BP is finally giving in. In the recently published BP Energy Outlook 2017 Edition the key message is that an energy transition is underway that is “likely to continue to take place over the next 20 years”, meaning that “the story is one of a continuing shift in the fuel mix towards lower carbon fuels”.
This is all in response to the exponential growth in renewable energy like solar and wind that we have experienced in the last 10 years. So how does such a transition affect oil and gas production, in terms of volume? Do we need to continue to explore in order to find more oil and gas, or have we already found enough to meet a declining demand?
In the BP base case, the world’s economy almost doubles in size over the 20-year period, but the extent of this growth is substantially offset by rapid gains in energy efficiency. The energy demand is thus predicted to increase by only around 30%. “Renewable energy is the fastest growing energy source and will be quadrupling over this period of time” (7.1% per year, with its share in primary energy increasing to 10% by 2035), says Spencer Dale, group chief economist of BP. That does not, however, mean it is doomsday for the oil exploration industry, because fossil fuels will provide about half of the total increase in primary energy over the next 20 years.
Consequently, in terms of carbon emissions, the projected growth during the next 20 years will be far slower than in the past (about a third). This is in contrast to the current trend of no or minimal increase in CO2 emissions. As stated by CarbonBrief, “the topline from the Global Carbon Project is that the amount of CO2 we put into the atmosphere from burning fossil fuels, gas flaring and cement production has held steady for three years in a row, neither increasing nor decreasing significantly”.
According to BP, oil demand will keep growing by 0.7% per year in response to transport demand, in particular in the fast-growing Asian economies. But the pace of growth will slow over time because of increased fuel efficiency. In fact, BP believe that fuel efficiency will reduce demand by about 16 MMbopd through the next 20 years, while electric cars will reduce it by only 1 MMbopd. So even if the number of electric vehicles grows from about 1 million today to 100 million by 2035, according to BP’s ‘best guess’, “the implication for oil demand is not a game-changer”.
In conclusion, the world will consume 98.2 MMbopd in 2035. Keep exploring!