Peak demand for horses in the US came in 1905; for gas lighting in the UK in 1907; for UK steam power in 1910; and for UK coal heating around 1960, according to the think tank RMI. Time and again, legacy energy systems have followed a pattern of rapid growth in consumption, followed by a plateau of a number of years, then a rapid decline. This last period is associated with falling prices, collapsing profits, stranded assets and companies going bust. The cost of capital rises for peaking industries, starving them of the ability to invest, and accelerating their subsequent decline.
Environmentalists everywhere are waiting for the moment when fossil fuels will follow this pattern. The conditions are beginning to take shape: renewable power is now cheaper than fossil fuels in most countries. Last year, the cost of levelised electricity production from major renewable energy technologies continued to fall considerably compared with the year before, including onshore wind (down 15%), offshore wind (down 13%) and solar (down 13%).
However, following the dip in energy demand during the Covid-19 pandemic, coal, oil and gas demand all rebounded considerably in 2021, with more gas consumed than ever before. Most energy analysts still maintain we are a long way off peak fossil fuels: S&P Global Commodity Insights’ most recent forecast pins 2038 as the year fossil fuels will peak, with peak coal coming in 2024, peak oil coming in 2035 and peak gas coming after 2050.
Yet delve into the data a little deeper and it becomes clear we are not simply witnessing business-as-usual growth in fossil fuel consumption as the global economy recovers.
Data from BP’s Statistical Review of World Energy shows Europe, the US, Canada and Japan – collectively responsible for the majority of the world economy and the majority of historic emissions – peaked fossil fuel consumption in the year 2005. The 163.9 exajoules (EJ) of coal, oil and gas consumed across those regions in 2021 was 14.6% below the 191EJ consumed 16 years previously.
Economic growth in these wealthy economies has become more energy efficient and renewables have taken an ever greater share of the energy mix each year. In Europe, for example, solar and wind now provide 32.1% of electricity, compared with 10.6% a decade ago. These countries have set a clear example of what peak fossil fuels will look like – and many have also laid out comprehensive plans of how they aim to nearly fully eliminate them from the energy mix by 2050.
Following the coronavirus pandemic and renewed climate optimism around COP26 – which coincided with more than 90% of the global economy pledging to reach net zero by around mid-century – a number of more optimistic forecasts for peak fossil fuel have been released.
Consultancy McKinsey & Company forecast in April of this year that global fossil fuel demand will likely peak before the year 2030. The International Energy Agency, meanwhile, said in October 2021 it believes fossil fuels will peak by 2025 if countries actually meet their stated climate pledges.
Peak fossil fuels in 2019?
RMI is even more optimistic. Research led by senior principal Kingsmill Bond finds the current record year for fossil fuel demand – 2019 – is likely to be the year global fossil fuel demand peaked. Bond believes we are at a plateau of relatively stable demand, before the inevitable structural decline.
“There is no question that a structural shift is going on from fossil fuels to renewables,” says Bond. “The question is simply when is the peak of fossil fuels.
“Country after country has seen peak fossil fuel demand, from Brazil to Thailand to South Africa. We calculate that 60% of the world saw peak fossil fuel demand by 2019.”
Data backs up Bond’s pronouncements. Global coal demand has plateaued since 2014, and with 40 countries pledging to phase out the fuel – which remains the world’s main source of electricity – and China, India and the US all now undertaking ambitious carbon reduction plans, it seems safe to bet that coal will likely never grow again.
Meanwhile, data from BP’s Statistical Review of World Energy shows that record oil demand occurred in 2019, with increased demand during the economic recovery of 2021 unable to top that. BP’s data shows that around half of the world’s oil market has already passed peak oil – and with electric vehicle uptake crossing a mass adoption tipping point in many markets, it seems inevitable the oil market is on the precipice of structural decline.
"Recent high oil prices, along with policy progress through programmes like the Inflation Reduction Act in the US, is likely to bring forward the date of peak demand for oil,” adds Andrew Logan from the US think tank Ceres. “Companies within the sector itself, from BP to Equinor, all anticipate peak oil demand arriving within a decade, and given the rapid pace of technological advancement, it is quite possible that peak demand will actually arrive sooner.”
Predicting peak gas is a little more complicated: the fuel is half as carbon-intensive to burn as coal and still considered a ‘transition fuel’ in some quarters. However, sky-high gas prices over the past year and significant pressure on the global liquefied natural gas market, is leading countries to move away from gas more rapidly than they were anticipating just one year ago.
“While there is a role for gas in the near term in displacing coal, longer-term it is too expensive, too volatile and too carbon intensive to play a major role in the energy transition,” says Logan. “While scenarios differ wildly in the role of gas to 2030 or even 2035, they are fairly unanimous that gas demand needs to decrease substantially thereafter if the world is to have any hope of achieving the goals of the Paris Agreement.”
An economic inevitability
Were the world in a healthy economic place, it might be harder to confidently predict a drop in fossil fuel consumption. However, the sputtering global economy adds credibility to the theory that 2019 may have been the peak year for fossil fuel demand.
Tumultuous global economic conditions triggered by all manner of factors – Covid-19, supply chain crisis, Brexit and war in Ukraine, to name a few – mean there is now a 98% chance of a global recession, according to a probability model run by economists at Ned Davis Research, a provider of independent investment research. After the 1973 oil crisis and 2008 financial meltdown, oil consumption fell 2%; after the 1979 oil crisis and 2020 Covid-19 pandemic, it fell by around 10%. It often takes several years for fossil fuel markets to recover from such a shock – but if such a shock were to take place right now, it is uncertain they would ever fully recover, given how much cheaper and more reliable renewable energy sources now are.
Even if recession is avoided, it is widely accepted that much of the world is entering a period of low growth, which will in turn require less energy to power it.
Every year that passes, an ever greater share of global energy growth is met by solar and wind capacity additions. Recent years have seen solar power consumption grow by an average of more than 20% each year, while wind power grows by 10–15% each year. If you overlook the shock to the energy supply recorded in 2020, and compare figures for 2021 to 2019 – the current record year of peak fossil fuel consumption – then total energy supply has grown by 8EJ, of which 7EJ is solar and wind and 1EJ is from other non-fossil fuels.
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The trend of new renewables crowding out fossil fuels continues: the latest Global Electricity Insights report from the think tank Ember finds that the 3% global electricity demand growth recorded in the first half of 2022 was met entirely by renewables.
No room for complacency
If peak fossil fuel demand has already happened, some significant economic headwinds could be on the way for many countries. Policymakers in the vast majority continue to plan for a future of increasing fossil fuel demand. Recent Energy Monitor investigations have shown that hundreds of billions of dollars of new gas infrastructure is being built across Africa and Asia, all of which poses significant stranded asset risk if a rapid decline in fossil fuel consumption is around the corner.
Crossing peak fossil fuels also does not mean that the climate crisis is solved. Consumption of oil, gas and coal must decline to nearly zero by mid-century if the world is to have a good chance of limiting global warming to 1.5°C and avoiding the most catastrophic impacts of climate change. Market forces will likely ensure this decline takes place – but it will not happen quickly enough if those in power are planning for a different future.
“We cannot leave this to markets alone: sure, current high prices are destroying fossil fuel demand and shifting investment decisions toward clean energy, but we cannot rely on a recession to bring down fossil fuel demand long-term,” says Lorne Stockman, co-research director from the NGO Oil Change International. “We need clear, decisive government action that ends support for fossils and guarantees support for renewable energy and energy efficiency – and we need clear plans for winding down the industry in a just and equitable way that supports workers.”