Renewable energy and natural gas appear likely to see their global market shares grow the most through 2040, BP PLC Chief Economist Spencer Dale told a Washington audience. But large investments still will be needed to produce more oil and gas as demand climbs more quickly in economically developing countries, Dale said during a Feb. 27 presentation of BP’s 2019 Global Energy Outlook at the Center for Strategic and International Studies.
“The importance of less carbon is real and urgent. But we can’t lose sight of the fact that more of the world will need to consume more energy if ways of life are going to continue to improve,” he said. “We don’t know where oil demand will peak or where it will be in 2040. The one thing that looks certain is that we’ll need trillions of dollars in oil investment through 2040 to meet demand.”
When it comes to which fuels will meet the world’s rising energy demand, he said that renewable fuels—excluding hydropower because it’s a mature technology—could account for about half of the growth through 2040. Gas is the other main source where demand could grow robustly, Dale said. Together, they could account for 80% of the world’s energy demand growth through 2040, he said.
“Oil demand could continue to grow for about 10 years before plateauing. The fuel with the sharpest likely decline in its market share is coal, particularly in industrialized countries although it is expected to still be used to generate electricity in the world’s developing countries,” Dale said.
“We see a dual challenge—the need for more energy and less carbon,” he said. “Climate science is real. What is less understood is the need for more energy, much of which will come from the developing world. As energy consumption increases, it tends to go hand in hand with improvements in human living conditions. Around 80% of the world’s population lives in low energy supply regions where increased consumption goes hand in hand with economic development growth.”
Coal’s growth in perspective
Coal demand growth in economically developing Asian nations largely is occurring outside China and it’s mostly to generate more electricity, Dale said. “We need to put this in perspective. These are countries where economies aren’t growing as quickly in Europe and the Americas. Their need for secure, affordable energy fits their growing demand for coal to generate electricity. This is necessary to replace biomass, which literally is killing many people because it is used so extensively to prepare families’ meals in rural areas,” he said.
Dale said if trade disputes continue to intensify, there would be two results: “First, reduction of trade would lead to fewer technology investments. Second, energy-importing countries would become more concerned about energy security and attach risk premiums to imports. Gross domestic product overall would be about 6% lower and lead to a 4% reduction of energy demand in 2040. That would roughly equal India’s energy consumption today.”
Forms of energy feeling the biggest impacts would be the most involved in worldwide commerce, Dale said. “That means oil and gas. This would reduce exports by major suppliers. US exports would be about two-thirds lower under this scenario because people would consume less energy and fewer imports would be needed,” he said.
“Historically, it has taken many decades for energy transitions to run their course. The energy system is highly capital-intensive. Assets take many decades to grow, peak, and decline,” Dale said. “Renewable technologies are growing faster than any in history under several scenarios. A more rapid transition is possible with the right policies. For a company like BP, it means creating a structure that can adapt to these changes. Simply relying on technology is not enough. You need a whole set of policy measures.”
He said to achieve goals outlined in the Paris Agreement under the United Nations’ Framework Convention on Climate Change in 2016, “you don’t need for carbon emissions to grow less quickly but to decline more quickly. Under a rapid transition scenario, policies are outlined to make this happen. One highlight is that a wide range of measures will be needed. We tried to make sure that the costs and policies in each technology are broadly similar. Carbon costs grow under the scenarios, but if they rise gradually, a role for targeted regulatory measures is possible that would be less likely to affect the use of existing assets.”
Lowest hanging fruit
There’s no single path to meeting the Paris climate goals, Dale said. “Most of the work will be done in the power sector, accounting for about two thirds of the activity. It’s the one place where fuels compete side-by-side, hour-by-hour, and therefore the place where measures could be more effective. In terms of the lowest hanging fruit for reducing carbon emissions over the next 20 years, most hangs outside the transportation sector. This analysis tells us to concentrate on the power sector,” he said.
Local air quality and global climate change are the two biggest environmental issues, Dale said. “Sometimes, they go together. Sometimes, they don’t. One example is the use of diesel cars, which grew in Europe but is starting to decline because of their engines’ emissions problems,” he said.
“If I was a politician, I’d focus on local air quality. That resonates with voters. Climate change seems more abstract,” he continued. “I expect electric cars to grow significantly because they will have a major local air quality impact although little impact on climate. Countries which follow a broader path are making the most progress. China is the one country I’ve visited where the government is aggressively driving changes from coal to natural gas and nuclear to generate electricity.”
Dale said that BP’s latest GEO sees the US accounting for about half of the world’s oil production growth over the next 20 years, most of it coming in the next 10 years from tight oil supplies before peaking in the late 2020s. “We keep on being surprised by tight oil’s resilience. It will be a natural anchor on prices for the next 10 years,” he said.
“The road to Paris is going to be long and challenging. We work alongside our technology experts to determine what kinds of technology in which we’ll need to invest in years to come,” Dale said. “We’re not on a pathway yet to meet our carbon emissions reduction goals, and we still need to meet growing demand in the developing world. That’s the dual challenge we see at BP.”
Contact Nick Snow at [email protected].
About the Author
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.