Consumers are in for some relief: Lower energy prices are on the way

London (CNN) — For consumers still scarred by jumps in their energy bills in recent years, the International Energy Agency has good news: Oil and natural gas prices will probably be lower over the next five years.

Energy prices soared in the wake of Russia’s full-scale invasion of Ukraine in February 2022, which followed a rise in global demand as economies reopened after Covid lockdowns put lives on hold.

Oil and natural gas supplies will increase in the second half of this decade, as long as the conflict in the Middle East and Russia’s war in Ukraine don’t derail current trends, Fatih Birol, the executive director of the International Energy Agency, said Wednesday.

And that “would move us into a very different energy world from the one we have experienced in recent years during the global energy crisis,” he added in a statement accompanying the IEA’s latest World Energy Outlook report. “It implies downward pressure on prices, providing some relief for consumers that have been hit hard by price spikes.”

While the report strikes a positive note, it also calls for faster transition to clean energy, not only to address the climate crisis but also to ensure global energy security threatened by geopolitical tensions.

European benchmark natural gas futures reached a closing price of €339 ($370) in August 2022, more than eight times their current level, and they are still far above pre-pandemic prices. Brent oil prices, the global benchmark, are closer to their pre-Covid levels but they have risen in the past month as violence in the oil-producing Middle East has widened.

But global oil output has been increasing, thanks mostly to producers in the United States and other countries in the Americas. For natural gas, the IEA expects “a huge new wave” of the fuel in liquefied form to come to market in the next five years, mostly from the US and Qatar, Birol told CNN.

The IEA projects an “overhang” of oil and liquefied natural gas supply during the second half of the 2020s, alongside a glut of manufacturing capacity for some key clean energy technologies such as solar panels and batteries.

Combined with a “major comeback” for nuclear power generation in many countries, “the stage is set for a buyer’s market,” Birol told CNN.

More room for climate action?

The forecast downward pull on fossil fuel prices might be good news for consumers’ pockets, but whether it will also help climate change action, as the IEA hopes, will largely depend on what governments do next.

“The breathing space from fuel price pressures can provide policymakers with room to focus on stepping up investments in clean energy transitions and removing inefficient fossil fuel subsidies,” Birol said in the statement. One example of such pressures is the hundreds of billions spent by European governments since September 2021 to shield consumers from rising energy costs.

“This means government policies and consumer choices will have huge consequences for the future of the energy sector and for tackling climate change,” Birol added.

Investing in green energy isn’t just necessary to prevent a climate catastrophe — as burning fossil fuels is the main cause of climate change — it also makes financial sense, the IEA suggests in its wide-ranging report.

“Many clean energy technologies are already the most affordable options when lifecycle costs are considered,” the agency wrote. “While their upfront costs in many cases are higher than those of their conventional equivalents, they often have much lower operating costs because they are more efficient. They also shield consumers from volatility in fossil fuel prices.”

At the same time, extreme weather events such as heat waves, floods and droughts, intensified by climate change, have damaged energy infrastructure, led to power outages and disrupted energy supply chains, causing temporary price surges, the IEA said. Such costs are expected to rise, especially if global temperatures climb sharply, it added.

The energy body reiterated its previous forecasts that demand for oil, natural gas and coal will peak by the end of the decade. But it warned that “the world is still a long way from a trajectory aligned with its net zero goals.”

Scientists say worldwide greenhouse gas emissions must go down to zero by 2050 on a net basis — taking account of all the pollution produced and removed from the atmosphere — in order to keep global warming to no more than 1.5 degrees Celsius.

Based on today’s policies, the world is on track for a rise of 2.4 degrees in global average temperatures by the end of the century, the IEA said.

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