Lower oil and natural gas prices, higher electricity demand expected over next five years: IEA

Natural gas and oil prices are likely to decline in the second half of the decade, but unexpectedly high worldwide demand for electricity will complicate efforts to reduce greenhouse gas emissions, the International Energy Agency (IEA) said Wednesday in its yearly World Energy Outlook.

Between 2025 and 2030, the supply of oil and gas is expected to increase barring a significant escalation in conflicts in Ukraine or the Middle East, IEA said in the report.

Energy supply and demand have whipsawed in the first half of the decade, first plunging in the first year of the coronavirus pandemic and then seeing supply shocks after Russia invaded Ukraine in early 2022. In the years ahead, the trend indicates a “very different energy world” that includes downward pressure on the prices of those commodities, according to Fatih Birol, executive director at IEA.

Although oil prices have seen spikes amid tensions in the Middle East, record U.S. oil and gas production has offset much of the shock. IEA projected liquefied natural gas to flood world markets over the next five years, largely in the form of exports from the U.S. and Qatar.

However, the report also found that demand for electricity is accelerating faster than earlier predictions, with the demand level now expected for 2035 6 percent higher than the figure the IEA projected in 2023. Much of the projected demand increase is due to data centers, as well as the increased proliferation of air conditioning in countries like India that only recently began to adopt it as heat becomes more extreme.

The projected growth in annual electricity demand is equivalent to a year’s worth of demand from the entire nation of Japan.

“In energy history, we’ve witnessed the Age of Coal and the Age of Oil — and we’re now moving at speed into the Age of Electricity, which will define the global energy system going forward and increasingly be based on clean sources of electricity,” Birol said.

In addition to raising concerns around carbon emissions and climate change, this projected growth will also require significant upgrades to energy storage and grid resilience, according to IEA. The report cites the current vulnerabilities of electrical grids to extreme weather events, such as the winter storms that knocked out Texas’s self-contained ERCOT grid in 2021.

Overall, worldwide carbon dioxide emissions are expected to peak in the near future, according to IEA, but the decline after the peak is currently projected to be too gradual to avert the 1.5 degrees of warming above pre-industrial levels agreed to as a limit in the Paris Climate Agreement.