Energy Outlook 2035 is not 'a crystal ball', rather a projection of broad future energy trends, according to BP's chief economist, Spencer Dale. Here, he reveals what the publication has to say on current oil prices and changing world energy trade patterns
What is the main message from this year’s Energy Outlook 2035?
The main message is that we expect energy demand to grow by almost 40% over the next 20 years, with the vast majority of growth coming from fast-growing developing economies such as India and China. Fossil fuels will continue to supply the lion’s share of that demand, particularly gas which we expect to be the strongest growing fossil fuel.
How much more energy will the world need in 2035 – in million tonnes of oil equivalent (Mtoe)?
What does the Energy Outlook have to say about the current weaknesses in the oil price?
The Energy Outlook is not a crystal ball, it's a projection and there are uncertainties around it. It necessarily looks at broad trends that are likely to affect the energy market over the next 20 years or so. That's critical for a company like BP when it's trying to do strategic planning and for policymakers when they're trying to think about how best to regulate and structure the energy market in the future. It's not designed to focus on the here and now. However, the underlying message is that the factors giving rise to the current weakness in oil prices will slowly fade over time. Growth in US oil production is likely to slow, world demand for oil will gradually pick up, and over a period of time this current weakness gradually dissipates, but that may take several years to happen.
What are the main likely developments in the natural gas markets over the next 20 years?
We think we're going to see strong growth in the supply of gas, both from conventional and unconventional sources, in particular US shale gas continues to grow rapidly. The other interesting feature is the increasing supply of liquid natural gas [LNG]. The importance of LNG is that it's mobile. In the past, regions that are heavily dependent on imported gas have had to rely on pipeline imports. LNG opens up new sources of supply. This has major implications in terms of how gas prices are likely to be set across the world, with gas prices in different markets moving in greater unison.
"For many years, energy, particularly oil, has flowed from the Middle East into Europe and America. What we expect to see in the next 20 years is those trade flows starting to reverse."
- Spencer Dale
The Outlook shows a shift in the world’s energy trade patterns. Could you explain a little more about that?
For many years, energy, particularly oil, has flowed from the Middle East into energy-thirsty economies in Europe and in America. What we expect to see in the next 20 years is those trade flows starting to reverse. In part, that reflects the increasing supply of gas and oil in the US, it also reflects the increasing gains in efficiency we've seen in Europe and the US, such that their demands for energy are declining. It also reflects the fact that we expect to see rapid growth in GDP and energy demand in much of Asia.
Does the Outlook show any shift in the energy mix over the next 20 years?
We expect to see a quite significant shift in coal. In the past 10 years or so, it has seen the most rapid growth of all fossil fuels, driven particularly by China. In the next 20 years, we expect it to become the slowest growing fossil fuel, partly as Chinese industrialisation slows and as a result of increasing environmental regulation. Another component is the plentiful supply of gas that we expect to see. We also expect significant growth in non-fossil-based sources of energy, with renewables standing out. We expect renewables to grow, on average, by around 6.5% each year, for the next 20 years. As a result, they will increase their share in primary energy from around 3% now to around 8% by the end of 2035.
What will the energy mix look like in 2035, compared with 2013 – in million tonnes of oil equivalent (Mtoe)?
What does the Outlook say about carbon emissions?
The expected increase in carbon emissions looks higher than the scientific community tells us is needed to limit the rise in the world’s temperature to two degrees. So, the central message is that more needs to be done. Three additional messages come out of our analysis. First, no single initiative or improvement is likely to be sufficient on its own. Second, it is really hard for policymakers to pick in advance which of those improvements will be a winner. Third, the best way to pick those winners and losers is to let the market decide; for policymakers to take steps that result in a meaningful global price for carbon. That would provide the incentives for everybody to play their role – energy companies in terms of the types of fuel they produce and consumers in terms of the types of energy that they demand.
How do you feel about presenting the Energy Outlook for the first time?
I still have a lot to learn about the industry but I’m very proud to be heading up the Energy Outlook. It is an impressive product produced by a world-class team of economists and centres of expertise throughout the organisation. It is very much a 'team BP' effort.
What is the role of the chief economist?
Partly it's to provide a centre of expertise within BP to help people better understand both the near term – for instance, what is happening to energy prices – and the longer-term trends – what is likely to happen to the development of oil and gas markets when thinking about the strategy. Then, it is to go out across other parts of BP to better understand the wider business and to see if I can provide insight to them that can help run those businesses. The third aspect is to help maintain the role BP has established over many years as an objective thought leader in the energy markets.