Imagine a world in which oil, gas, and coal are cheaper than ever. Sounds absurd, doesn’t it? Well, according to the International Energy Agency (IEA), that’s what might just happen soon. As humans strive to move toward cleaner energy, such as wind and solar power, these sources might make fossil fuels just less important. That is expected to lead to an oversupply of oil, gas, and coal, making them much cheaper for anyone in the world.

The IEA, with headquarters in Paris, has been closely monitoring all trends in energy. Based on their latest report, it appears that by the end of this decade, fossil fuels may be much more plentiful than we need them. The extra supply is probably going to drive down prices for homes and businesses, and it may be a sigh of relief from years of rising energy costs.

Why Are Prices Falling?
One might wonder as to why the fossil fuels that have long been becoming expensive would now become cheaper. And here’s why:

First, the more countries that move toward clean energy in the form of solar panels and wind turbines, the more the demand for fossil fuels will decrease. This implies that that the oil, gas, and coal we use for those purposes now will not be in such high demand. Generally speaking, as demand decreases, prices typically follow suit.

Second, while the world is consuming less fossil fuel, investments in searching and producing more oil and gas have not slowly subsided. To the contrary, investment in fossil fuel projects has been greater than ever. This will mean that there might be a far way more supply of oil, gas, and coal than the world requires. Excess supply and shortage of demand are likely going to make it drop much lower.

Peak Fossil Fuel Usage Cometh
Fatih Birol, the executive director of the IEA, said the world is heading for peak fossil fuel usage by 2030. Then, it will be from around that date, demand for oil and gas will finally begin to decline as climate friendly policies start to take its toll. But this will be even as such commences new investments in fossil fuels will continue to build up in reserve, so therefore, prices are heading down.

This won’t happen overnight, though. On a short-term basis, the existing nature of the conflict in the Middle East will quite easily make oil and gas prices unstable. Long term, however, things are looking like fossil fuel prices will be more stable and lower over the coming years. For example, by 2030, prices might top around $75 to $80 a barrel of oil, says the IEA. Compare that to 2022, when oil prices reached over $100 a barrel following Russia’s invasion of Ukraine.

How about Gas Prices?
Similarly, natural gas also poses a similar narrative. Gas prices in Europe peaked at a record in 2022 at over $70 per million British thermal units. However, more projects will start with gas that will bring the prices significantly down. The IEA quotes that by the end of the decade, gas prices will come down to only $6.50 per MBtu. That’s a huge difference!

Much of that drop at the pump has to do with investments in liquefied natural gas, or LNG. After the Russian invasion of Ukraine, Europe basically stopped buying as much gas from Russia. They replaced those volumes with LNG delivered from other places around the globe, such as the U.S. and Qatar. As more of these LNG projects come onstream, the global production of gas is set to rise by some 50% by 2030. With that much new supply coming onstream, prices can’t rise for long.

The China Factor
And one of the most interesting factors in all of this is China’s role. For decades, China was the biggest driver of oil demand. But that’s changing. China is rapidly turning toward electric vehicles, which consume no gasoline at all. “Electric cars today make up 20% of new car sales worldwide,” says the IEA. In China, electric cars already account for half of new car sales.

As China uses less oil and switches instead to electricity, the rest of the world will eventually be expected to consume 6 million barrels a day less oil. That’s an enormous reason why oil prices are going to remain relatively low for the foreseeable future.

Green Energy Still Has a Long Way to Go to Be Cheaper
The cheaper the fossil fuels are, the better. But this is without saying that there is a catch to it all. IEA says that for the world to totally go for clean energy, renewable alternatives have to get cheaper as well. Electric cars, heat pumps, and other green technologies have to compete with cheap fossil fuels.

But better news on that front, too. Demand for clean electricity is growing faster than ever. The IEA says that, every year, the world will require more electricity than Japan consumes now. That’s partly because more people are switching over to electric cars and heat pumps. If the world’s governments push even harder for net-zero emissions, then demand for clean electricity could grow even faster.

What’s Next?
The world will be moving toward cheaper and more abundant supplies of energy. Still, if fossil fuels cost the least now, it’s only because clean energy becomes increasingly trendy. And somehow, we need to ensure that green technologies are cheap enough to compete.

Will we see $100 oil again? It is too early to predict that. But for the time being, it appears to be the case that the horizon for lower energy prices is ahead. And that would be good news for anyone.