UK supermajor BP has forecast a steep decline in oil demand in its latest Energy Outlook as it plots the energy transition to 2050.
The 2020 Outlook, released on Monday, examines three different scenarios and all of them forecast a decline in oil demand over the next 30 years.
The steepest decline is forecast under the “Net Zero” scenario, with BP predicting an 80% drop in oil demand if carbon emissions are reduced by more than 95%, from 2018 levels, by 2050 to limit temperature rises to 1.5 degrees Celsius.
Under the company’s “Rapid” scenario, BP predicts oil demand could fall 55%, as the carbon emissions decline about 70% by 2050 as policy measures are introduced to cut emissions, led by a significant increase in carbon prices.
Under both Rapid and Net Zero, BP forecasts carbon prices to reach $250 per tonne in the developed world and $175 per tonne in emerging economies by 2050.
Even under BP’s “Business-as-usual” (BAU) scenario the company’s outlook predicts a 10% fall in oil demand. The BAU scenario assumes government policies, technologies and societal preferences continue to evolve in a similar manner and speed as recent years, which would only see emissions fall to 10% below 2018 levels by 2050.
Even as the pandemic has dramatically reduced global carbon emissions, the world remains on an unsustainable path.
BP chief executive Bernard Looney
Even under the BAU scenario, BP predicts global oil demand will peak by the mid-2020s, while under its Rapid and Net Zero scenarios, the peak has already been reached, with demand never recovering from the fall caused by Covid-19 under those scenarios.
The decline across all three scenarios will be driven by increasing efficiency and electrification of road transportation.
Better outlook for gas
BP’s outlook for gas, however, was more positive than oil, with natural gas expected to continue to play a key role in the transition to a lower-carbon future.
Under the Net Zero scenario, BP forecasts gas demand to peak by the mid-2020s and be a third lower than 2018 levels by 2050, while under the rapid scenario it would peak a decade later in the mid-2030s, but demand would be similar to 2018 levels by the end of the forecast period.
Under the BAU scenario, BP expects demand for gas to continue to grow over the entire forecast period, to be about a third higher in 2050 than it was in 2018.
BP noted that gas would continue to support a shift away from coal in fast growing, developing economies, where renewables and other non-fossil fuels may not be able to grow quickly enough to replace coal.
It also highlighted that the adoption of carbon capture, utilisation and storage (CCUS) provided a source of “near” zero-carbon power, noting that CCUS accounted for between 8% and 10% of primary energy by 2050 under its Rapid and Net Zero scenarios.
Renewables on the rise
Across all three scenarios, renewables will be the fastest growing source of energy over the next 30 years, having made up just 5% of the energy mix in 2018.
Under the Net Zero scenario renewables are anticipated to account for 60% of primary energy, 45% under Rapid and 20% under the BAU scenario.
However, BP noted that such growth would require “a significant acceleration” in the build out of new renewable capacity in order to meet the targets under the Rapid and Net Zero cases.
The Rapid scenario would require an average annual increase in wind and solar capacity over the first half of the outlook of roughly 350 gigawatts, while Net Zero would require 550 GW. To put this into perspective, BP stated the annual average growth since 2000 was about 60 GW.
Hydrogen hopes for 2050
BP also highlighted the increasing importance of hydrogen and bioenergy in the energy transition, with hydrogen’s use in the energy mix anticipated to increase in the second half of the outlook under the Net Zero and Rapid scenarios.
Under the Net Zero scope, hydrogen is anticipated to account for 16% of all energy consumption by 2050, while under Rapid it accounts for about 7%.
By 2050, bioenergy accounts for about 7% of primary energy in Rapid and almost 10% in Net Zero.
All scenarios will 'be wrong'
Upon its release, BP chief economist Spencer Dale noted the 2020 Energy Outlook was not meant to predict or forecast how the energy system was likely to change, adding all three of the company's scenarios would “be wrong”.
“Rather, the Outlook uses these different scenarios to help better understand the range of uncertainty we face as the energy system transitions to a lower-carbon world,” he said.
“Improving our understanding of this uncertainty is an important input into designing a strategy that is robust and resilient to the range of outcomes we may face.”
BP chief executive Benard Looney added the outlook had been “instrumental” in developing the company’s recently announced strategy to increase its annual low-carbon investment to about $5 billion per annum, and increase its renewable generating capacity to about 50 GW by 2030.
“This year the Outlook reaches out a decade further than before, to 2050 – the year by which we intend to deliver our net-zero ambition,” Looney said on Monday.
“Even as the pandemic has dramatically reduced global carbon emissions, the world remains on an unsustainable path. However, the analysis in the Outlook shows that, with decisive policy measures and more low carbon choices from both companies and consumers, the energy transition still can be delivered.”