It’s rarely been a better time to be in the oil and gas business. On Oct. 27, Shell reported third-quarter earnings of $9.45 billion, twice as much as from the same period last year, buoyed by sky-high oil and gas prices. Earnings were also sweet for French major Total, and are expected to be close to a record for Exxon and Chevron when they report on Oct. 28.
Still, these halcyon days are rapidly coming to an end.
For the first time, in a major Oct. 27 report, the International Energy Agency said it sees demand for all fossil fuels—coal, oil, and natural gas—peaking within the next decade or so, even without any additional government policies.
That finding was not unexpected for coal, which the IEA thinks will peak within the next few years, or for oil, expected to peak in the mid-2030s. But it is an unprecedentedly pessimistic outlook for natural gas, which had looked like a long-lived cash cow for energy companies—not only now, as Russia drives up prices by choking off its exports, but well into the future, as countries use it to replace coal in their electricity supply.
There are two new wrinkles, the IEA report concludes, that are likely to slow the growth of demand for gas up to 2030, where it will max out and stay flat until 2050. The first is the Inflation Reduction Act in the US, which is expected to seriously curb the appetite for gas by dramatically lowering the price of renewable energy.
The second, even more important factor is the war in Ukraine. By effectively cutting Russia out of the global gas market, the war has made new investments in gas infrastructure appear more risky and uneconomic than ever, especially for developing countries.
“The crisis provides a short-term boost to demand for oil and coal as consumers scramble for alternatives to high priced gas,” the report says. “But the lasting gains from the crisis accrue to low-emissions sources, mainly renewables.”
The IEA’s brighter outlook for renewables comes just over a week before the opening of the COP27 climate summit in Egypt. The future of fossil fuels will be a prominent issue during the summit, especially in the context of a global energy crisis, due to which most countries are unwilling to take any potential energy source off the table. Even Egypt, the host country, has been working to step up its gas production in response to the war.
But the IEA report gives powerful ammunition to climate advocates who see the war as a reason to accelerate, not curb, the switch to clean energy.
“We don’t expect any new commitments on decarbonization this year, as energy ministers are preoccupied with how to get the next few months,” said Maria Pastukhova, a senior energy policy advisor in Berlin for the think tank E3G. “But the war in Ukraine has exposed the vulnerabilities of the fossil energy system, and severely undermined the role of gas in how countries think about the energy transition.”
The report also serves to step up pressure on rich countries to help pay for that transition—especially European countries, whose ravenous appetite for gas to replace lost Russian imports has created price spikes and shortages in lower-income, gas-importing countries like Pakistan and Bangladesh.
“The global south is tired of hearing commitments without any new action on the ground,” she said.
Peaking fossil fuel consumption is clearly good news for lowering carbon emissions, but it’s still not happening fast enough to keep global warming within the goal enshrined by the Paris Agreement. In order to stay within 1.5 degrees Celsius above pre-industrial levels, annual global emissions need to fall by about 38% between now and 2030, the report says. Instead, even with a slower rate of gas demand growth, they are on track to fall only about 1% by then.
That conclusion was echoed in a new report from the UN, which concludes that countries’ current climate plans put the planet on track for 2.8 degrees of warming by 2100. Staying within 1.5 degrees will require far more public and private investment in clean energy, a much faster global switch to electric vehicles, and other changes that are only beginning to gather steam. At COP27, governments and companies will have another chance to go on the record about how they plan to step up the pace.