IEEJ：October ©IEEJ 2023
Special Bulletin
A Japanese Perspective on the International Energy Landscape (660)

October 27, 2023

Diverse Coexisting Views on the Future of Fossil Fuels
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
It is an undeniable fact that the world today depends on fossil fuels such as oil, gas, and coalfor about 80% of its total primary energy supply. By taking advantage of their abundance, pricecompetitiveness, and convenience, fossil fuels have come to occupy a major position in today’s energy
supply. In addition, we must think about the existence of huge energy supply chains that stretch aroundus on a global scale to support our daily energy supply. Only when there are infrastructure and supply
chains to support energy supply as a flow does energy supply become a reality. It is important to notethat many of these supply chains are extremely long-lived assets that cannot be easily replaced
immediately. If their replacement proceeds in line with the aging of stock and assets, it will take aconsiderable amount of time for the whole of the supply chain to change significantly. This is also an
important point for considering the actual state and future of energy.
However, various views are emerging about the future of fossil fuels at the center of energythat supports modern society, increasing uncertainties about the future. The development and diffusionof new technologies, people’s energy choices, changes in fossil fuels’ competitiveness affected bydrastic cost reductions for competing energy sources, and energy-related policy changes that drivethese developments have become important drivers that exert influence on the future of fossil fuels.
Of particular importance is the drastic enhancement of climate change measures. The growing need todrastically reduce CO2 emissions to achieve carbon neutrality has a significant impact on the future offossil fuels.
In the International Energy Agency’s World Energy Outlook 2023, released on October 24,
the Executive Summary states, "We are on track to see all fossil fuels peak before 2030.” It points outthat the impact of the Ukraine crisis will further accelerate the enhancement of decarbonization efforts
so that the peak demand for fossil fuels may be even earlier than previously thought. In the past, anIEA WEO analysis envisioned a future in which demand for fossil fuels will decline rapidly in theNet-Zero Emission scenario, using the backcast approach (that analyzes how the world should change
to achieve pre-fixed goals) to depict a future in which the entire world will reach net-zero GHG
emissions by 2050. However, the key takeaway of the latest IEA WEO is that fossil fuel demand will
peak before 2030 in all three scenarios in WEO.
“Before 2030” means that demand for all fossil fuels will peak in 2029 at the latest, or within
six years. Of course, peaking does not mean that demand will disappear immediately or decline sharply.
As energy sources, fossil fuels will retain a certain importance. However, a significant change isindicated by the prediction that fossil fuels that have accounted for most of the world's energy supply
and remained in strong demand for the world as a whole will peak in the near future. The peaking offossil fuel demand, if realized, may represent the beginning of a dramatic change that would mark anew era.
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However, there are various views about the future of fossil fuels. For example, theOrganization of the Petroleum Exporting Countries in its World Oil Outlook (WOO) 2023 on October
9 announced the reference scenario in which global oil demand will increase moderately until 2045,
supported by robust expansion in developing countries such as India. In the OPEC WOO scenario, gas
demand will continue to increase steadily until 2045, though coal demand will decrease. Demand forfossil fuels as a whole is forecast to expand moderately until 2045. In this respect, the OPEC WOO
pointed out that investment should be secured to stabilize the oil market. It is estimated that a total of$14 trillion should be invested in the oil sector by 2045 to meet the forecast demand growth.
In the IEEJ Outlook 2024, which was discussed in “A Japanese Perspective on theInternational Energy Landscape (659),” we presented two scenarios including the Reference Scenariothat assumes the continuation of current trends and indicates that oil and gas demand will increase
towards 2050, though with coal demand declining. In the Advanced Technologies Scenario in whichenergy-related technologies will be introduced to the maximum extent possible for decarbonizationand energy security, oil demand will peak, with gas demand leveling off in the 2030s before decreasing
moderately. In this way, diverse views have been given on the future of fossil fuels in long-term global
energy outlooks. It seems that views about the matter are growing more diverse, instead of converging.
As uncertain factors increase, it is extremely difficult to work out a long-term outlook. Given theimportance of fossil fuels, however, more scientific, objective, and reliable analyses may be requiredon the future of fossil fuels as the core of energy that supports our lives today.
Meanwhile, various interesting developments have been observed in the actual energy
market. They may represent the energy supply players’ movement to reconsider the importance offossil fuels. As noted in “A Japanese Perspective on the International Energy Landscape (656),” I feelthat the oil-producing countries of the Middle East in particular are becoming more aware andconfident of the importance of oil and their position in the international energy market in light ofmarket realities amid the Ukraine crisis and the growing importance of the Global South in the midstof the division of the world. This point can be clearly reflected in the abovementioned OPEC longterm oil demand outlook.
There seems to be a similar trend among international oil companies or majors. Recently,
oil majors’ massive corporate acquisitions have been reported worldwide. On October 11, ExxonMobil
announced that it would acquire Pioneer Natural Resources, a major independent shale resources
development company in the United States, for $59.5 billion (about 8.8 trillion yen). On October 23,
Chevron announced the acquisition of Hess, a major U.S. oil and gas development company, for $53billion (about 8 trillion yen). These mega acquisitions are basically designed to significantly expand
oil and gas production and enhance business operations and profitability. Both oil majors madestrategic business decisions to make huge investments in oil and gas development based on theirassessment of the realities of the international energy market. In addition, oil majors are strengthening
their liquefied natural gas business initiatives with a view to continuing LNG demand expansion in
the future. They have launched LNG projects as buyers and taken advantage of their deep marketing
capabilities to increase their presence as portfolio players in the world. These moves may represent
their strategies to develop their business operations by leveraging their strengths based on market
realities. Behind their moves may be their judgment and assessment of the future of oil, gas, and LNG
markets, based on their business perspectives and experiences.
There are still high uncertainties about the international situation surrounding fossil fuels.
The role of fossil fuels in the future will remain an important point that will decisively influence theworld.
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