Release date: 20 February 2018
We’ve made some changes to the 2018 edition. Firstly, we’ve extended the period out to 2040; that’s important because it brings key trends in the energy transition into sharper focus.
We’re also looking at more scenarios than ever before – we present six different alternatives that examine how the energy transition may play out. We’re not trying to predict the future here, but our goal is to better understand the nature of uncertainties and their many possible implications.
And then, we’ve spent time thinking about sector and regional demand for energy, rather than focusing largely on the evolution of different fuels. How will energy be used in industry or transport? And what’s the importance of countries such as China and India in driving the energy transition? These lenses matter because they help us better understand the global energy system and how it could evolve over the next two or three decades.
Firstly, there’s the role of increasing prosperity: we’ll see a changing of the guard when it comes to the global pattern of energy growth. All the growth in energy demand over the next 20 or 30 years comes from fast-growing developing economies: China and India each account for around 25% of that growth. But, as China transitions to a more sustainable – and less energy intensive – pattern of growth, India looks set to take over as the world’s major growth market for energy by the early 2030s.
Then, we’re seeing a number of forces come together to make global energy markets increasingly competitive. Demand grows less quickly as we get better at using energy more efficiently.
For example, in one scenario, the level of GDP in the European Union by 2040 is three times greater than it was in 1975. But, the level of energy it’s using at that time will be pretty much the same (as 1975). So, the EU would produce and consume three times more goods and services with the same amount of energy – that’s quite astonishing.
Meanwhile, technological progress means we’ll get better at producing energy, so there will be an abundance. Take these factors together with the strong growth in renewables, it will mean more and more competition in the energy system.
What does the Outlook suggest about carbon emissions? The world will still face a significant challenge in terms of the growth in carbon emissions. In our evolving transition scenario, carbon emissions rise by 10% by 2040.
This is far slower than the rates seen in the past 25 years, but remains higher than the sharp decline thought to be necessary to achieve the climate goals set out in Paris. Most studies suggest that carbon emissions would need to fall by almost 50% by 2040 to be consistent with achieving those objectives.
So, the Outlook suggests we’re likely to need a far more decisive break from the past to get there: policies focusing on particular technologies will help, but a comprehensive package designed to both improve energy efficiency and encourage a shift in the balance of the fuel mix is likely required.
As an economist, I consider there’s a key role here to be played by carbon pricing because it provides incentives for everyone – producers and consumers alike to play their part in the energy transition
Oil, gas, coal and non-fossil fuels are each projected to account for around a quarter of the world’s energy. In fact, the energy mix is likely to be the most diverse the world has ever seen by 2040. Renewables are predicted to be the fastest-growing fuel source - and, in the evolving transition scenario, increasing five-fold, providing around 14% of primary energy by 2040.
Their growth is underpinned by falling costs and increasing competitiveness. Some of that simply reflects improvements in technology, but government support is also an important component, allowing the sector to grow more quickly.
Meanwhile, renewables also look set to gain share within the power sector, far more quickly than any other fuel has ever seen in history. Perhaps the closest parallel was nuclear power in the 1970s and 80s.
Overall, renewable energy – particularly wind and solar – grow far more quickly than any other energy source. And in one scenario, where policy support remains in place throughout the Outlook, contribute nearly all of the growth of total energy in the power sector.
Natural gas is set to replace coal as the second largest source of energy, supported by increasing levels of industrialization and power demand in those fast-growing emerging economies, as well as increasing availability of low-cost supplies in North America and the Middle East.
The Outlook also shows that gas is resilient under a range of scenarios – be it faster renewable penetration, less coal-to-gas switching or a more comprehensive set of climate policies.
And, even in a scenario that has carbon emissions from energy use broadly consistent with the Paris climate goals, gas demand in 2040 is similar to current levels, suggesting that – just as with oil – the world will require significant levels of investment in new gas production to be able to meet this demand.
Demand for oil and other liquid fuels will continue to grow for now. At some point, that growth looks set to slow and we’ll see a ‘plateauing’ in oil demand. Exactly when that happens depends on the particular scenario you’re looking at.
On the supply side, US tight oil provides much of the growth in the earlier years, but as that levels off, there’s an increasing role for OPEC from the mid-2020s to meet the increasing demand.
That’s right, they're unlikely to be a game changer. In this year’s edition, we consider an extreme scenario where we assume the sales of all conventional cars – internal combustion engine vehicles – are banned worldwide from 2040 onwards.
Looking at those implications, that’s likely to reduce oil demand we think by about 10 million barrels or so per day. It’s a big number, but only about 10% of current oil demand – even in that scenario, oil demand in 2040 is still higher than it is today.
What looks likely to be a game-changer in this mobility space is autonomous vehicles. When considering the penetration of electricity within the passenger car market, we shouldn’t just consider the growth in the number of electric cars on the roads. We also need to take account of the intensity with which those electric vehicles are driven.
As fully autonomous cars become increasingly available from the early 2020s, we’re likely to see huge growth in those cars being shared, meaning they'll be used with greater frequency. And, the low-running cost of electric cars means that the majority of these shared mobility, autonomous cars will be electric cars, boosting the penetration of electricity in the car market and having the biggest impact on oil demand.
The main reason is to help our own thinking and inform the long-term planning for the business. But, we also make it available externally because we hope it contributes to a wider debate. The best way we can check our thinking is to share it for others to review. If there are parts of the analysis that you think can be improved further, let us know – and, in that way, we can learn about the energy transition together.