Could Global Demand for Oil Peak in 2026?

Is the globe’s thirst for oil finally topping out?

A major international energy watcher says yes, predicting last month that demand for global oil for transport will peak around 2026, plateau for all uses by 2028, and possibly hit a zenith by the end of the decade.

Harvard experts say the forecasts track with what’s going on in the developed world, where climate change concerns have fostered a push to electrify transportation, boost renewables, and reduce fossil fuels. But, they say, the energy needs of less-wealthy nations pressing to develop their economies could foil expectations for years to come.

The International Energy Agency, established by the Organization for Economic Co-operation and Development in the 1970s to provide energy data and policy advice, predicted that demand for oil for transportation would peak in 2026 as a result of electric-vehicle (EV) adoption, biofuel growth, and improved fuel economy. It predicted increases in demand in all sectors would slow from 2.4 million barrels per day this year to just 0.4 million barrels per day in 2028, with a potential overall peak by 2030.

Henry Lee, the Jassim M. Jaidah Family Director of the Harvard Kennedy School’s Environmental and Natural Resource Program and senior lecturer in public policy, said despite many variables at play, he wouldn’t be surprised if the peak of oil use for transportation is achieved by 2026. Even if that proves too rosy, it’s still likely to be achieved by early in the next decade, he said.

Lee said he’s been surprised at how quickly parts of the world are moving toward EV adoption. In China, the world’s largest auto market, electric vehicle sales in the first five months of 2023 were up by 26 percent. Sales by BYD Auto, China’s largest EV maker, are up 92 percent this year, he said.

“Rich countries can do what they choose to do. Poor countries do what they have to do.”

Likewise, American companies have poured resources into EV design and manufacturing. Both Ford and GM are planning to release new models in 2025, 2026, and 2027, Lee said, while Volkswagen, with new vehicles planned for 2026 and 2027, expects the majority of its fleet to be electric soon.

“Ford and GM, driven by the California regulations, have invested billions of dollars in developing electric vehicles,” Lee said. “There is this huge investment, and it’s too late to change it.” Last August, officials in Sacramento declared that by 2035 all new passenger cars and light trucks sold in the state—the nation’s largest auto market—must be electric or emission-free.

But this momentum doesn’t mean the pieces are all in place, nor does it guarantee a smooth transition, Lee said. Significant hurdles remain regarding electricity pricing and building charging infrastructure.

The cost to charge vehicles is artificially low, Lee said, which is alright for now because EVs are a small part of the market. But the situation will need to be fixed as more electric cars hit the road, and the solution is unclear. In addition considerable investment is still needed to ensure there will be sufficient charging stations, transmission lines, smart transformers, and energy storage, Lee said.

Some of the necessary funds were approved in the 2022 Inflation Reduction Act, but Lee said private investment seven or eight times greater is still needed. Automakers recognize this, and Ford and GM announced in June an agreement to adopt Tesla’s charging technology platform, which means their cars will be able to use Tesla’s nationwide network.

Industrialized nations are using regulation and market forces to foster a shift away from fossil fuels, but the wild card for the IEA’s forecast involves the developing world, experts said.

Globally, oil isn’t used heavily for electricity generation, but that’s less true in some developing nations where gasoline and diesel generators supplement small or unreliable grids and where liquified petroleum gas (LPG) is used for cooking, transport, and even heating. A 2014 study by the World Bank, for example, estimated that electricity demand in Nigeria was 8,000 to 10,000 megawatts, but just 3,500 of those came from the national electric grid. Much of the shortfall was made up by gasoline and diesel-powered generators, the report said.

Joseph B. Lassiter, the Senator John Heinz Professor of Management Practice in Environmental Management, Retired, at Harvard Business School, said leaders of developing nations make no bones that their top priority is rapidly improving their economies and living conditions for their citizens, which will require vast supplies of cheap, reliable energy.

Lassiter said he sees a disconnect between value systems in the developed and developing world, where…