“Demand for oil will peak in 2022, driven by expectations for a surge in prominence of light electric vehicles, accounting for 50% of new car sales globally by 2035.”
That is a far more dramatic statement than many people in the oil & gas industry perhaps realise.
DNV issued the (to many North Sea folk) shock news early doors on the opening day of Offshore Europe 2017.
That’s a dramatic change in oil’s position from less than a year ago when the International Energy Agency was forecasting peak demand no sooner than 2040 in its then latest World Energy Outlook published in November.
The IEA also said that, while demand for oil to fuel passenger cars, for example, may drop, other sectors including within energy hungry transportation may offset this fall.
“The difficulty of finding alternatives to oil in road freight, aviation and petrochemicals means that, up to 2040, the growth in these three sectors alone is greater than the growth in global oil demand,” the IEA said in its annual World Energy Outlook.
And yet DNV says: “Non-oil energy sources accounted for 9% of energy use in transportation in 2016; we forecast this to increase to 50% in 2050.”
The difference appears to be rather stark.
The IEA’s central scenario assumes demand will reach 103.5million barrels per day by 2040 from 92.5million bpd in 2015, for which India will be the leading source of demand growth and China will overtake the US to become the single largest oil-consuming nation.
Late January saw BP put out its forecast which stated that global oil demand would keep growing into the 2040s due to higher consumption of plastic goods even as the electric vehicle fleet expands rapidly and technology revolutionizes transport, BP. So, not that different to the IEA, I suppose.
I wonder how many show goers picked up on the DNV GL news let alone recall the broad numbers from the last WEO and BP reports, or appreciate the implications for future oil & gas exploration and production.
BP’s latest Energy Outlook said current recoverable global oil supplies of around 2.6trillion barrels are sufficient to meet demand out to 2050 twice over. But the DNV GL forecast seems to imply that that 2.6trillion barrels will eke out a lot longer.
Not only does it seem that demand for oil will peak around 2022, DNV GL calculates that it will then remain flat for 15 years, pretty much.
And so what happens next will determine what health the industry is in to adapt to significant long-term energy transition trends as humankind necessary changes its approach to energy consumption, the primary imperative being climate changed (aka global warming).
It strikes me that one of the things that will happen next is that the industry will not have to work so hard on reserves replacement and production building to meet the considerable increase in oil demand forecast by the IEA in its most recent WEO, which is a formidable tome.
That of course has oil price implications … not a relentless rise but flat numbers … and demand for supply chain services, not least on the exploration drilling front.
However, the stage is set for gas to become the largest single source of energy towards 2050, and the last of the fossil fuels to experience peak demand, which DNV GL expects will occur in 2035.
Broadly, the IEA’s expectations appear sort of similar and, to choose another petroleum super-major, Exxon’s 2035 forecast matches exactly.
On a wee note of history, in 2011 when the IEA published its 2011 WEO asked: “Are we entering a golden age of gas?”
That call might have been a little prescient; but not anymore. Gas will become king, oil is being eclipsed and coal is way out of favour.
Overall, however, oil & gas will be crucial components of the world’s energy future despite the profound transition now under way.
DNV GL says that, while renewable energy will grow its share of the energy mix, oil & gas will account for 44% of world energy supply in 2050, compared to 53% today. Gas will become the largest single source of energy from 2034.
Gas will continue to play a key role alongside renewables in helping to meet future, lower-carbon, energy requirements. Major oil companies now intend to increase the share of gas in their reserves, and DNV GL expect an accelerated shift by 2022 as they seek to decarbonise their reserves portfolios.
Also, while demand for hydrocarbons will peak over the next two decades, significant investment will be needed to add new production capacity.
In essence, DNV GL’s energy transition forecast, which spans the global energy mix to 2050, predicts that global demand for energy will flatten in 2030, then steadily decline over the next two decades, thanks to step-changes in energy efficiency.
The fossil fuel share of the world’s primary energy mix will reduce from 81% currently to 52% in 2050.
Importantly, and this is really important and very much on chime with Offshore Europe 2017, DNV GL says that increased digitalisation, standardisation and remote or autonomous operations will play a central role in achieving long-term cost savings and improving the oil & gas industry’s carbon footprint.