The report says a resurgence of oil and gas production in the United States, deep declines in the cost of renewables, and growing electrification are changing the face of the global energy system and upending traditional ways of meeting energy demand.
"Oil is already facing stiff competition from ever-cheaper and more environmentally friendly energy sources as traditional fossil fuel users switch to cleaner, low-carbon alternatives", IEA said in its World Energy Outlook 2018.
Natural gas use will grow quickly, by 40 percent by 2040. "Meeting this demand would require an overall investment of around $10.5 trillion across upstream, midstream and downstream operations" Opec Secretary-General, Mohammad Barkindo, said noting that the 2017 outlook was more positive than previous year, partly thanks to oil exporting nations' efforts to stabilise the market.
IEA said that if current levels of OPEC production were maintained, the oil market would face a "difficult challenge" during the first quarter of 2018 on the back of supply exceeding demand by 600,000 bbl/day followed by another, smaller, surplus of 200,000 bbl/day in the second quarter of the year.
The oil market should be able to find a longer-term equilibrium, with the oil price in the range of $50-70 a barrel, the agency said.
The U.S. shale surge could also mean an era of lower-for-longer oil prices.
"A remarkable ability to unlock new resources cost-effectively pushes combined United States oil and gas output to a level 50% higher than any other country has ever managed; already a net exporter of gas, the USA becomes a net exporter of oil in the late 2020s", the IEA said in its 2017 world energy report.
If planned pipeline projects come to fruition, the United States and Canada combined could export more than 700,000 bpd to China by 2040 - a drop in the barrel in the country's 15.5 million bpd demand.
The IEA estimates that there will be 50 million electric vehicles (EVs) on the road by 2025 and 300 million by 2040, from closer to 2 million now.
Worldwide, oil consumption is seen reaching 97.7 million bpd in 2017, up 1.5 million bpd from 2016.
The International Energy Agency on Tuesday delivered a more cautious outlook for oil demand.
It argues that fuel efficiency and rising electrification will bring a peak in oil used for passenger vehicles, even with a doubling of the auto fleet to 2 billion vehicles by 2040.
"Next year's demand growth will struggle to match this", the IEA said.
Global energy needs will rise more slowly than in the past but still expand by 30 per cent between today and 2040, the equivalent of adding another China and India.