is not based on any policy commitments and is more illustrative.
Until recent years the IEA also mapped a “Current Policies” scenario but have done away with that in favour of the assumption that increased climate policy action will continue.
This year’s report was written amidst an unprecedented energy crisis—triggered by Russia’s invasion of Ukraine. While energy markets were certainly strained before the invasion, Russia’s actions pushed global markets into full-blown turmoil. Europe’s sanctions on Russian oil and coal and Russia’s curtailment of natural gas exports to Europe represent the severance of a major trade relationship. Immediately, it has caused an energy affordability and security crisis in Europe. And in the long run, it is prompting a permanent, fundamental reorganization of global energy trade.
The WEO report purports that because of Russia’s invasion of Ukraine, the deployment and uptake of clean energy will accelerate as countries transition off Russian gas and look to more secure sources of energy. This outcome is, of course, an assumption and runs somewhat counter to the immediate reaction in Europe.
Even so, for the first time, WEO analysis shows that global demand for each fossil fuel—natural gas, coal, and oil—peaks or plateaus across every scenario they mapped. In other words, there is no scenario that sees continued, long-term growth for any fossil fuel-based energy.
In this Quick Read, we highlight three charts from this year’s WEO and examine what they might mean for Canada.
Global Oil Demand
The WEO sees two possible, but very different, trajectories for global oil demand. In STEPS—the current and in-development policy environment—global oil demand continues to grow and peaks in the mid-2030s. Afterwards, it remains largely flat, near peak levels, through to 2050. In this scenario, Canadian oil production increases by 0.6 mb/d between now and 2030 as oil sands projects currently under development come online. Between 2040 and 2050, overall production levels are projected to fall in Canada. However, under this scenario Canadian oil sands production is actually higher in 2050 than it is today—3.7 mb/d versus 3.4 mb/d.
In APS—an aspirational policy environment—global oil demand peaks one decade earlier than STEPS, in the mid-2020s and steadily declines thereafter. By 2050, production levels are nearly 40% lower than current levels. In this scenario, the WEO projects that Canadian production will decline between now and 2030 and face an even sharper decline between 2030 and 2050. By 2050, Canadian production levels will by 43% lower than current levels, implying that Canada will get a shrinking share of the dwindling demand base.
No matter which scenario plays out in the coming decades, the fact remains that Canada’s oil industry does not face imminent irrelevance (contrary to the belief and/or hope of some) and will continue to play an important role in our economy and in the global energy mix for decades to come.
LNG Capacity and Trade
Europe’s near term-need for non-Russian gas is strengthening demand and competition for LNG. In fact, all scenarios see growing demand for LNG until the mid-2020s. However, long-term prospects for LNG vary widely depending on the scenario. For example, in STEPS, demand for LNG exports is expected to widely outstrip the LNG supply currently available or under construction. On the other hand, in APS, existing projects and those already under construction will be able to meet LNG growth.
This uncertain future for LNG makes future investments in LNG tricky as projects are capital-intensive, have long lead times to construct, and require decades to break even. Therefore, as Canada contemplates possible future investments in LNG, it must look beyond the short-term demand and consider the long-term outlook, which the WEO sees as highly uncertain.
Russia’s invasion of Ukraine has given the hydrogen sector a major boost as the EU looks to eventually substitute oil and Russian gas with low-emissions hydrogen. Japan and Korea will also be early drivers of hydrogen demand.
Hydrogen demand and production grows across all WEO scenarios, but it cannot be done without global coordination. Governments around the world have critical roles in facilitating the growth of the hydrogen sector—particularly in setting international standards for low-emissions hydrogen and providing funding support to ensure long-term demand.
In APS, the WEO forecasts that Canada will be a net exporter of hydrogen. But to get there, governments need to support the scaling up of the hydrogen sector by providing the funding to ensure reliable, long-term demand.
Long-term projections such as the IEA’s World Energy Outlook 2022 provide a useful perspective into how global energy supply and demand could evolve over time. The 2022 Outlook stands out as the first major projection that points to declining global fossil fuel demand under all scenarios. Others, like the confusingly-similarly-named, US-run Energy Information Administration (EIA), continue to project growth in fossil fuel demand through 2050 (in their 2021 outlook).
This is not to suggest one forecast is better than another. Rather, it is simply to say that such projections are invariably a snapshot in time based on assumptions that seldom hold true over the long term. No one knows the future, but long-term projections like those from the IEA help us prepare for what may come.
Emma Dizon, Policy Analyst