Scenarios over crystal balls

By Spencer Dale, BP’s Group Chief Economist

Looking deep into a crystal ball, fortune tellers can see the future, describing just how the world will be in five, ten or twenty years. Unfortunately this certainty belongs only in fairgrounds and fairy tales. Beware confident economists who ‘know’ what will happen in the future.

So how do we explore the future of energy – where decisions being taken today reach far into the future and many different factors can shift a complex global system?  In BP’s Energy Outlook, we explore a variety of scenarios that could unfold over the next two decades and consider how they might impact the world’s energy systems.  The value of the Outlook is not to predict the future, but to understand better the uncertainty we face.

An assumption common to our scenarios is an increase in world GDP – more than doubling by 2040, the end of our outlook period.  The vast majority of this growth is led by fast-growing developing economies, led by China and India.

Evolving transition

In our ‘evolving transition’ scenario, which assumes government policies, technology and society continue evolving as in the recent past, the increasing emergence of a middle-class in developing Asia drives growth in global energy demand of around one third by 2040.  Of this, energy consumed by industry and buildings (including housing) accounts for over 80% of the increase, whereas demand growth from transport slows as vehicle efficiencies improve. The continuing electrification of the global economy means the power sector accounts for around 75% of the increase in primary energy.

In this scenario, 85% of the growth in energy supply comes from a combination of renewables – the fastest-growing source of energy in history – and natural gas.

While demand for oil continues to grow in the first half of the Outlook period, it gradually reaches a plateau.  Nevertheless – and this is true in each of our scenarios –  to meet the continued demand for oil in 2040, whether as a fuel or in non-combusted uses such as chemical feedstocks, substantial investment in new oil production is essential. 

More of a good thing

To broaden and accelerate the move from low to middle incomes for billions of people, the provision of more energy is essential.  The Outlook highlights that 80% of the world’s population live in countries in which increases in energy consumption tend to go hand-in-hand with significant increases in human development (as measured by the United Nations).  In the ‘evolving transition’ scenario, in which energy demand increases by a third, two-thirds of the world population still live in this low-energy region in 2040.

The ‘more energy scenario’ considers a case in which this share is reduced to one-third by 2040.  Delivering such an outcome would require about 65% more energy than today by 2040. 

The world needs more energy to grow and prosper.

Speeding up

The ‘rapid transition’ scenario looks at what might happen if policies, including a significant rise in the price of carbon, were implemented to encourage greater energy efficiency gains, a switch to lower carbon fuels and proliferation of carbon capture use and storage (CCUS).  This leads to a fall in carbon emissions of around 45% between now and 2040 – a level consistent with eventually meeting the goals of the Paris climate agreement.

The majority of the reduction in carbon emissions comes from the power sector.  Policies aimed at the power sector will be critical if the world is to achieve such a material reduction in carbon emissions over the next 20 years.

Going for broke?

But what if trade wars interrupted the process of globalization?  Our ‘less globalization’ scenario explores that threat.  Trade disputes and restricted markets could, over time, reduce worldwide GDP and energy demand along with it.

What’s more, concerns about energy security could cause countries to favour domestically-produced energy, leading to a sharp reduction in energy trade.  The greatest impact would be on energy exporters.  History tells us that concerns about energy security can have persistent, scarring effects.

The single life

Plastic pollution – the detritus on land and sea from disposal of single-use items – has become a major global concern.  Our ‘single-use plastic ban’ scenario considers the impact of tightening regulation leading to a worldwide ban on all single-use plastics by 2040. 

The use of oil and other liquid fuels to produce plastics is the single biggest driver of growth in the ‘evolving transition’ scenario.  As a result, the growth of oil demand in the single-use plastics scenario is significantly slower.  But the full impact on energy growth and the environment would depend on the alternative materials that replace single-use plastics in such a scenario.  Depending on the choices made, there could be unintended consequences including, without further advances in alternative materials and more efficient collection and re-use systems, increased energy demand and carbon emissions.

Take your pick

There you have it:  one future; five scenarios.  Take your pick.  The only certain prediction I can make is none of these scenarios will come to pass precisely – but exploring them can help us better understand the world of energy, both today and in that uncertain future.

To find out more (the Outlook in full runs to 141 pages) connect with us by clicking here to download a copy.

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.

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