Low-carbon energy sources are not growing sufficiently quickly to keep up with energy demand – but global demand for oil will peak next year.
Those are two of the key points in BP’s 2024 energy outlook published today – which also forecasts that, while global demand for oil will fall until the middle of the century, it will continue to play a significant role in the global energy system for the next 10-15 years.
Spencer Dale, BP’s chief economist, said the world was still in a so-called ‘energy addition’ phase, in which countries were putting on more renewable energy capacity while still consuming increasing amounts of both low-carbon energy and fossil fuels.
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He said the challenge the world faced would be to move, for the first time in history, to a so-called ‘energy substitution’ phase, in which low carbon energy grows sufficiently quickly to bring about falling consumption of fossil fuels and, as a result, lower carbon emissions.
Only two such energy changes in history
Mr Dale, a former chief economist at the Bank of England, said the world had seen two of these ‘energy addition’ phases in the past – during the mid-19th century, as coal replaced wood and biomass, and then, a century later, when oil began to replace coal.
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But he said that, despite heavy investment in low-carbon energy and governments everywhere making more effort to address climate change, carbon emissions had continued to rise every year since the Paris climate goals were agreed in 2015 – apart from the COVID-induced decline in 2020.
Energy demand up and efficiencies weak
He added: “Energy demand has grown more quickly than we thought. Demand for pretty much all types of energy – fossil fuels and wind and solar – is up.”
At the same time, he said, advances in energy efficiency had been weaker since the Paris Agreement. He said that, under the UN-backed agreement, energy efficiency was supposed to be growing by 4% per year by 2030 – but that, during the last four years, it had grown by just 1% per year.
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How Ukraine rather than COVID was a defining moment
Mr Dale said two overarching themes – sustainability and security – continued to shape the energy landscape. He said that, during the pandemic, he had thought COVID-19 would be a defining moment for the global energy industry in terms of how it affected demand and supply.
Admitting he was wrong about that, he said the key defining moment had actually been reached in 2022 when Russia invaded Ukraine.
He added: “It reminded everyone of the importance of energy security and energy affordability.”
Mr Dale said countries like China and India had always been aware of the need for energy security but that the West, prior to the invasion of Ukraine, had forgotten about it.
Different scenarios
The outlook, the 13th from BP, uses two main scenarios.
The first is the ‘current trajectory’, based on climate policies and carbon reduction pledges already in place, while the second is a ‘net zero’ scenario which assumes that the world has tightened climate policies in line with the Paris Agreement under which global carbon emissions would fall by around 95% by the middle of the century.
On the current trajectory, carbon emissions would only be 20% below their current level by the middle of the century.
However, under both scenarios, global demand for oil would peak in 2025 at around 102 million barrels per day (BPD). On the current trajectory, oil demand would remain close to 100 million BPD by 2035 but would then fall to just over 75 million BPD by 2050. Under the ‘net zero’ scenario, though, demand would be below 30 million BPD by 2050.
Mr Dale, who declined to predict how oil and gas prices would move under both scenarios, said the biggest single driver for falling oil demand would be the continued decline in road transport and the global vehicle fleet becoming more efficient – as well as a growth in the use of electric vehicles, decreasing use of diesel generators and the increasing use of alternative fuels in off-road industrial vehicles.
Gas
Demand for natural gas, however, is expected to continue to rise on the current trajectory and would be 20% higher in 2050 than it is today.
Mr Dale said that on the current trajectory demand for natural gas would rise from 3,985 billion cubic metres (BCM) per year in 2022 to 4,729 BCM per year in 2050. Under the net zero scenario, it would fall to 1,797 BCM per year by 2050, just under half the current level.
Mr Dale said emerging economies were increasingly using natural gas on the current trajectory but, under the net zero scenario, natural gas demand would be swamped by greater electrification and more use of wind and solar energy.
Overall, though, the dependence of the world on fossil fuels declines in both scenarios.
Under the current trajectory, fossil fuels account for 85% of primary energy sources today, falling to around two-thirds by 2050.
In the net zero scenario they are predicted to account for just a third of primary energy sources by then – with demand for coal falling particularly rapidly. Mr Dale said this highlighted the increasing importance of renewables – but said that, under both scenarios, there would need to be continued investment in upstream oil and gas.
Energy trend predictions would probably be wrong
Mr Dale said the two scenarios could be used to identify energy trends common across both scenarios and those more dependent on the pace of the transition – helping inform judgements of how the energy system may evolve over coming decades.
But he admitted they would probably be wrong: “We can’t predict the future, we know we can’t predict the future…the chances of the energy system evolving across each of these scenarios is zero.”
BP invited a global audience of more than 20,000 people, who were watching the launch online, to predict how the world would change its energy use in coming decades through a series of online polls.
These showed that a majority of the audience expect the world to move from ‘energy addition’ to ‘energy substitution’ in the second half of the 2030s.
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A majority also believe that the most effective way for the transition away from fossil fuels would be for the whole world to decarbonise – with the developed world needing to help emerging economies.
Noting it was 13 years since BP first published its energy outlook, Mr Dale also invited his audience to predict what technology would produce the biggest surprises in terms of accelerating decarbonisation during the next 13 years.
The most popular option was nuclear fusion – with AI-enabled improvements in energy efficiency the next most popular.
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He said it was striking how similar the first outlook, in 2011, had been to those in the latest one in terms of how it looked at mature assets. He said this showed, in part, the inertia of the global energy industry and how long lead times on investments – and longer-lived assets – did offer some predictability to forecasting in the sector.
