Due to flawed ‘peak oil’ forecasts, underinvestment may lead to world supply problems, experts say

The International Energy Agency’s influential “World Energy Outlook” has been utilized for years by industry leaders and policymakers in determining what the future demand for energy will look like. For some time, the agency predicted that oil demand would peak by 2030 and use of fossil fuels would disappear by 2050. 

Influenced in part by the IEA’s forecasts of peak oil demand, investment in oil and gas exploration dropped 30% a decade ago, and it’s remained at that level ever since. Now that it appears that fossil fuels will be a key part of the energy mix well past 2050, this under-investment could have global consequences. 

If the world ends up needing exploration and development of oil and gas wells at a level seen in the first 15 years of this century, the coming decade will be short $1.5 trillion in cumulative exploration investment, according to a new report by the National Center for Energy Analytics. As a result of this under-investment in future energy production, the world could face oil and gas supply shortages within a decade. 

“The realistic possibility of a future with significant shortage of oil raises important questions about both the extent of the resulting price increases and the sources of supply that would fill the gap. The former has clear economic implications, while the latter carries significant geopolitical consequences,” the report warns. 

Media scares investors away with fears of "stranded assets" 

Over the past several years, the IEA has been accused of aligning its forecasts with ideological interests. Since 2020, the agency has relied solely on models producing forecasts in line with net-zero emissions by 2050 goals.

The media ran with the annual reports, and many articles were published claiming that investments in oil and gas would soon become “stranded assets” as the world transitioned to fossil fuel alternatives, such as wind and solar. 

The world is now using more fossil fuels than ever, and the portion of energy derived from them remains largely unchanged in the past few decades. Last year, Sen. John Barrasso, R-Wyo., produced a report accusing the IEA of failing to provide “balanced assessments of energy outcomes” in favor of being an “energy transition cheerleader.” 

In July, Bloomberg News reported that Energy Secretary Chris Wright was in discussions with Fatih Birol, the IEA’s executive director, warning that if the agency didn’t reform its practices, the U.S. would withdraw.

"Forecasts have consequences," former W.H. energy advisor says

This year, as the criticism mounted, the IEA stopped excluding scenarios that forecast fossil fuel use well past 2050. 

During a webinar on the report Tuesday, Adam Sieminski, former administrator of the U.S. Energy Information Administration under President Barack Obama, explained that the latest IEA report is a “significant but incomplete return to realism in global energy forecasting.” It still relies on optimistic assumptions, he said, and if policymakers rely on these assumptions, it could lead to energy supply shortages.

Bob McNally, former White House energy advisor to President George W. Bush, said “forecasts have consequences.” The IEA “censored” forecasts, McNally said, in order to prop up scenarios in which the world would reduce its fossil fuel use. 

“We should love a debate about climate change, but we should never cancel forecasts that are politically incorrect. In the case of the IEA, it had a real consequence. It was weaponized to make a bad policy decision, and now I fear it has been used to misallocate capital,” McNally said. 

Rising wealth, population growth declines

The panel discussed what will happen going forward. The IEA still doesn’t include scenarios in which current policies are reversed. 

There are a number of reasons to expect that could happen. While electric vehicles and renewable energy were expected to shave off some oil demand in the coming years, the limitation of critical mineral production, as shown in other IEA reports, suggests these transitions might not happen at the pace expected under current policies. Likewise, the global GDP could rise faster than conventional forecasts. 

That “means more wealthy people who never had cars buying cars. More people have never had an airplane ride ever in their life, taking a vacation,” said Mark Mills, founder and executive director of the National Center for Energy Analytics. 

Dr. Roger Pielke, Jr., senior fellow at the American Enterprise Institute, points out in his “The Honest Broker” Substack that the IEA forecasts of population growth show a drop of about 100 million people, most of which happens in Asia and Africa. Falling birthrates could push future forecasts lower. 

“If downward revisions for global population continue, the pattern will have significant implications for energy and also the broader economy,” Pielke wrote. 

Future production sources

During the webinar, McNally said that OPEC never bought into peak oil demand, not because they didn’t like the idea. Rather, the OPEC countries just didn’t buy into it. They are going to be looking for stable global markets more than anything going forward, McNally said. 

Neil Atkinson, visiting fellow at NCEA and former head of the IEA’s Oil Markets Division, said the resource in Venezuela is enormous and offers great potential for satisfying future oil demand. 

“Venezuela could, in the right conditions, be a major source of growth,” Atkinson said. 

Sieminski argued that government support of research and development into alternatives to fossil fuels still holds value. 

“I think that we want to recognize that there are security and volatility and development issues associated with fuels, and we want to continue to look for alternatives that are better and cheaper,” he said. 

Kevin Killough is the energy reporter for Just The News. You can follow him on X for more coverage.