Late last week BP Oil, the fifth largest oil and gas producer in the world, predicted that we will reach peak oil demand by next year, ending rising emissions thanks to increasing demand for solar and wind. That’s a big prediction coming from one of the handful of multi-billion dollar companies with skin in the game.

The phenomenon, known in shorthand as “peak oil,” is when global oil production will hit its maximum rate and begin to decline. BP says that the world will reach peak oil in mid-2025 at around 102 million barrels per day, according to The Guardian. That level is 2 million more barrels per day than the current output of 100 million.

The report says that peak oil will occur sooner than previously expected due to the rapid adoption and expansion of wind and solar projects worldwide, as well as the rise of electric vehicle adoption around the world.

Why It’s Big News for Climate Change

BP's prediction that global oil demand will peak in 2025 is significant news for climate change for a number of different reasons. First, reaching peak oil means that global carbon emissions will stop increasing in the mid-2020s. That could create a potential turning point in the fight against climate change.

Additionally, the BP report underlines that oils share in the global energy mix will decrease. In 2022 oil accounted for about one-third of the global energy mix. On the projected path that BP sees, it could become just one-quarter of the energy mix by 2050.

The company also ran what it called a net-zero scenario: “How different elements of the energy system might change in order to achieve a substantial reduction in carbon emissions.” Under its net zero scenario, oil would make up just 10% of the global energy mix by 2050.

Importantly, BP noted a significant rise in renewable energy sources including wind and solar power, both of which are expected to play a much more significant role in global energy generation in the future. The company also noted that as electric vehicle (EV) adoption rises globally, there will be less demand for oil and gas. The outlook predicts that wind and solar power capacity will increase 8x by 2050, based on current global climate policies, compared to 2022 levels.

BP Chief Economist Spencer Dale noted that the world is in an “energy addition phase” – a time when both renewables and fossil fuels are seeing an increase in consumption at the same time. As the Guardian reported, “In order to keep a cap on rising emissions, low-carbon sources would need to roll out at a pace that matched the increase in global energy demand, Spencer added.”

Why is BP Calling Peak Oil?

While it may seem discordant for an oil company to talk about renewables and predict the gradual decline in oil and gas demand, it's important to note that many of the major oil players, including BP, have large stakes in the renewable space. There is money to be made and oil and gas companies are going to do their best to capitalize on it.

BP itself has a significant stake in onshore and offshore wind projects worldwide, from Europe to the U.S. Late last year, BP completed the purchase of Lightsource bp, a developer and operator of utility-scale solar and battery storage assets.

The company is also a relatively large player in electric vehicle charging. Back in May after Elon Musk fired his entire Supercharger team and left a number of big projects in the lurch, BP stepped in to buy out the abandoned projects for approximately $1 billion, with the aim of expanding its EV charging play in the US. The company also already has a current relationship with Simon Malls, to expand high-speed charging at locations around the US.

Peak Oil Theories Have Been Around a Long Time

Peak oil theories have been around since the 1800s, at least here in the US, when oil fields in Pennsylvania began to wane. In the 1960s, when the famed geophysicist, Marion King Hubert floated her peak theory, it became more popular. The idea behind peak oil, according to Investopedia, is that oil production (and availability/ease of extraction) follows a bell-shaped curve, peaking and then dropping off, based on a wide variety of factors. Since oil is a non-renewable resource, there are limits to how much exists and can be extracted from the Earth.

Peak oil became a major bogeyman in global commerce and the economy in the 1970s when OPEC’s oil embargo hit Americans hard, underlining just how crucial oil and gas are to developed (and developing) countries.

The Big Picture

Outside of the potential implications that this announcement has for climate change and BP’s business, the announcement of peak oil by an oil company is a big deal. For one, it's the first time in the modern era that a global player has made a proclamation like this. It is a public acknowledgment that carries significant weight, especially as it pertains to the energy transition.

Additionally, the announcement could have a significant ripple effect throughout both the global economy and energy markets. Investment in green technology both locally and globally could accelerate because one of the largest players has called peak oil. The outlook also could have some influence on energy policies around the world and help accelerate the move towards renewables and cleaner energy sources. Finally, oil-dependent economies could start to shift towards other, greener technologies at a much faster rate, which could stave off some of the worst consequences of climate change.

Most importantly however, the forecast represents a significant shift in the energy landscape and suggests that efforts to combat climate change may be having a tangible impact on global energy consumption patterns sooner than previously expected.

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