Opinions

Fuelling the future: more gas, more oil and more renewables

For most of the world, January marks new beginnings.

For me, it’s more about tying up any loose ends after months of intense analysis and number-crunching.   That’s because my team and I are responsible for producing BP’s annual Energy Outlook.  This year’s report, which we published at the end of the month, focuses on the energy transition already underway.

Our research suggests that, thanks to rising prosperity in fast-growing emerging economies, global demand for energy is likely to rise by around 30% between now and 2035.  As demand for coal peaks during the period, ever more oil and gas will be required, with cleaner-burning natural gas increasingly the fossil fuel of choice – often in the form of liquefied natural gas (LNG).

As for oil:  while it will still be needed for transport, we also see growing demand coming for its use as a feedstock or lubricant.

In our base case, oil and gas combined provide over 55% of the world’s energy needs in 2035.

Given the world’s commitment to the COP21 Paris Agreement, renewables will be another winner in the fuels mix – with production projected to quadruple over the next 20 years.

These findings are all part of the main story in this year’s Energy Outlook – an important theme of which is the uncertainty of the speed of the transition to a lower carbon world.

In our base case projections, carbon emissions are likely to grow at less than a third of the rate seen in the past 20 years.  But that is still too much to achieve the goals set out in Paris.

Two possible pathways

In this year’s Outlook, BP considered two alternative pathways for carbon emissions.  The ‘faster transition case’ assumes a far tighter range of existing policy mechanisms that cause carbon emissions in 2035 to fall by 12% relative to 2015 levels.  Our ‘even faster transition’ case matches the trajectory of the International Energy Agency’s (IEA’s)  ‘450 scenario’.

The growth of gas

During the next 20 years, the proportion of natural gas in the energy mix will probably grow more quickly than either oil or coal.  This is underpinned to an increase in supply – particularly from US shale – and the rapid expansion of the market for LNG.  What is really special about LNG is its relative mobility – being transportable on ships around the world, rather than restricted to the length of a pipeline.  This means a globally integrated market is likely to emerge by 2035.

But if coal is more resilient to environmental pressures than we think – or if those pressures ease – the demand for coal could fall less rapidly than expected, dampening the growth in gas demand.  This could come about due to a weakening of policies that currently drive a shift from coal towards natural gas or if there is no wide-spread support for carbon pricing.

Electrification and the East

The next 20 years will see rapid growth in the use of electric vehicles – from a current population of 1 million today to 100 million electric cars on the road by 2035.  This could reduce the growth of oil demand by 1- 1 ½ million barrels a day.

But alongside that, we’ll see an even bigger growth in conventional cars – going from 900 million today to nearly 1.7 billion in 2035.  Much of this will be due to increasing prosperity in Asia.

And speaking of Asia…

China is currently the largest market for energy – and also the world’s largest growth market for energy.  We see demand rising there by nearly 2% per year until 2035.  While this remains impressive, it is, in fact a slow down when compared to an annual rise of 6% over the last 20 years.

As the growth of China’s economy slows over time, its structure is shifting from industrial activities to the consumer and services sectors.  This will reduce energy intensity.  The fuel mix is also set to change, with a series of government policies encouraging a shift away from coal to cleaner, lower carbon fuels.  These include natural gas as well as nuclear energy and renewables.

For the full report, with additional country and regional insights as well as videos and animation,  visit:  www.bp.com/energyoutlook


About Spencer

Spencer Dale is BP’s Group Chief Economist.  Before joining BP he sat on the Bank of England’s Monetary Policy Committee and also served as Chief Economist.

Back to top button