As always, this year’s BP Energy Outlook is a well-written perspective on how our energy system might evolve. Written by an oil major, it can’t be accused of being overly pushing an environmental agenda: it can be seen as best-case scenarios (from a fossil point of view) or worst-case ones (from an environmental point of view). Yet, the future of global energy that it shows is dominated by four trends: declining role for hydrocarbons, rapid expansion in renewables, increasing electrification, and growing use of low-carbon hydrogen.
First, the Outlook sees oil demand declining, driven by falling use in road transport as the efficiency of the vehicle fleet improves and the electrification of road vehicles accelerates. In all scenarios, peak oil demand happens before 2030. The prospects for natural gas depend on the speed of the energy transition. I found the Outlook geopolitical forecast particularly interesting. The Outlook states that OPEC lowers its output over next decade in response to the growth in US and other non-OPEC supplies, accepting a lower market share to mitigate the downward pressure on prices. As the decline in oil demand gathers pace and the competitiveness of US output wanes, OPEC competes more actively, raising its market share. OPEC’s share of global oil production increases to between 45-65% by 2050 in all scenarios.
Renewables (largely wind and solar power) expand rapidly over the outlook, offsetting the declining role of fossil fuels. The share of renewables in global primary energy increases from around 10% in 2019 to between 35-65% by 2050, driven by the improved cost competitiveness of renewables, together with the increasing prevalence of policies encouraging a shift to low-carbon energy.
The growing importance of renewable energy is underpinned by the continuing electrification of the energy system. The share of electricity in total final energy consumption increases from around a fifth in 2019 to between a third and a half by 2050.
According to the Outlook, the decarbonization of the energy system is supported by the growing use of low-carbon hydrogen in hard-to-abate processes which are difficult or costly to electrify. The share of primary energy used in the production of low-carbon hydrogen increases to between 5-21% by 2050. Tellingly, the more fossil-friendly scenario has the least hydrogen, while the scenarios with faster transition have the most hydrogen. I’m not sure if this reflects BP’s belief that hydrogen helps drive the transition or BP’s hopes that it can be a meaningful player in hydrogen once its fossil business dries up. Either way, making hydrogen will require a lot of electricity, as BP expects that around 60% of low-carbon supply will be from electrolysis (“green”) in 2030, and growing further in later years.
In transportation, the Outlook predicts a switch away from the reliance on diesel in medium- and heavy-duty trucks and buses, with the share of diesel-based trucks declining from around 90% in 2021 to 5-20% in 2050. The main switch is to electrification, but hydrogen-fueled trucks also play a role (15%), especially for heavy-duty, long-distance use cases. BP’s states that the choice between electrification and hydrogen varies across different countries and regions depending on policies affecting the relative price of electricity and low-carbon hydrogen, as well as on regulatory policies and the development of charging and refueling infrastructures.
BP’s Outlook may be found at https://www.bp.com/en/global/corporate/energy-economics/energy-outlook.html.