The global fossil fuel crisis is accelerating the global shift to clean energy, highlights the International Energy Agency’s (IEA) 2022 World Energy Outlook. The peak use of fossil fuels is also imminent, predicts the report, as demand will plateau and then decline steadily from the mid-2020s.
The IEA’s annual Outlook uses analysis and projections to provide critical insights into global energy supply and demand. Its latest report was published in the midst of the crisis of volatile fossil fuel prices and disrupted supply chains, which resulted from Russia’s invasion of Ukraine. The crisis has prompted “a historic turning point towards a cleaner and more secure energy system thanks to the unprecedented response from governments around the world”, said Dr Fatih Birol, IEA Executive Director. Ambitious new policies and clean energy targets, such as those from the US, EU, China, India, Japan, and South Korea, are significant drivers of this shift.
Energy markets remain extremely vulnerable, highlights the report. The shock is a reminder of the “fragility and unsustainability” of our fossil fuel-based system. However, there is evidence that impacted areas with a higher share of renewables faired better with lower electricity bills. More efficient homes and electrified heat also provided some areas with an important buffer from the crisis. This demonstrates that the solution for energy security and affordability is through the massive deployment of clean energy technologies to protect against future shocks. The report should help “decision-makers globally to navigate the current crisis and move the world towards a more secure and sustainable future”, said Dr Birol.
Falling coal and gas demand risks stranded assets
The Outlook includes three scenarios based on nations’ stated policies and announced pledges, as well the net zero emissions pathway. These scenarios would result in 2.5°C, 1.7°C, and 1.4°C degrees of warming by 2100, respectively. Only the net zero scenario, which involves no new coal, gas, or oil developments or extensions, is compatible with meeting the Paris Agreement. However, this is the first year that fossil fuel demand reaches peak demand in every scenario, said Alex Hillman, Lead Analyst at the Australasian Centre for Corporate Responsibility (ACCR).
“Today’s sky high prices are permanently destroying fossil fuel demand, especially for gas, but prices will normalise before any new fossil fuel investment can start generating revenue”, said Mr Hillman. “This is all very embarrassing for Woodside CEO Meg O’Neill, who has habitually claimed the Ukraine crisis will prop up gas demand for decades, blatantly ignoring the risks that demand destruction presents to shareholders.”
The Outlook projects that there is already enough liquefied natural gas (LNG) capacity operating or in development to meet all demand until 2050. “Considering Woodside and Santos’ gas expansion plans, this is a major issue for shareholders. We are watching stranded asset risks emerge in real time”, Mr Hillman said.
Coking coal demand is also expected to be lower by 2030 and will significantly fall after that. This defies BHP’s claims that its coking business will remain resilient in a Paris-aligned world. This also shows how “absurd” BHP’s proposals are for the 90-year Blackwater South mine and 93-year extension for Peak Downs coal mine, added Mr Hillman.
Mounting evidence to ditch fossil fuels for clean energy
The IEA’s latest Outlook reinforces similar findings from reports published throughout 2022, which predicted a rapid decline in global fossil fuel demand. For example, in February, the Global Energy Monitor warned that the fall in gas demand could result in billions of dollars in stranded assets for Australia. Researchers at the Australian National University published a report in April, suggesting that China’s demand for coal imports could fall significantly between now and 2025 – possibly as far as 45 per cent. In August, a report from the Institute for Energy Economics and Financial Analysis also found that “exorbitant” LNG prices were impacting demand in Asia. This could become permanent should high prices persist.
Considering that the majority of Australia’s new fossil fuel projects are for export, this growing body of evidence reinforces that these developments pose an unjustifiable and significant financial risk. The IEA’s report “destroys” the arguments pushed by government ministers and fossil fuel executives for the need for more coal, oil and, gas, says the ACCR. New developments would be an economic and environmental disaster and have no place in a net zero, fossil-free future.