If you want to make serious inroads in carbon emissions over the next 25 years, then focus on the power sector. That was the message from BP's chief executive Bob Dudley at the launch of the company's Energy Outlook 2018 in London.
According to the annually updated report, around 70% of the increase in primary energy demand will come from the power sector. Transport will absorb a declining share, as more electric vehicles (EVs) hit the roads. That will stunt rises in petrol demand, but increase electricity demand.
Under BP's "evolving transition" (ET) scenario, the impact of a 115% increase in global GDP on energy demand between 2016 and 2040—driven largely by Asia, Latin America and Africa—will only be partially offset by gains from greater energy efficiency. The result is a 35% increase in primary energy demand to 17.98bn tonnes of oil equivalent (toe) a year.
The ET scenario is based on the pace of change in energy policy and technological development over recent years being maintained into the future. That pace looks achievable, but it wouldn't be sufficient to meet the goals of the Paris climate change agreement. BP also modelled other scenarios based on more drastic action to tackle climate change, which lead to lower energy demand.
Renewables make the greatest gains in share, increasing 404% under the ET scenario to 2.53bn toe/y, followed by nuclear (a 54% rise), gas (47%) and hydro (36%).
BP also forecasts that 15% of cars on the world's roads in 2040 will be battery electric vehicles or plug-in hybrid. But it says EVs' share of overall distance driven by cars will be much higher, at around 30%, due to the impact of greater use of car sharing and autonomous vehicles. These trends will be skewed heavily towards the EV fleet, rather than vehicles with internal combustion engines (ICEs).
But none of this produces a collapse in oil demand in the near future, as some have been predicting. Under the ET scenario, BP forecasts that liquid-fuels demand will reach around 109.4m barrels a day by 2040, propped up by expanding demand from developing countries and still-higher-than-2016 demand of 96.6m b/d.
Under the ET scenario, oil demand nears a peak around 2030 and then starts to plateau throughout the following decade. Under scenarios where more aggressive climate-change measures are implemented, oil demand could start waning around 2030, BP said.
BP suggests that even a complete global ban on the sale of new ICEs by 2040—by no means a given—may only produce a negligible drop in oil demand. For the impact of having a greater number of EVs on the road would result in less investment in other forms of vehicle-efficiency improvement. Even if emissions standards were tightened to incentivise greater efficiency in the remaining ICE vehicle fleet, the Energy Outlook predicts that oil demand from the car sector would only fall by around 10m b/d compared to its ET scenario forecast. It would still be higher than it is today.
Meanwhile, the petrochemicals industry is likely to become an increasingly important driver of oil and gas demand over the long-term. Non-combusted use of fuels is forecast to account for nearly 20% of overall industrial energy demand by 2040.
Dudley said an increasingly competitive energy market meant that the belt-tightening mentality in the oil and gas sector triggered by the 2014 oil price slide was set to remain in place.
"In a couple of decades," he added, "we can expect the fuel mix to be the most diverse ever seen. This combination of diversity and abundance means that the market place will be highly competitive for some time to come." Dudley believes the focus on "efficiency, reliability and a very disciplined approach to cost and capital is here to stay in our industry".
However, he was reluctant to commit BP to a return to extensive investments in renewables beyond its current major investments in Brazilian biofuels and the US onshore wind sector.
"At the point where we are ready, and we really know where to invest big," Dudley continued, "we will be ready to do that with big bets. Right now, we're not quite there." He also ruled out investing in carbon capture and storage—which could allow fossil-fuel production to continue in a low carbon economy—until the economics stacked up better.
BP's chief executive has long campaigned for greater use of carbon pricing. The aim would be to establish a global carbon price to make the economics of major investments in clean technology look more attractive.
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