A slowing demand for oil coupled with increasing use of clean fuels will lead to oversupply of oil until 2020, according to the International Energy Agency’s annual report.
The energy forecaster has predicted that demand for oil will grow by less than 1 per cent per year, lower than previously expected, meaning oil prices will remain low as oversupply continues.
The agency does not see oil prices reaching $80 a barrel until 2020, but says it is also considering situations where the price could stay lower for much longer.
A scenario of lower prices for longer will see the higher-cost producers pushed out of the market and leaves the oil industry exposed to a smaller number of suppliers, which the IEA says is a risk.
“Such a concentration of global supply would be accompanied by elevated concerns about energy security, with Asian consumers – the final destination of a huge share of regionally-traded oil – particularly vulnerable,” says the report.
“It would be a grave mistake to index our attention to energy security to changes in the oil price,” said IEA executive director Fatih Birol. “Now is not the time to relax. Quite the opposite: a period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats.”
Looking at the growth of renewables energy, the agency predicts renewables overtake coal as the largest source of electricity generation by the early-2030s.
It assumes that renewables-based generation by 2040 will reach 50 per cent in the EU, 30 per cent in China and Japan, and more than 25 per cent in the US and India.