Expert study shows sanity returning to global oil forecasts

It can be hard to explain to a general audience how important the release of the World Energy Outlook (WEO) is to policymakers, energy companies and investors who make hundreds of billions of dollars in investment decisions worldwide each year.

The Outlook is published yearly by the Paris-based International Energy Agency (IEA), one of the world’s most preeminent authorities on energy data. The IEA was formed in 1974 by many of the world’s most developed countries to provide better information on oil and gas demand forecasts in the wake of the 1973 OPEC oil embargo.

Beginning in the early 1990s, the Outlook included a Current Policies Scenario (CPS) that forecast future oil and natural gas demand over the coming decades based on current laws and government energy policies. This scenario was then used by banks and companies to extrapolate how many billions of dollars they must invest to satisfy coming energy demand.

The IEA’s all-star reputation made the CPS the benchmark for global energy supply and demand forecasts for decades – until recently.

In 2020, under its long-time Executive Director Fatih Birol, the IEA decided to abandon the CPS, “in part due to pressure from European nations and green campaigners,” according to Bloomberg energy analyst Javier Blas. Most of these green campaigners were interested in using climate policies to permanently displace oil and coal production.

To do this, IEA inserted new scenarios that considered policy ambitions and aspirations that had not yet become law. This analytical misdirection allowed Paris Accord-era net-zero emission goals to become a concrete forecasting reality. As a result, these forecasts showed peak global oil demand only an additional 3 million to 106 million barrels a day by 2030 before permanently declining.

Riding on IEA’s reputation, these forecasts helped the Davos crowd churn elite public opinion toward the Net-zero and Environmental, Social, and Governance (ESG) framework in the early 2020s, which played a role in the ultimate suppression of billions of dollars in investment in carbon and hydrocarbon resources.

The IEA reinstated the Current Policies Scenario for 2025 after pressure from the Trump administration, while confirming that no peak in global oil demand should be expected until at least 2050. This is a welcome decision, but not before much damage was done, according to a recent report published by the National Center for Energy Analytics (NCEA).

The report, written by Neil Atkinson, a NCEA Visiting Fellow and the former head of the IEA’s Oil Industry and Markets division, and Adam Sieminski, former administrator for the U.S. Energy Information Administration, found that while reinstatement of the CPS in the 2025 WEO “has gone a long way toward answering that its scenarios are divorced from reality,” the IEA must still do more to reverse past mistakes.

The latest critique found that the IEA is still making a series of unsupportable market assumptions, including:

Electric Vehicles: Forecasts of electric vehicle adoption remain overly optimistic, leading to overestimates of oil demand destruction for light-duty vehicles.

Aviation: A forecast for even a small reduction in aviation fuel use remains overly aggressive.

Marine shipping: The IEA continues to present overly aggressive forecasts of a significant decline in crude oil use for global oceangoing shipping.

Even if the IEA fixes its methodological problems and appoints a new Executive Director, damage from the five-year absence of the Current Policies Scenario could last for a long time. Sieminski and Atkinson estimate that as much as $1.5 trillion of underinvestment in oil and natural gas exploration is expected over the next decade. Underinvestment in the oil patch leads to supply shortfalls, which inevitably brings about a spike in energy prices and a new, much higher price plateau.

By projecting a 2030 demand peak for oil, the IEA sacrificed its credibility, giving succor and elite air cover to organizations like the Net-Zero Banking Alliance, a UN-backed group whose members topped out at 140 banks with trillions of dollars in assets, pledging to align their portfolios with net-zero greenhouse gas emissions by 2050.

It is unknown exactly how much international investment banks withdrew from funding Arctic oil and coal resources, but many went on the record saying they did. The collapse of the Banking Alliance in the fall of 2025, driven by a combination of political pressure and market realities, will not make up for the consequences of a self-inflicted, years-long supply-demand lag.

The report’s authors do not go so far as to directly accuse the IEA of sneakily undermining the investment climate enough to create future recession-causing price spikes, but energy experts know that similar production shortfalls in the past have done exactly that.

In the 1970s, a barrel of oil went from $4 to a new plateau of about $32 a barrel by 1981, a seven-fold rise in the nominal price that crashed many national economies. In the super-spike era between 2004 and 2013, long-term oil prices roughly tripled while playing an underappreciated supporting role in the 2008 Global Financial Crisis.

If another major upward price correction arrives in the coming years, don’t forget to include the IEA’s willful errors when making a list of perpetrators. All government institutions are political, no matter how much structure is insulated from direct influence. Let’s hope the IEA has learned a lesson or two about the costs of believing there is a “right side of history” to be on.

 

William Murray is a former chief speechwriter for the Environmental Protection Agency (EPA), the past editor of RealClearEnergy from 2015-2017, and has covered energy and environmental policy in Washington D.C., as a journalist and analyst for the past two decades.