The good news from the BP Energy Outlook 2035, presented on 15 January, is that there will be no problem meeting the world’s energy demand over the next two decades. When it comes to availability of energy, “there is no problem”, said BP’s Group Chief Economist Christof Rühl at the presentation of the report in London. BP’s CEO Bob Dudley said BP is “optimistic for the world’s energy future”. The fourth edition of BP’s annual Energy Outlook presents a view of “the most likely developments in global energy markets to 2035”.
The reason for BP’s optimism is two-fold. First, as Dudley puts it, “the power of competition and market forces” unlocks “technology and innovation”, ensuring that energy production “will be able to keep pace” with demand growth. Secondly, what also helps is that BP sees a slowing of global demand growth after 2020. In 2000-2020 BP expects an annual growth rate of 2%. This will decline to 1.2% per year from 2020-2035, largely due to a slow-down of growth in China.
A second long-term trend identified by BP, in addition to slower growth, is a continued increase in energy efficiency. Moreover, differences between countries in energy efficiency continue to get smaller. A third long-term trend is the continued rapid growth of electricity as a source of energy. This is important, says Rühl, for two reasons: it leads to increased competition in the energy market, as electricity is where all energy sources compete, and electricity offers the most possibility for carbon emission reductions.
OPEC: under pressure
Although BP does not see any problems meeting global energy demand, it does identify gradual but significant changes in the fuel mix. Oil will continue to lose market share, with expected demand growth of just 0.8% per year. This will still result in an increase in production of 19 million barrels per day by 2035 – so oil does not really peak yet according to BP. Yet, Rühl notes that OPEC, if it wants to maintain the current price level, will need to reduce its own production (and increase spare capacity) to an extent not seen since the 1980s.
OPEC, if it wants to maintain the current price level, will need to reduce its own production
The fossil fuels oil, coal and gas will converge on market shares of around 26-27% each by 2035, BP expects. This makes gas the big winner with demand rising 1.9% a year, mainly at the expense of coal, which is expected to grow 1.1%. Particularly in China coal will gradually lose out against gas, says BP. However, other emerging Asian economies countries, like India and Indonesia, will rely heavily on coal in the coming decades.
Gas will also make some headway in the transport sector, where it will grow to 7% in 2035, overtaking biofuels. The BP Energy Outlook has a special section on transport this year.
Renewables: big inroads
Renewable energy will see the fastest growth with 6.4% a year. The share of renewables (including biofuels but excluding hydropower) in primary demand will grow from 2% today to about 7% in 2035. This is still not very high perhaps, but it’s a global average and Rühl notes that in OECD countries renewables will make “big inroads”. Also, the share of renewables in global electricity production is expected to rise from 5% today to 14% by 2035. In the EU, the share of renewables in power generation will increase from 13% in 2012 to 32% in 2035.
Renewables will even overtake nuclear energy. Nuclear is expected to grow at around 1.9% a year, its share in total energy supply remaining flat at around 5-6%. China, India and Russia will account for 96% of the global growth in nuclear power. Hydropower’s share will also remain flat at about 7%, equal to renewables.
US: second-largest gas exporter
When it comes to “security of supply”, BP notes that there will be a “concentration of energy imports”, notably in Asia and also in Europe. The US is “on a path to achieve energy self-sufficiency”. Not only that, BP even expects the US to become the world’s second largest gas exporter after Russia!
“Changes in the fuel mix are driven by relative prices – and carbon doesn’t have a price”
BP views the shale gas development in the US as a kind of laboratory for what might happen elsewhere. It notes that the increased gas production in the US first went to the power sector, then to industry, then to transport. Interestingly, in the OECD supply growth in gas (1.5% per year) will come exclusively from shale gas (5.1% per year), which will provide nearly half of OECD gas production by 2035. Outside of the OECD, 80% of supply growth in gas (2.1% per year) will still come from non-shale gas sources.
Europe sees domestic gas production decline by 1.4% per year, despite “expanding unconventional supplies”. Although European gas demand grows by just 1% per annum, Europe “increasingly relies on imported gas, in particular on net imports via pipeline which meet 51% of demand by 2035, up from 37% today”, says BP.
Carbon emissions: bad news
So where is the bad news? Obviously it comes from global carbon dioxide emissions, which are projected to rise by 29% to 2035. BP does try to give some positive spin to that figure, noting that “emissions growth is expected to slow as natural gas and renewables gain market share from coal and oil and emissions are expected to decline in Europe and the US. Indeed towards the end of the period we expect many advanced countries will be seeing their economies grow while their energy use falls.”
BP notes that CO2 emissions depend on energy intensity (the amount of energy used per unit of GDP) and carbon intensity (carbon content of the energy mix). Whereas “global energy intensity is improving rapidly”, declining by 36% (1.9% per year) to 2035, carbon intensity “declines at a slower pace – by 8% between 2012 and 2035 (just 0.3% per year)”. The reason for this is that in the absence of a carbon price, changes in the fuel mix are driven by “other factors” than climate considerations. Or, as Rühl puts it in an interesting video presentation on the BP website: “changes in the fuel mix are driven by relative prices – and carbon doesn’t have a price.”