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BP predicts faster decline in demand

GLOBAL BP released its flagship annual report, Energy increased.
Outlook, at the end of January, forecasting an Oil demand will decline over the period of
accelerated decline in oil and gas consumption the outlook, BP notes, as its use in road trans-
as a result of fallout from the Russia-Ukraine war port declines in favour of electrification, and
and the impact of the broader energy crisis. vehicles become more efficient. The outlook for
In light of soaring global oil and gas prices, natural gas will depend on the pace of the energy
caused in part by Moscow’s invasion of Ukraine transition and how demand grows in emerging
and the subsequent severing of energy ties economies.
between Russia and the EU, countries will pur- BP warns that the current energy crisis
sue greater energy security over the next decade, demonstrates that the transition away from
and this will result in a faster decline in global oil oil and gas should be orderly, so that supply
and gas demand, BP said. At the same time, the declines in line with demand and not at a faster
UK major predicts an accelerated shift towards rate. Upstream investment must continue over
renewable energy – in part because of high oil the next three decades to offset natural decline at
and gas prices, and in part because of hydro- already-developed fields, the company stresses.
carbon importers developing more domestic The decarbonisation of the global power sys-
energy supply. And this will mean that global tem will be driven by the greater deployment
emissions reduce more quickly, BP said. of wind and solar power, BP notes, and both
BP outlines three scenarios in its outlook. low-carbon hydrogen and carbon capture uti-
The first two – Accelerated and Net Zero – are lisation and storage (CCUS) will play critical
broadly in line with IPCCs scenarios that are roles in decarbonising hard-to-abate industries,
consistent with Paris Agreement goals. These according to the company.
scenarios envisage the substantial cut in car-
bon emissions – 75% in Accelerated and more A break from the past
than 95% in Net Zero. Net Zero will also involve In contrast with its previous outlooks, all three of
a shift in societal behaviour and preferences BP’s scenarios now envisage final energy peaking
to support increased energy efficiency and the within the next three decades, owing to energy
greater adoption of low-carbon technologies. efficiency gains. But as was the case in previous
This is to say that they are scenarios based on reports, BP warns that in the New Momentum
predetermined outcomes. scenario, the world is lagging far behind the nec-
BP’s third scenario, New Momentum, fore- essary course to reach net zero by 2050. In New
casts the current trajectory of the global energy Momentum, global carbon emissions will only
system, based on current trends and known pol- be around 30% lower than the level they were
icy directions. It stresses “the marked increase in at in 2019. Electrification will drive emissions
global ambition for decarbonisation in recent reductions in all three scenarios, with electricity
years, as well as on the manner and speed of demand climbing 75% by 2050.
decarbonisation seen over the recent past.” In New Momentum, global oil demand pla-
The UK cautions that “the scenarios are not teaus at around 100mn barrels per day of the
predictions of what is likely to happen or what next decade, and then shrinks to 75mn bpd by
BP would like to happen.” Furthermore, it states 2050. Natural gas demand will keep rising out
that “the many uncertainties surrounding the to 2050, on the other hand, potentially climbing
transition of the global energy system mean to 20% above the 2019 level by that year. LNG
that the probability of any one of these scenarios trade will increase in the near term, but the out-
materialising exactly as described is negligible.” look is more uncertain after 2030. But in New
Nevertheless, the outlook provides useful insight Momentum, the LNG market is set to double in
on how global energy trends may play out over size by 2040 versus 2019, with extra supply pre-
the next three decades. dominantly coming from the US and the Mid-
BP bases all three scenarios on a number dle East. Growth will be driven by demand in
of present trends. First, it notes that the global emerging Asian markets, as these countries shift
carbon budget is running out, and that despite away from coal while continuing to industrialise.
all efforts made by governments and compa- The pace of wind and solar development
nies so far, CO2 has continued to rise every year will be rapid in all three scenarios. Even in New
since the Paris Agreement was reached in 2015, Momentum, installed wind and solar capacity
with the exception of 2020, when coronavirus will increase ninefold by 2050, primarily on the
(COVID-19) restrictions caused energy demand back of declining costs. In Accelerated and Net
to tank. Zero, about a quarter to a third of the capacity
Second, BP notes that the Russia-Ukraine in 2050 will be used to produce green hydrogen.
war is having long-lasting implications for the China and the developed world will dom-
global energy system, and is causing the pace inate new wind and solar capacity, accounting
of the energy transition to accelerate. Third, the for 30-40% of the overall increase between now
importance of fossil fuels is declining as renew- and 2035.
ables expand their share and electrification is Electrification will expand in all end-user

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