IEA: Oil Demand Good Until 2040, But It Will Be a Bumpy Boom And Bust Ride

The IEA estimates that global oil demand is set to grow almost 12 percent to 103.5 million barrels per day (bpd) in 2040

Fatih Birol, executive director for the International Energy Agency, says lack of alternatives to oil for road freight, aviation, and petrochemicals will keep global oil demand growing until at least 2040.

In conjunction with the publication of the IEA's annual report, Birol told media, "The era of fossil fuels appears to be far from being over."

Birol is also skeptical about the outcome of government officials from dozens of countries converging this month in Morocco to implement curbs on emissions agreed to last year in Paris, saying it won't be enough to quickly slow down crude oil consumption: "Today, 81 percent of global energy comes from fossil fuels, and in 2040, even if all the pledges are implemented, this share will go down to 74 percent."

In its World Energy Outlook to 2040, the IEA estimates that global oil demand is set to grow almost 12 percent to 103.5 million barrels per day (bpd) in 2040, compared with 92.5 million bpd in 2015.

The report added that India is set to become the leading source of growth, while China will overtake the U.S. to become the single largest consuming country in the early 2030s.

As for exploration, the report warns that if new project approvals remain low for a third year in a row in 2017, "then it becomes increasingly unlikely that demand... and supply can be matched in the early 2020s without the start of a new boom/bust cycle for the industry."

The IEA believes worldwide investment must now rise to at least $700 billion annually, since it takes between three and six years for new oil fields to start producing.

Meanwhile, Birol thinks we're entering into a period of greater oil price volatility, potentially exacerbated if a ratified Organization of the Petroleum Exporting Countries cutback deal causes oil to climb to $60 per barrel, which in turn would compel U.S. shale producers to add even more product to the market.

Birol's remarks fly directly in the face of experts such as Simon Henry, chief financial officer for Royal Dutch Shell PLC, who earlier this month caused headlines when he said his company believes demand for oil could stop growing within the next two decades and as soon as five years.