A different world
This year marked the 50th anniversary of the first publication of BP’s annual Outlook, which takes a look at the global energy sector and how it is expected to evolve. Since 1952, oil consumption has grown from around 11 million bpd to just under 100 million bpd in 2019, since when it fell back to around 91 million bpd in 2020, due to the impact of Covid-19, recovering to around 94 million bpd last year – with the expectation of further recovery to near pre- pandemic levels this year.
The 2022 Outlook was published in March so did not reflect the various impacts expected to result from the Russian invasion of Ukraine which began on 24th February. It did, however, highlight three significant changes to the economic and policy backdrop since the 2020 publication, which are:
- The economic impact of Covid-19 in the near term is less than feared, although the scale of the economic cost and disruption means it is also likely to have a significant and persistent impact on the global economy and energy system.
- There has been a marked strengthening, in the past two years, in the ambitions of governments around the world to increase the pace and extent to which they reduce carbon emissions. Although the extent to which these greater ambitions will be met is uncertain, they do suggest that there might be stronger momentum towards the world reducing carbon emissions than implied by many ‘business-as-usual’ type scenarios.
- There has been increasing attention over the past few years on achieving a significant fall in global emissions by 2030 to conserve the world’s remaining carbon budget.
The Outlook focuses on three main scenarios which explore a wide span of possible outcomes as the world transitions to a lower carbon energy system and, as such, are intended to help shape a strategy which is resilient to the associated range of uncertainty.
These consider carbon emissions from energy production and use, most non-energy related industrial processes, and natural gas flaring plus methane emissions from the production, transmission and distribution of fossil fuels, and are:
- Net Zero
- New Momentum
New Momentum assumes continuation of current progress and trajectory, with demand for crude expected to rise to 101 million bpd in 2025, and to hold steady to 2030. This is later projected to fall to 98 million bpd by 2035 and to 92 million bpd in 2040.
Net Zero is related to COP15 global climate ambitions. Demand for oil is seen at 98 million bpd in 2025 and 75 million bpd by 2035. For this scenario to materialize, it is assumed that carbon emissions should be reduced by 95%.
Accelerated assumes that the world will be largely in line with COP15 climate goals. CO2 emissions in Accelerated fall by around 75% by 2050 (relative to 2019 levels).
Based on this scenario, oil demand will near 96 million bpd in 2025 and 85 million in the decade later.
Accelerated and Net Zero explore how different elements of the energy system might change in order to achieve a substantial reduction in carbon emissions. They are conditioned on the assumption that there is a significant tightening of climate policies leading to a pronounced and sustained fall in CO2 emissions.
The fall in emissions in Net Zero is aided by a shift in societal behaviour and preferences which further supports gains in energy efficiency and the adoption of low-carbon energy sources. Both of these scenarios are aligned to the COP15 target of containing the global average temperature rise by 2050 to no more than 1.5°C.
New Momentum is designed to capture the broad trajectory along which the global energy system is currently progressing. It places weight both on the marked increase in global ambition for decarbonisation seen in recent years and the likelihood that those aims and ambitions will be achieved, and in the manner and speed of progress seen over the recent past.
CO2 emissions in all three scenarios will increase above pre-Covid-19 levels. Emissions in Accelerated and Net Zero peak in the early 2020s and by 2050 are around 75% and 95% below 2019 levels respectively. Developed economies decarbonise more quickly than emerging economies – net CO2 emissions in developed economies are negative by 2050 in Net Zero. CO2 emissions in New Momentum peak in the late 2020s and by 2050 are around 20% below 2019 levels.
A number of themes are highlighted which identify aspects of the energy transition which are common across the scenarios and so may provide a guide as to how the energy system may evolve over the next 30 years. We will now summarise these.
- The carbon budget is running out; CO2 emissions have increased every year since COP15, except in 2020. Significant social and economic costs will be incurred if decisive action to reduce emissions sustainably is delayed.
- Government ambitions have increased markedly in the past few years, resulting in added momentum in tackling climate change, but with significant uncertainty around how successful countries / regions will be in achieving pledges.
- The structure of energy demand will change as the importance of fossil fuels declines, to be replaced by renewable energy and electrification; the energy transition will require a range of other sources and technologies, such as low-carbon hydrogen, modern bio-energy and CCS (carbon capture).
- The transition to a lower carbon energy system will result in a fundamental restructuring of global energy markets- with a more diversified mix, increased competition, an expanded role for consumer choice and changing economic rents.
- Oil demand will initially rise above its pre-Covid level before declining further out, driven by increasing efficiencies and electrification of road transport. Natural declines in existing oil / gas production will necessitate continuing investment in new oil & gas production over the next 30 years.
- The use of natural gas will be supported, at least for a period, by increasing demand in fast growing emerging economies as they continue to industrialise and reduce their reliance on coal. Growth in liquefied natural gas plays a central role in increasing emerging markets’ access to natural gas.
- Wind and solar power will expand rapidly, accounting for all, or most of, the increase in global power generation, underpinned by continuing falls in their costs and an increasing ability of power systems to integrate high concentrations of variable power sources. The growth in wind and solar power will require a substantial increase in the pace of investment in both new capacity and enabling technologies and infrastructure.
- The use of modern bioenergy will increase substantially, providing a low- carbon alternative to fossil fuels in hard-to- abate sectors.
- The use of low-carbon hydrogen will increase as the energy system progressively decarbonises, carrying energy to activities and processes which are difficult to electrify, especially in industry and transport. The production of low-carbon hydrogen is dominated by green and blue hydrogen, with green hydrogen growing in importance over time.
- CCUS will play a central role in supporting a low-carbon energy system by capturing emissions from industrial processes, providing a source of CO2 removals and abating emissions from fossil fuels.
- A range of CO2 extractions, including bioenergy combined with carbon capture and storage, natural climate solutions and direct air capture with storage may be needed for the world to achieve a deep and rapid decarbonisation.
The Outlook makes an important contribution in highlighting
- what could be achieved under various (three) scenarios
- the key issues to be addressed
- scale of challenges to be met
- what needs to be done/ actions to be pursued.
Supply security concerns cannot deter from essential action
The timetable and urgency for the various actions has recently been clouded by concerns around immediate and near-term energy security, resulting from the Russian invasion of Ukraine. This should not be allowed to deflect attention to ‘the outcome at stake’ i.e., the consequences of failing to address GHG emission levels, and quickly!
As a reminder, the experience of summer 2022 should serve as a possible foretaste of what the future may augur AND a warning of the consequences of failure to meet COP15 climate targets.
Rod Prowse worked for 30 years across the full spectrum of the downstream oil sector, in both the UK and USA, which has included leadership positions in both retail and wholesale fuels businesses. Rod draws on his extensive knowledge of this global industry to bring us ‘Industry Insights’.