OE13: The shifting global energy system

The foundations of the global energy system are shifting and the lives of energy policy makers are not getting any easier. If they didn’t have enough to worry about with securing affordable, sustainable supplies of energy to meet national needs, the recent period of economic downturn has made balancing industrial competitiveness with climate goals even tougher.  In our World Energy Outlook we describe the trends that underlie this shifting energy picture.

Economic growth and rising population will push energy demand higher –in our latest World Energy Outlook we see global energy demand rising by over one-third between now and 2035 –driven by emerging economies that account for more than 90% of the growth.  Roles are changing;   China is taking on the mantle of ‘demand driver’ and the US is poised to overtake Saudi Arabia as the largest producer of oil in the globe before 2020.

Indeed the age of fossil fuels is far from over, our projections show that renewable energy sources and natural gas are set to experience the largest growth between now and 2035 but oil remains the largest fuel in the global energy mix, particularly hard to substitute in transport. The growthin oil demand to 2035 comes entirely from the transport sector in emerging countries, where vehicle ownership grows dramatically.

On the supply side, we do not expect an increase in conventional crude oil production over the next two and a half decades: the rise in global demand is likely to be met by natural gas liquids and by non-conventional oil. But the investment challenge in this area is still immense, over US$600 billion was spent in upstream oil and gas last year, spending which is unlocking ample volumes of reserves. 

But maintaining adequate supplies of oil and gas will need today’s level of investment to be maintained year on year in the coming decade and beyond. Output from currently producing conventional fields will decline by 40MM bbls/d by 2035. Making up for this decline will require new production capacity equal to twice the current total oil production of all OPEC countries in the Middle East – and this is just to keep crude oil supply at current levels.Meanwhile the contributions of natural gas liquids and unconventional oil will expand to supply one-quarter of the market by 2035.

Our projections show that achieving the 2°C goal, collectively agreed to by governments, would without question have an impact on demand for oil and gas. Existing trends have us on track for a global average temperature increase of between 3.6 °C and 5.3 °C. But moving to a sustainable energy future in 2035 does not mean a future without fossil fuels - even in our 450 Scenario, which plots a pathway to the 2°C goal, oil demand in 2035 is only marginally below today’s levels, and gas demand is actually higher.

Whether policy makers are in consuming or producing countries legislating to curb climate change is one of the biggest challenges they face. The good news is that much more can be done to tackle these emissions without jeopardising economic growth.  In our special report, “Redrawing the energy-climate map” released in June, we highlighted several ways in which governments, industry and investors can support measures such as energy efficiency in industry and among consumers, to keep 2°C aspirations alive.

The shifting energy picture paints some tough challenges for the oil and gas industry to continue a level of investment and activity that will guarantee adequate supplies at reasonable cost but the challenges for policy makers are going to be no easier in the years to come.

Capella Festa is speaking in today’s SPE Offshore Europe keynote session, Oil and Gas in the Future Energy Mix, 2.30-5pm, Gordon A.

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