‘The biggest factor for oil demand is economic growth’
KUWAIT: Amid global uncertainties, changes to the fuel mix, global economic growth and population and productivity growth, BP is weighing and considering the forces shaping the global energy transition till 2040 and the key uncertainties surrounding this transition. In an exclusive interview with Kuwait Times, BP’s General Manager for Global Energy Market Mark Finley outlined BP’s energy outlook, which he said is all about understanding the transition of the energy system and global uncertainty.
The outlook, he said, lays out the scenario for discussion and explores the energy transition from three different viewpoints – fuels, sectors and regions. These scenarios are not predictions of what is likely to happen or what BP would like to happen, but rather explore the possible implications of different judgments and assumptions by considering a series of ‘what if’ experiments. “Much of the outlook is described with reference to the ‘Evolving Transition’ scenario. The outlook is produced to aid BP’s analysis- and decision-making, be part of the global conversation on energy issues and contribute to the wider debate,” Finley said.
Degree of confidence
“In this year’s edition, there are things we feel reasonably confident about. The world can have all the energy it needs to continue to fuel economic growth and to help lift people out of poverty and improve the quality of life. Also, the energy demand on this basis will continue to grow. On the other hand, we do not believe it will continue to grow as it has been in the past. Meanwhile, renewable energy will continue to grow rapidly. The world needs to continue to invest in oil and gas no matter what the future holds – at the same time, it needs to work harder to manage the CO2 profile and carbon emissions,” Finley explained.
On key uncertainties, he weighed the prospect of electric vehicles, the changes in the transportation system and the prospect for future energy demand – examining the sensitivity of renewable and natural gas demands. “We believe there is a lot of focus on electric cars and we do believe that it will grow very rapidly, but we do not believe this will push oil demand to fall very sharply – at least in the next 25 years. The biggest factor for oil demand is economic growth,” he added.
The ‘Evolving Transition’ (ET) scenario, which assumes that government policies, technologies and societal preferences evolve in a manner and speed similar to the recent past, expects fast growth in developing economies driving up global energy demand a third higher. According to the ET scenario, the global energy mix is the most diverse the world has ever seen (by 2040), with oil, gas, coal and non-fossil fuels each contributing around a quarter; renewables are by far the fastest-growing fuel source, increasing fivefold and providing around 14 percent of primary energy.
Also, the demand for oil grows over much of outlook period before plateauing in the later years, while the natural gas demand grows strongly and overtakes coal as the second largest source of energy with oil and gas together accounting for over half of the world’s energy. Meanwhile, the number of electric cars will grow to around 15 percent of the car park as carbon emissions continue to rise – signaling the need for a comprehensive set of actions to achieve a decisive break from the past. The new outlook was launched in London by Spencer Dale, group chief economist, and Bob Dudley, group chief executive. The findings below relate to the Evolving Transition scenario.
By 2040, oil, gas, coal and non-fossil fuels each account for around a quarter of the world’s energy and more than 40 percent of the overall increase in energy demand is met by renewable energy. Oil demand grows over much of the outlook, although it plateaus in the later years. All the demand growth comes from emerging economies. The growth in supply is driven by US tight oil in the early part of the outlook, with OPEC taking over from the late 2020s as Middle East producers adopt a strategy of growing market share.
The transport sector continues to dominate global oil demand, accounting for more than half of the overall growth. Most of the growth in energy demand from transport, which flattens off towards the end of the outlook, comes from non-road (largely air, marine, and rail) and trucks, with small increases from cars and motorbikes. After 2030, the main source of growth in the demand for oil is from non-combusted uses, particularly as a feedstock for petrochemicals.
Natural gas will grow strongly over the period, supported by increasing levels of industrialization and power demand in fast-growing emerging economies, continued coal-to-gas switching, and the increasing availability of low-cost supplies in North America and the Middle East. By 2040, the US accounts for almost one quarter of global gas production, and global LNG supplies will more than double. The sustained growth in LNG supplies greatly increases the availability of gas around the world, with LNG volumes overtaking inter-regional pipeline shipments in the early 2020s.
Coal consumption flat-lines over the outlook period, with falls in China and the OECD (Organization for Economic Cooperation and Development) – offset by increasing demand in India and other emerging Asian economies. China remains the largest market for coal, accounting for 40 percent of global coal demand to 2040.
Renewable energy is expected to grow over 400 percent and accounts for over 50 percent of the increase in global power generation. This strong growth is enabled by the increasing competitiveness of wind and solar. Subsidies are gradually phased out by the mid-2020s, with renewable energy increasingly able to compete against other fuels. China is the largest source of growth, adding more renewable energy than the entire OECD combined, with India becoming the second largest source of growth by 2030.
Power accounts for nearly 70 percent of the increase in primary energy demand. The mix of fuels used in power generation is set to shift materially, with renewable energy gaining share more quickly than any energy source in history, increasing from 7 percent today to around a quarter by 2040. Even so, coal remains the largest source of energy in power generation by 2040. Transport energy demand grows by only 25 percent despite total demand for transportation more than doubling, reflecting accelerating gains in vehicle efficiency. The transport sector continues to be dominated by oil (around 85 percent in 2040), despite increasing penetration of alternative fuels – particularly natural gas and electricity.
The outlook argues that the penetration of electricity in the transport sector is best measured by considering both the number of electric vehicles (EVs) and how intensively each vehicle is used. In the Evolving Transition scenario, the share of EVs in the global car parc reaches around 15 percent by 2040 -more than 300 million cars in a car parc of almost 2 billion. However, the share of passenger car kilometers powered by electricity, which also takes account of the intensity with which electric cars are used, is over 30 percent. The outlook shows how the interaction of fully-autonomous cars with shared mobility has the potential to substantially boost the intensity with which electric cars are driven.
A key uncertainty in the period to 2040 is the speed with which sales of electric cars increases. To gauge the significance of this uncertainty, the outlook considers a scenario in which there is a worldwide ban on the sales of cars with internal combustion engines (ICE) from 2040. This scenario reduces liquid fuel demand by around 10 million barrels a day relative to the Evolving Transition scenario but, even so, the level of oil demand in 2040 in the ‘ICE ban’ scenario is higher than in 2016.
“The suggestion that rapid growth in electric cars will cause oil demand to collapse just isn’t supported by the basic numbers – even with really rapid growth. Even in the scenario where we see an ICE ban and very high efficiency standards, oil demand is still higher in 2040 than it is today,” Group chief economist Dale explained.
All the growth in energy consumption is in fast-growing developing economies: China and India account for half of the growth in global energy demand to 2040. Through the period China’s energy growth slows as it transitions to a more sustainable pattern of economic growth. India’s slowing in demand growth is less pronounced and by the early 2030s it overtakes China as the world’s fastest growing market for energy. In the latter stages of the Outlook, Africa also plays an increasingly important role in driving energy demand, contributing more to global demand growth from 2035 to 2040 than China.
In the outlook’s Evolving Transition scenario, carbon emissions rise by 10 percent by 2040. While this is far slower than the rates seen in the past 25 years, it remains higher than the sharp decline thought to be necessary to achieve the Paris commitments. As such, the outlook also explores an ‘Even Faster Transition scenario’, which has the same broad decline in carbon emissions as the International Energy Agency’s ‘Sustainable Development Scenario’ where carbon emissions fall by almost 50 percent by 2040. Most of the additional abatement of emissions in this scenario, relative the Evolving Transition scenario, come from the power sector, which is almost entirely decarbonized by 2040.
By Chidi Emmanuel