Needs driving demand
Exxon’s energy outlook anticipates improved efficiency, buoyant demand
According to ExxonMobil’s energy outlook assessment, the growing world population coupled with the energy demands of an expanding middle class will drive an ever growing demand for energy, Pete Trelenberg, ExxonMobil manager for environmental policy and planning, told the Alaska Support Industry Alliance’s Meet Alaska conference on Jan. 19. And, while the efficiency of energy usage continues to improve significantly, oil, gas and coal will continue to play a significant role in the global energy mix for several decades to come, Trelenberg said.
“Energy’s important to support rising standards of living,” Trelenberg said. “Energy demand is set to grow and is particularly driven by the developing world and the emergence of the middle class.”
Improving standards of livingLooking at different parts of the world, human development in terms of life expectancy, education levels and standard of living has a clear positive correlation with levels of energy use. At the same time, the global population continues to rise and is projected to increase by 2 billion to some 9 billion by 2040. Energy underpins everything we enjoy, including light, heat, travel, communications and advanced medical care, Trelenberg said.
The number of people within the population with middle class standards of living is expected to grow from around 2 billion now to somewhere in the range of 3 billion to 5 billion in 2030, with this growth taking place essentially in the developing world. As people become wealthier, they start to use energy consuming technologies such as washing machines, refrigerators, air conditioners and automobiles.
But, as energy efficiency makes major strides, energy consumption in the developed world may drop slightly, while energy consumption in the developing world surges ahead. At the same time, energy efficiency will improve the carbon efficiency of economic activity while also slowing the pace of energy demand expansion.
“Efficiency ends up being hugely important to limit the pace of energy growth and help us work on climate change,” Trelenberg said.
Oil as a primary fuelExxonMobil expects oil to remain the primary fuel over the next 25 years, especially for transportation and as an industrial fuel. Even supposing that all passenger vehicles become electrically powered, that phenomenon would only account for about 20 to 22 percent of total oil demand. The remaining demand would still require oil production of about 80 million barrels per day, maintained by re-investment in the oil industry, Trelenberg said.
“This industry has a long future and we need to continue to invest, to meet consumer demand,” he said.
ExxonMobil thinks that, of the various fuel types, use of natural gas will expand the most. With 50 to 60 percent less carbon emissions than coal, gas use will particularly grow for power generation and for industrial use. ExxonMobil thinks that coal use will peak about 2025 before starting to decline. Non-greenhouse gas emitting energy sources - biomass, nuclear power, wind and solar - will likely grow the fastest.
Between now and 2040, as the energy mix moves towards less carbon intense energy sources, ExxonMobil anticipates the carbon emissions per unit of energy consumed to drop by some 10 percent, while this factor coupled with accelerating improvements in energy efficiency will cause a drop in carbon emissions per unit of economic activity by almost 50 percent.
In fact, the company is relatively optimistic about the future of carbon emissions and sees emissions peaking around 2030. Its carbon emissions projections are slightly better than those of the International Energy Agency and close to the projections of the signatories of the 2015 Paris agreement on climate change, albeit higher than required to meet a desired target of limiting global warming to 2 C.
Replacing production capacityGiven the manner in which production from oil fields declines over time, almost the entire current production capacity of some 87 million barrels per day will need to be replaced by 2040, to meet the IEA’s central scenario for future oil demand. That represents about $18 trillion of investment in new oil capacity development. And even in the case of limiting global warming to 2 C, $11 trillion dollars in oil and gas investment would be needed to maintain adequate energy supplies, Trelenberg said.
Technology is driving an expansion in estimates of total recoverable oil reserves, with reserves estimates increasing rapidly since the early 1980s. Moreover, unconventional oil and gas production now plays an important role in assuring that future oil and gas demand levels can be supported. Data from ExxonMobil’s fields in the Permian basin of west Texas show a 72 percent reduction in development costs and a 46 percent reduction in field operating expenses over just the past couple of years.
“That is just a result of getting better at what we do,” Trelenberg said.
Global marketsWith energy not always being found in the places where it is needed, global trade is hugely important in meeting people’s energy needs.
And in terms of the global oil market, the United States is transitioning from being an oil importer to becoming an oil exporter.
“We’re on a path, sometime this year, maybe next year, to become a net exporter of oil for the first time in many, many decades,” Trelenberg said.
Countries in Asia are major oil importers, with imports into that part of the world set to expand along with the expanding middle class. And Europe will likely remain a net importer. Major exporters consist of countries in the Middle East, Russia and the Caspian Sea region. Africa may transition from being a slight oil exporter to a slight oil importer.
In the global gas market, the United States is already a net exporter, with exports set to grow further. Russia and the Caspian Sea region support the largest volume of gas exports, mainly by pipeline but also to some extend as liquefied natural gas. Europe continues to import increasing amounts of gas, as gas fields in that region decline. The Asia/Pacific region will continue to be a major gas importer, of LNG in particular. The LNG trade is set to grow by a factor of between two-and-a-half and three times between now and 2040, with much of the export growth coming from the United States, Trelenberg said.
Changing energy mixTrelenberg also reflected on the evolution of the global energy mix since the early 1800s, and what that evolutionary tale may say about the world’s energy future.
“We would expect the evolution of energy technology to continue,” Trelenberg said. “It’s been going on for hundreds of years.”
While the energy mix changes over time and is likely to continue to change, the transition from one major source of energy to another typically takes a long time, especially given the scale and capital intensity of energy systems. The transition from wood burning to coal, for example, took about 75 years to accomplish.
Following the transition from coal to oil, the world has now been seeing the penetration of gas, hydropower, nuclear and, most recently, advanced renewables such as solar and wind. Indications are that oil, gas and coal will remain primary energy sources for many decades to come, but with the range of different energy sources becoming increasingly diverse, Trelenberg said.