Whatever happens – oil and gas will be needed in 2040 in at least the same quantities as today. That was a key message conveyed by BP’s Chief Economist Spencer Dale on Tuesday when he presented the 2018 edition of the BP Energy Outlook in London. Energy Post editor-in-chief Karel Beckman discusses Dale’s findings and wonders: what about Beyond 2040?

BP is best known for its annual Statistical Review of Energy, a widely used overview of oil and gas reserves and production and consumption figures by country, which has been around since 1951. The Energy Outlook, which has been published since 2011, is a different kettle of fish. It’s BP’s forward-looking scenario.

But “not a prediction of the future”, CEO Bob Dudley stressed in his opening remarks at the event, which was followed by webcast all over the world. It is rather an “exploration” of the energy future under “different judgements and assumptions by considering a series of ‘what if’ experiments”.

However that may be, the Energy Outlook’s “reference scenario” – which BP calls the Evolved Transition (ET) scenario – surely does not contain any surprises, unless it was that BP sees a “faster transition” this year than it did last year.

But similar to the International Energy Agency’s (IEA) “New Policies Scenario” in the World Energy Outlook, and a host of other industry outlooks, BP’s Outlook projects that:

• energy demand will increase (by around one-third over the next 25 years) as a result of rising prosperity in emerging economies (offset by increasing energy efficiency)
• the world continues to electrify, with 70% of the increase in demand coming from the power sector
• renewable energy is the fastest-growing energy source
• demand for oil will continue to grow modestly over much of the period till 2040, only plateauing near the end
• the demand for coal will “flatline”
• the demand for gas will grow strongly

You have heard this story before.

It results in the following overall picture:

Which is quite a reassuring picture for the oil and gas industry of course.

There is just one unfortunate aspect about it. In this scenario, CO2 emissions will continue to rise rather than decline, as they should.

This is shown in the following graph (the blue line):

So BP could not end the story here. And it didn’t.

Spencer Dale went on to raise five “key questions”. That’s when it got really interesting.

The questions were: 

• What have we learned about electric cars and the mobility revolution?
• When is global oil demand likely to stop growing?
• Just how fast will renewable energy grow?
• How resilient is the outlook for natural gas?
• Is the transition to a lower carbon system happening fast enough

Now you’re talking, Spencer!

So let’s see how Dale proceeded to answer these questions.

Electric cars and the mobility revolution

Big news: BP has changed its mind about EVs!

In last year’s Energy Outlook, it projected 100 million EVs (all types, including plug-in hybrids) on the road by 2035. This year’s Outlook has 190 million in 2035 and over 300 million in 2040:

And that is not all. What is more, the impact of EVs on the transport sector will be even greater than these figures suggest, said Dale.

The share of the number EVs in the global car fleet according to the 2018-scenario will be 15%. However, the share measured in “kilometres driven” will be twice as high! See this picture:

This is because of the impact of trends like autonomous driving, which BP thinks will be a “game changer” in terms of kilometres travelled.

According to Dale, the “more intensely used cars” will be electric, because they have lower operational costs.

So a disaster in the making for the oil industry? Not really.

The impact of the EV revolution plus “gains in fuel efficiency” on oil consumption will be as follows:

So in 2016, passenger cars consumed 18.7 million barrels of oil per day (mb/d). (Note that total global oil consumption was 95 mb/d, so passenger cars represent some 20% of global oil demand.) In 2040, they will still consume 18.6 mb/d! That’s zero growth – but it’s not a reduction either.

Well, you might ask, what if all governments in the world decided to totally ban internal combustion engines (ICE) in passenger cars starting in 2040?

In that case, Dale showed, oil demand would be affected: for passenger cars, it would decline from 18 mb/d to 8 mb/d. Still, he noted, 10 mb/d is only around 10% of total worldwide oil demand. So we would still need plenty of oil.

What is more, such a ban would actually do little to reduce carbon emissions, as shown in this graph:

All of which may be true – but Dale did not discuss other options, for example, what would happen to oil demand if heavy transport and shipping were also electrified. Nor did he look at the effects beyond 2040. Which is when a ban beginning in 2040 would presumably start to kick in!

When will global oil demand peak?

“It all depends”, was Dale’s short answer to this question.

Mostly on climate policies of course.

Under the ET (evolved transition) scenario, oil demand will peak (or plateau) towards 2040.

In addition to the ET scenario, the Energy Outlook contains an FT (faster transition) and EFT (even faster transition) scenario. The latter “illustrates one possible configuration of policies and outcomes achieving [a decisive break in carbon emissions], and is based on a sharp increase in carbon prices and a range of other polices designed to encourage more rapid gains in energy efficiency and greater fuel switching.”

In this scenario, oil demand will be affected:

Nevertheless, as the grey dotted line shows: even in this scenario investment in oil production will be needed! You can’t write off the oil industry yet.

How fast will renewable energy grow?

Dale admitted that BP has been too bearish on renewables in the past (“have we learned our lesson?” he asked rhetorically).

Compared to last year’s Energy Outlook, this year’s edition shows a 15% higher projection for renewable energy in 2035.

Growth in renewable energy will look as follows:

Under a “Renewables Push” scenario, growth might even be stronger:

How this would impact carbon emissions, Dale did not say (nor can it be found in the report), but CEO Dudley did emphasize that a push for renewables alone would not nearly be enough to get to the 60% reduction of CO2 emissions needed in 2040.

How resilient is the outlook for natural gas?

Gas demand can be negatively affected in two ways, said Dale: one, if there is less coal-to-gas switching than expected – or, if there is more gas-to-renewables switching.

However, in both cases – in fact, under virtually all scenarios – gas demand will grow to 2040 or remain at least equal to today:

In other words: no need to panic!

However, the next question is:

Is the transition to a lower carbon system happening fast enough?

Under BP’s ET scenario, CO2 emissions will rise 10% by 2040, said Dale. Since they need to decline by 60% under “Paris” standards, the answer is a resounding no.

“We need a more decisive break from the past”, BP’s Chief Economist admitted. As for example in the Even Faster Transition scenario:

“This could have significant implications for the global energy system over the next 25 years”, Dale concluded.

“Even so”, he added, in the EFT scenario, “oil and gas together account for more than 40% of world energy in 2040.”

In short, whatever may happen, BP’s message for the oil and gas industry is reassuring: they will be needed for some time to come.

That is, until 2040.

Which is when today’s university graduates won’t even be 50.

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