Deep decarbonization of the world’s energy system is still 15 years away, with carbon emissions set to remain high until the mid-2030s, according to a new forecast of the energy transition by DNV GL.
DNV GL’s Energy Transition Outlook 2020 provides an independent forecast of developments in the world energy mix to 2050. In a dedicated oil and gas report, DNV GL presents the demand, supply, and investment forecast for hydrocarbons and decarbonized and green gases to 2050 and focuses on the outlook for decarbonizing the oil and gas industry.
According to DNV GL’s forecast, carbon dioxide emissions from energy use will fall just 15% to 2035, before then dropping 40% to 2050. The oil and gas industry will account for more than 80% of world energy-related carbon emissions in 2050.
The energy transition DNV GL forecasts is still nowhere near fast enough to deliver on the COP 21 Paris Agreement which aims to keep global warming to ‘well below 2°C’ and to limit the increase to 1.5°C. DNV GL’s forecast shows that the world will exhaust the 1.5°C carbon budget under the Agreement in 2028 and the 2°C budget in 2051.
“Pressure is increasing on the oil and gas industry to decarbonize, and this is coming from all sides: from society and governments, from investors, and also from people within the industry itself. We see the sector increasingly putting the energy transition at the center of its agenda, but climate change and ambitions to reduce it are outpacing action. The industry needs to prepare for an energy system that does not accept the release of carbon emissions,” said Liv A. Hovem, chief executive officer, DNV GL’s Oil & Gas.
Hydrogen and carbon capture and storage (CCS)
Commitments made by oil and gas companies indicate that emissions reductions in the short term will come largely from efforts to decarbonize oil and gas production. Solutions include electrifying oil and gas assets, reducing flaring and venting of gas during production, increased efforts to detect and stem methane leaks, and efficiency gains through digitalization. However, oil and gas production and distribution accounts for only a quarter of the industry’s carbon emissions; the majority occurs during the combustion of oil and gas.
DNV GL notes that while there are limited options to reduce emissions from oil consumption, other than shifting to another energy source, natural gas consumption can be decarbonized through deploying hydrogen and carbon capture and storage (CCS), which has the potential to decarbonize fossil fuels more deeply. These technologies could transform the oil and gas industry’s ability to remove significant amounts of carbon emissions.
“The transition to renewables and efforts to cut carbon intensity will significantly reduce emissions, but they will not deeply decarbonize natural gas, which the world’s energy system will depend upon for years to come. It is only by removing the carbon from natural gas – before or after combustion – that the oil and gas industry can deeply decarbonize, reaching hard-to-abate sectors throughout the value chain,” said Hovem.
Decarbonized and green gasses could have a bright future following the transformation, enabled by hydrogen and CCS complementing increased use of renewable electricity, battery technology and alternative low-carbon fuels such as ammonia to provide societies with a secure, affordable supply of clean energy.
Public policies
Public energy policies are key, not just in setting out the path for the world and the oil and gas industry to decarbonize, but also in deciding how quickly it heads down that path.
DNV GL points to policies in Europe, China and North America that will create the impetus for scaling hydrogen and other low-carbon fuels, and propel recognition that scaling CCS will be essential to meet climate targets.
Ultimately, these policies could transform the oil and gas industry into the decarbonizer of hydrocarbons and supplier of carbon capture and storage. DNV GL forecasts that the mid-2030s is the point at which these decarbonization policies will begin to act as a catalyst for this transformation.
Governments need to enact policy to stimulate greater uptake of the technologies that will decarbonize industry, according to DNV GL. The quicker that government incentivizes industry to adopt technology, such through a competitive carbon price, the quicker the industry takes the technology down the cost-learning curve for it to become independently financially viable.
“Forming partnerships among government, industry, and associations will be crucial in scaling innovation and new technologies for decarbonization. Collaboration on frameworks for making hydrogen and CCS safe, effective, and commercially viable will give the oil and gas industry the certainty it needs to manage new risks and accelerate its transformation towards a low-carbon future,” said Hovem.
Major forecasts
According to DNV GL’s forecasts, world final energy demand will remain relatively flat throughout its forecast period to 2050. Energy demand has risen by around 30% over the past 15 years, but in the next 15 years – in the lead up to peak energy demand in the mid-2030s – it will increase by only 3%. It will be held back by slower growth in productivity and global population, and continuous increases in energy efficiency, particularly in transport.
In recent years, renewables have helped to meet increasing energy demand, while use of fossil fuels has grown at a slower pace. Now, with relatively flat energy demand in the coming decades, this is set to change.
In 2018 (the benchmark year in this report), 81% of the world’s energy is supplied by fossil fuels and 19% by non-fossil fuels. By 2050, fossil fuels will account for 54% of primary energy supply, while non-fossil fuels will make up 46% of the mix.
However, the outlook is not the same for all fossil fuels. The supply of coal and oil are set to follow downward trajectories and will in 2050 represent only 9% and 16% of primary energy supply, respectively. Natural gas, however, will see its share of primary energy supply grow modestly from 26% in 2018 to 29% in 2050, partly as it displaces the use of coal.
Crucially, people will not see one energy transition to 2050, but several, each interrelated and playing out differently around the world. These include transitions from fossil fuels to renewables, from coal and oil to natural gas, and from fossil fuels to decarbonized gas.
Oil and gas demand
Oil demand is set to never fully recover from the COVID-19-induced market shock in 2020. DNV GL’s outlook forecasts that global crude primary oil demand will fall 13% in 2020, reaching a level not seen since the early 2000s. It will rebound somewhat to 2023, before declining gradually to half of its 2018 level in real terms by 2050.
However, while oil demand will decline rapidly in some regions, it will continue to grow in others. Continued investment in oil and gas will be needed throughout the forecast period to maintain production at levels required to meet global demand, even in a declining market.
Declines in oil will be led by the transport sector, which will remain the largest source of oil demand, even though this declines rapidly from the mid-2020s. The decrease will be led first by the electrification of passenger vehicles, then by natural gas, decarbonized and green gas, and biofuel increasingly supplying the energy for ships, larger road vehicles, and aviation toward mid-century.
As the least carbon-intensive fossil fuel, natural gas will play a prominent role in the energy transition, taking its place as the world’s largest energy source from the mid-2020s. Global gas demand will peak around a decade later.
