The energy trilemma
It is also important to remember not only the significance of oil and gas in providing energy for power and transportation, but also their value as raw materials for making chemicals, fertilizers, paints, pharmaceuticals and plastics. We estimate that around a quarter of every barrel of oil goes into non-transport or non-energy uses. A wide variety of commonly used items are made from materials that start off as oil or gas. These include toothbrushes, PVC pipes in homes, fibre in carpets, furnishings and clothing, and disposable medical syringes.
Oil will still be needed for transport during the transition. However, demand will be much reduced by society’s uptake of battery electric or hydrogen fuel-cell vehicles, and by increasing efficiency of internal combustion engines. With global demand for oil looking most likely to peak within the next five years, we forecast that oil production will be 40% less in 2050 than it was in 2017.
While natural gas will meet 29% of world energy demand by mid-century, we expect gas supplies to be decarbonized as hydrogen and biogases are added to the gas mix. As the least carbon-intensive fossil fuel, gas will play a pivotal role in continuing to displace coal, which peaked as a global energy supply source in 2014. Gas will provide the energy security and stability we need alongside variable renewables in the transition.
Continued investment in new oil and gas developments will still be necessary. Global oil and gas reserve levels decline at a rate of around 4% per annum because of the depletion of existing reservoirs, which is occurring faster than our projected rate of demand decline. We forecast that new resources will need to be developed to counter the depletion effect and meet new demand from growing economies.
Our forecast emphasizes that that there is no single pathway to a decarbonized energy mix. A combination of energy sources will still be needed throughout the forecast period.
Despite a substantial increase in CCS in our 2019 Outlook, our model still expects this technology to capture only 807 megatonnes (Mt) of carbon dioxide (CO2) in 2050: 4% of global energy-related emissions. This forecast is based on current policy positions from governments, and the relatively low prevailing carbon price. The amount of carbon captured via CCS is very sensitive to carbon price. Sensitivity studies from our model show that a doubling of existing carbon prices results in a tenfold increase in CO2. Factors such as carbon price could change quickly as more countries consider CCS as a cost-effective way to achieve net-zero carbon emissions.
In the absence of significant near-term uptake of CCS, the oil and gas industry must continue to reduce its carbon footprint by curtailing methane emissions from its value chain. Its tools for achieving this are reducing flaring and fugitive emissions; introducing lower-carbon and environmentally sensitive solutions for exploration and production; and, ‘greening’ of gas distribution.
Our model forecasts that global emissions will exhaust 2-degrees-Celsius (°C) carbon budgets before 2050. It indicates an end-of-century global average temperature 2.4°C higher than pre-industrial levels. This is not in line with the COP 21 Paris Agreement on climate change, which aims to keep global warming to ‘well below 2°C’ and pledges to pursue efforts to limit the increase even further to 1.5°C. Our main report describes how industry and society at large could close the gap and achieve the future described by the Paris Agreement.¹
Our forecast shows that the world is unlikely to meet the climate-change mitigation goals of the Paris Agreement.
The need for the oil and gas industry to consider the challenge of climate-change adaptation is increasing. Factors such as rising sea levels, more frequent severe weather and increasing demands for decarbonization of production all need considering today in the design of facilities for operation over the next 30 years.
Against this background, this report provides an in-depth analysis of the implications of our model’s forecast along the oil and gas value chain.