A changing world
BP Energy Outlook assesses the transition to an evolving energy future
The BP Energy Outlook for 2018, published on Feb. 20, predicts growing global energy demand as standards of living improve in the developing world, particularly in China and India, but with Africa also factoring into this trend later in the outlook period. Natural gas usage will grow steadily in response to that demand, while the use of renewable energy sources, especially wind and solar, will likely increase rapidly. In China in particular, renewables are expected to overtake oil as an energy source by the end of the period, However, global demand for oil will probably remain robust for many years into the future, the Outlook suggests.
The energy transitionThe Outlook considers what it characterizes as the energy transition, the manner in which the evolution of the worldwide energy system may continue into the future. In introducing this year’s findings, Spencer Dale, BP Group chief economist, said that the time period that the Outlook encompasses has been extended by five years to 2040, to bring some features of the energy transition into sharper focus. Also, on the basis that no suggested future energy scenario will prove to be correct, the Outlook puts forward six or seven different scenarios, without suggesting a base or central scenario that is thought most likely.
The value of forecasting is to better understand the nature of the uncertainties that people face, and the key judgments and issues that will determine the future, Dale said.
The Energy Outlook identifies three key themes that will shape the energy transition over the next 20 to 30 years: the growth in energy demand in the developing world; the increasing competitiveness of energy markets; and the continuing challenge of bringing down carbon emissions to meet goals set in Paris in 2015. Competition in energy markets will intensify because demand will slow as a result of improved energy efficiency while technical innovation will make more energy available, the Outlook suggests.
And the Outlook looks at the energy transition through three lenses: how energy is used, where it is used and what form the energy takes.
World GDP doublesUnder all scenarios the Outlook assumes that the world gross domestic product will more than double by 2040, driven in part by population growth but mainly by fast-growing emerging economies. However, given anticipated gains in energy efficiency, energy demand would only increase by about one third.
Oil and other liquid fuels appear set to play a continuing major role over the next 20 to 30 years, although demand growth will likely slow and at some point, level out. In particular, industrial non-fuel use of oil will remain buoyant, given the rising standards of living in various parts of the world. Global coal consumption will likely flatten.
Scenarios in which governments are more aggressive in their climate policies could push that leveling of oil demand towards earlier years. However, in general, future oil demand would tend to plateau rather than peak and then drop. Oil and gas remain important, regardless of which energy scenario is considered.
Under a scenario referred to as the “evolving transition,” a transition that continues along the current path, with the energy system evolving in response to current government policies, new technologies and social preferences, energy demand increases by about one third by 2040. Industrial energy demand would account for about half of the increase in energy consumption, while growth in demand from the transportation sector would slow sharply as transportation efficiency improves. The power generation sector would account for almost 70 percent of the increased need for primary energy, in particular because of the need for home appliances such as air conditioning in an increasingly affluent world.
Electric carsThe Outlook devotes significant attention to questions around the increasing use of electric cars, and the impact on oil demand of the replacement of the internal combustion engine by electrical power in road vehicles. The Outlook links this phenomenon with what it calls the mobility revolution, in which the use of electric cars - and in particular electrically powered autonomous vehicles - could lead in the 2030s to a large growth in shared mobility, where people increasingly ride in non-owned cars. That phenomenon, coupled with the need to consider hybrid electric cars as well as pure electric cars, has led the BP analysts to evaluate future electric vehicle energy demand, not in terms of the number of electric cars on the roads, but in terms of the total number of road miles powered by electricity. The use of autonomous cars in conjunction with shared mobility would increase the amount and intensity of electric propulsion, as the cost of car transportation drops.
However, the efficiency gains that a car manufacturer could book as a result of selling more electric vehicles could partly offset the manufacturer’s need to improve the efficiency of other types of vehicle, to meet overall efficiency standards. Thus, the reduction in oil demand from selling more electric vehicles would tend to be largely offset by less need to make internal combustion engine cars more efficient.
But one scenario considers the possibility of a worldwide ban on any car with an internal combustion engine from 2040 onwards, although with some internal combustion engine vehicles still in use while being phased out. This scenario, while unlikely, provides some insights into the manner in which electric car use may impact oil demand. Dale commented that the scenario seems improbable because it exceeds even the most stringent government policies announced to date, because of the cost to people of switching to electric vehicles and because of the difficulties of implementing the necessary electric car charging infrastructure worldwide.
Under this scenario global oil demand would drop by about 10 million barrels per day. That represents about 10 percent of current oil production. Projecting that forward to anticipated energy demand in 2040 indicates that oil usage would likely be slightly higher than today, thus suggesting that electric car use will not prove a game changer for oil demand.
Energy suppliesOn the supply side, the BP report sees U.S. tight oil providing much of the supply growth in oil in the earlier years of the forecast. Then, as the growth in tight oil starts to plateau, there will be a heightened role for oil supplies from the members of the Organization of the Petroleum Exporting Countries. However, a key uncertainty is the potential for tight oil production to keep growing.
The Energy Outlook suggests that natural gas usage will grow much more strongly than that of oil or coal. This growth will take place in particular in the power and industrial sectors. There will likely be an increase in gas demand by developing countries, with low cost gas becoming increasingly available around the world as liquefied natural gas supplies increase. Moreover, government policies, particularly in China, are encouraging moves away from the use of coal towards cleaner, low carbon fuels including natural gas. However, even if stringent climate policies were to dampen gas demand, that demand is unlikely to drop below current levels.
The use of renewable energy, in particular wind and solar, is growing the fastest of any energy sector, accounting for about 40 percent of the growth in primary energy sources. Renewables are gaining share within the energy mix more quickly than has any other fuel seen in history.
Falling costs and, with that, increasing competitiveness, are driving the growth in renewable energy. In addition to continuing improvements in technology, there is strong government support for renewable use. And as the use of renewables grows, production improves and costs fall, leading to faster growth. The result, by 2040, will likely be the most diversified fuel mix that the world has ever seen, with oil, gas, coal and non-fossil fuels each accounting for about 25 percent of the total energy supply. And with maintained or increased future government support for renewables, the penetration of renewables could go much higher.
Carbon emissionsCarbon emissions
The anticipated future of carbon emissions varies considerably between different energy transition scenarios. Under the evolving transition scenario, with energy evolution continuing along its current path, carbon emissions will continue to rise, albeit much more slowly than in the past. To bring carbon emissions to the levels required by the Paris agreement, there will need to be a much more decisive break from past energy habits, with the power generation sector being particularly critical to driving change - even a future complete ban on internal combustion engine cars would do little to move the carbon dioxide pendulum, Dale commented.
BP Group CEO Bob Dudley, when introducing the Energy Outlook, commented that a “race to renewables” will not meet the Paris goals. The focus, instead, needs to be on lower emissions. What is needed is a comprehensive approach involving both efficiency in energy use and a continuing lower carbon fuel mix, he said.
Dale commented that, in his view, the key to reducing carbon emissions is carbon pricing. Placing a price on carbon emissions provides an incentive for everyone, both energy producers and energy consumers, to play a role in the carbon emissions aspects of the energy transition, he said.