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BP says energy demand to rise, market will rebalance on demand
Amid the continuing collapse in world oil prices BP, in its annual Energy Outlook report, remains bullish on future world energy demand and expects the oil market to rebalance, as demand grows while oil supplies dampen.
The report, which this year evaluates possible energy scenarios through to 2035, says that worldwide economic growth, coupled with population growth, will drive energy consumption to levels 34 percent higher than those seen in 2014. But rather than trying to make precise predictions in a highly uncertain world, the Energy Outlook provides a framework for understanding the forces which will impact energy markets over the next 20 years, Spencer Dale, BP chief economist, commented in a BP webcast. Dale also said that the Energy Outlook does not consider unforeseen technical breakthroughs which could disrupt those energy markets at some point in the future.
The energy growth scenario presented in the Energy Outlook assumes a global population increase of about 1.5 billion people to a level of 8.8 billion by 2035. The world gross domestic product, a key measure of economic activity, should more than double during that timeframe, with almost half of that increase coming from China and India. Almost all of the anticipated increase in energy demand would come from fast-growing emerging economies, with energy demand hardly increasing in the developed world, the Energy Outlook report says.
A long-term trend towards global electrification and the increasingly widespread access to electrical power will drive more than half of the global increase in energy demand, with people in Asia and Africa particularly benefiting from this trend.
Fossil fuels dominant Fossil fuels will likely remain the dominant global energy source, accounting for some 60 percent of the increase in energy usage and almost 80 percent of total energy supplies in 2035. The use of renewable energy sources will grow rapidly, but this growth will start from a low base: Increasing at a rate of 6.6 percent per year from the current level of 3.3 percent of total energy supplies, renewables could achieve a primary energy share of 9 percent by 2035, the Energy Outlook report says.
A projected increase from 1.2 billion today to 2.4 billion by 2035 in the global vehicle fleet will be the prime factor behind an anticipated increase in the consumption of liquid fuels that the BP analysis sees as pushing a rebalancing of the oil market. The analysis takes into account continuing substantial increases in vehicle fuel efficiency, with the likelihood that efficiency improvements will accelerate to a level of 2 to 3 percent per year, compared with 1.5 percent per year at present.
The BP analysis anticipates natural gas being the fastest growing fossil fuel, with a usage growth rate of 1.8 percent per year. Abundant supplies and supportive environmental policies will drive this growth, with the majority of the increase in gas demand coming from emerging countries - China and India will likely account for 30 percent of the increase, with the Middle East accounting for more than 20 percent.
Within the global natural gas market, the trade in liquefied natural gas will grow twice as fast as gas consumption, with more than 40 percent of the increase in global LNG supplies happening over the next 5 years as various LNG projects reach completion. And, towards 2035, as LNG becomes the dominant form of traded gas, regional gas prices will become increasingly integrated, the Energy Outlook says. The United States will likely become a net exporter of gas, while Europe and China will become increasingly dependent on imported gas.
Coal demand slows Demand for coal, on the other hand, will likely slow sharply to an annual growth rate of 0.5 percent per year compared with the rate of almost 3 percent per year seen in the last 20 years. By 2035 coal’s share in the overall worldwide energy mix will likely fall to an all-time low, with gas replacing coal as the second largest energy source, the Energy Outlook report says. Much of this slowdown would result from a deceleration in China’s coal demand as that country rebalances its economy. India will likely prove to be the largest growth area for coal usage, replacing the United States as the world’s second largest coal consumer, after China. Coal demand in the United States and the developed countries of Europe will likely fall by more than 50 percent by 2035, the Energy Outlook report says.
The Energy Outlook anticipates the use of nuclear power increasing at a rate of 1.9 percent per year, with China’s production of nuclear power growing at 11.2 percent per year, more than doubling by 2020 and increasing nine-fold by 2035. Nuclear power in the European Union and North America will likely decline by 29 percent and 13 percent respectively, as aging nuclear facilities go out of use while economic and political constraints inhibit new nuclear investments. The restart of Japanese nuclear reactors could raise that country’s nuclear output to 60 percent of 2010 levels by 2020.
The Energy Outlook anticipates the use of hydropower to increase at a rate of some 1.8 percent per year worldwide, with much of that growth coming in China and Brazil.
Changing patterns of consumption By 2035 energy consumption in the European Union could fall to levels last seen in 1984, with renewables becoming the largest energy source for power generation and with carbon emissions consequently falling at a rate of 1.2 percent per year. Imports of natural gas, both as liquefied natural gas and by pipeline from Russia, should rise by 41 percent over the period of the outlook.
Energy consumption in North America should grow by 6 percent by 2035, by which time the continent could be producing about 30 percent of the world’s natural gas. On the other hand, with increasing energy efficiency, the amount of energy needed per unit of economic output should steadily decline. North America should become energy self-sufficient by 2018. And with strong growth in liquid fuel production coupled with declining oil demand, the continent should become a net oil exporter in 2021. Increasing natural gas production should offset a decline in coal.
The Energy Outlook anticipates the Middle East continuing as the world’s top oil exporter, while Russia will remain the world’s largest overall energy exporter. Africa, with urbanization and a rising population, will see the fastest growth in energy demand of any worldwide region. China will overtake Europe as the biggest energy importer. India will see the fastest energy consumption growth of the major economies and will remain dependent on imported energy, despite its rapid development of non-fossil fuel resources.
The United States will become energy self-sufficient by 2021 and will maintain a position as the world’s largest liquid fuel and natural gas producer, the Energy Outlook says.
Tight oil and shale gas The revolution of tight oil and shale gas production will continue, after a brief retrenchment as a result of low oil prices. Tight oil production in the U.S. will likely plateau at a level of nearly 8 million barrels per day, or almost 40 percent of U.S. production, in the 2030s. U.S. shale gas production should grow by some 4 percent per year between 2014 and 2035, becoming three-quarters of all U.S. gas production and 20 percent of global production in 2035.
Shale gas production is also expected to increase worldwide, especially in the Asia Pacific and China, with a global production growth rate of 5.6 percent per year, and with shale gas’ share of total gas production more than doubling, from 11 percent in 2014 to 24 percent by 2035.
However, the rate of growth of U.S. tight oil production may slow after 2025, with growth limited by the size of the remaining resource. And, although tight oil production will increase globally, tight oil may only account for less than 10 percent of total oil production worldwide in 2035.
Predictions over the future growth of tight oil and shale gas form key uncertainties in trying to anticipate energy futures - the possibility of higher than expected production of these commodities would tend to crowd out conventional hydrocarbon production. Coal could be the main casualty, with a higher proportion of gas being used for power generation, the Energy Outlook says.
Other uncertainties The Energy Outlook comments that different assumptions about improvements in energy intensity, the amount of energy required per unit of economic output, and about the rate of economic growth have significant impacts on energy forecasts - the base forecast in the outlook assumes continuing improvements in the energy intensity. But maintaining a level energy demand, rather than have energy demand grow in the future, would require the energy intensity to decline at more than double the rate of decline seen in the last 20 years. And, were there to be no increase in the rate of decline in energy intensity, the growth in energy demand by 2035 could as much as double.
A slowdown in global economic growth, particularly as a consequence of a slower rate of growth than expected in China, could reduce the overall energy demand by about one-third, relative to the base case presented in the Energy Outlook. The largest impact of this would be on coal demand, followed by gas and then oil. The slower growth would also dampen the demand for renewables, the Energy Outlook suggests.
- ALAN BAILEY
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