This year’s Outlook, published in February, closely follows the prior year’s format and also incorporates two new and significant events which occurred during last year and are deemed to have a material impact on the global energy sector. These are:
• The Russian attack on Ukraine and the consequent, widespread disruption to, and re-shaping of, established oil and gas flows
• Passage by the US Congress of the Inflation Reduction Act, which included a range of measures with significant incentives to promote renewables and emissions reductions
The Outlook highlights what are seen to be the four key trends that will dominate future energy use:
- A declining role for hydrocarbon
- Rapid expansion in renewables
- Increasing electrification
- The growing use of low carbon hydrogen
As in the 2022 Outlook, the same three scenarios are explored. These are not predictions of what is likely to happen, but rather they seek to capture a wide range of the outcomes possible for global energy transition up to 2050. We will now look at these.
Accelerated and Net Zero explore how different elements of the energy system may change to achieve substantial carbon emissions reductions by 2050 (vs. 2019 levels) of 75% in Accelerated and of 95% in Net Zero. Both scenarios assume that there’s a significant tightening in climate mitigation policies.
New Momentum reflects the current, broad trajectory of the global energy system. It emphasises substantial increases in climate pledges in recent years. Under this scenario, carbon emissions peak in the 2020s and are around 30% below 2019 levels by 2050.
Net Zero also shows a shift in societal behaviour and preferences to support gains in energy efficiency and the adoption of low carbon energy. The CO2 emissions left in this scenario can be eliminated by either additional changes to the energy system or by deploying CCUS.
The pace and extent of decarbonisation in Accelerated and Net Zero are broadly in line and are consistent with the Paris COP15 target temperature changes, of 2ºC and 1.5ºC.
Consumption of fossil fuels declines in all three energy transition scenarios in the 2023 Outlook. Their share in primary energy declines from 80% in 2019 to around 55% to 20% by 2050. This is the first in modern history incorporating scenarios showing a continued decrease in fossil fuels demand.
The rise in renewables offsets the falling role of fossil fuels. Their share will go up by as much as 65% by 2050 because of stronger policy support for low carbon energy.
The critical importance of renewables is also driven by the growing electrification of the energy system. The share of electricity in energy use goes up from only 20% to between 35% and 50% by 2050.
In all 3 scenarios, around 15% of the CCUS operating in 2050 is used to capture and store non-energy process emissions from cement production. CCUS achieves 4 to 6 Gigatonnes of CO2 by 2050 under Accelerated and Net Zero, with only 1 Gigatonne of CO2 in New Momentum.
Finally, the growing use of low carbon hydrogen in hard-to-abate processes that are difficult or costly to electrify supports the decarbonisation of the global energy system. This is particularly true in both Accelerated and Net Zero scenarios. The energy used in the production of low carbon hydrogen rises to between 13-21% by 2050 in both scenarios.
A number of key themes are highlighted in the Outlook, which we will now summarise.
- The carbon budget is running out. Despite the marked increase in government ambitions, CO2 emissions have increased in every year since the Paris COP in 2015 (bar 2020). The longer the delay in taking decisive action to reduce GHG emissions on a sustained basis, the greater are the likely resulting economic and social costs.
- Government support for the energy transition has increased further in a number of countries, including the passing of the Inflation Reduction Act in the US. But the scale of the decarbonisation challenge suggests greater support is required, including policies to facilitate quicker permitting and approval of low carbon energy and infrastructure.
- The disruption to global energy supplies and associated energy shortages caused by the Russia-Ukraine war will increase the importance of addressing all three elements of the energy trilemma: secure, affordable, and lower carbon.
- The war will have long lasting effects on the global energy system. The heightened focus on energy security will increase demand for domestically produced renewables and other non-fossil fuels helping to accelerate the energy transition.
- The structure of energy demand will change in all three scenarios, with the importance of fossil fuels declining, replaced by a growing share for renewable energy and by increasing electrification. The transition to a low-carbon world will require a range of other energy sources and technologies, including low carbon hydrogen, modern bioenergy, and carbon capture, use and storage.
- Oil demand will decline over the Outlook, driven by falling use in road transport as the efficiency of the vehicle fleet improves and the electrification of road vehicles accelerates. Even so, oil will continue to play a major role in the global energy system for the next 15-20 years across all three scenarios.
- The prospects for natural gas depend on the speed of the energy transition, with increasing demand in emerging economies, as they grow and industrialise, offset by the transition to lower carbon energy sources led by the developed world.
- The recent energy shortages and higher prices highlight the importance of the transition away from hydrocarbons being orderly, such that the demand for hydrocarbons falls in line with available supplies. Natural declines in existing production sources means there needs to be continuing upstream investment in oil and natural gas over the next 30 years, including in Net Zero.
- The global power system will decarbonise, led by the increasing dominance of wind and solar power. Wind and solar will account for all or most of the growth in power generation, aided by continuing cost competitiveness and an increasing ability to integrate high concentrations of these variable power sources into power systems. The growth in wind and solar will require a significant acceleration in the financing and building of new capacity.
- The use of modern biofuels – modern solid biomass, biofuels and biomethane – will grow rapidly, helping to decarbonise hard-to-abate sectors and processes.
- Low carbon hydrogen will play a critical role in decarbonising the energy system, especially in hard-to-abate processes and activities in industry and transport. Low carbon hydrogen will be dominated by green and blue hydrogen, with green hydrogen growing in importance over time. Hydrogen trade will be a mix of regional pipelines transporting pure hydrogen and global seaborne trade in hydrogen derivatives.
- Carbon capture, use and storage will play a central role in enabling rapid decarbonisation trajectories: capturing industrial process emissions, acting as a source of carbon dioxide removal, and abating emissions from the use of fossil fuels.
- A range of techniques for carbon dioxide removal – including bioenergy combined with carbon capture and storage, natural climate solutions, and direct air carbon capture with storage –will be needed for the world to achieve a deep and rapid decarbonisation.
Energy security focus
Accelerated adoption of renewables vs 2022 Outlook, with a corresponding reduction in fossil fuel use has been given impetus by the invasion of Ukraine. Heightened focus on energy security has also had a part to play, especially from domestic sources – though BP’s recent announcement on slowing its phase-out of oil and gas output (a cut of 25% by 2040 cf 40% prior aim – compared with 2019) has raised questions about its ‘green’ credentials.
As ever, daunting challenges lie ahead if the Paris Agreement on temperature rise abatement (max 1.5 C rise by 2100) has a fighting chance of being met. The Outlook does a splendid job of highlighting these as well as pointing up the measures / actions / activities needed to address.
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