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How do oil companies see the energy future?

15 Aug 2018 Dave Elliott
Composite photo depicting energy generation
(Courtesy: iStock/vencavolrab)

Most oil companies see global energy needs increasing, which is good news for them and other fossil energy producers. For example, ExxonMobil says energy demand will rise about 25% by 2040, led by non-OECD nations. And that global electricity demand will rise by 60% between 2016 and 2040, led by a near doubling of demand in non-OECD countries. BP looks to similar rates of growth, projecting that global energy demand will grow at around 1.3% a year up to 2040.

However, these oil companies also see electricity from solar and wind increasing – ExxonMobil says by about 400% by 2040. BP’s 2018 “2040 outlook” says “the pace at which renewables gain share in power generation over the Outlook is faster than any other energy source over a similar period. The closest parallel is the rapid build-up of nuclear power in the 1970s and 1980s”, with solar expected to be over 150% higher in 2035 than BP forecast in its 2015 Energy Outlook. But BP and ExxonMobil both also see gas use expanding rapidly, with ExxonMobil suggesting that about half its growth will be for electricity generation. And for oil, there is also good news for the companies: as ExxonMobil notes, although oil use for light-vehicles may peak by 2030, “oil will continue to play a leading role in the world’s energy mix, with growing demand driven by commercial transport and the chemical industry”, which uses oil as a key feedstock. BP sees it similarly – cars are still all the rage and electric vehicles (EVs) won’t have a big impact on oil; oil use will not peak until the 2030s, though BP notes that petro-chemical applications may be constrained a little, given the revolt against plastics.

…clearly they all hope that CCS will come to the rescue

Dave Elliott

Both companies accept that climate change is a big issue, but although they see coal growth flat-lining, they still have coal playing a major role, as energy demand rises. BP says that, by 2040, coal will still have a 21% share of the energy mix – and will remain the largest source of energy for power generation. Although, despite this, there will be some climate gains. Energy efficiency gains and a shift to less carbon-intensive sources of energy will, ExxonMobil says, contribute to a nearly 45% decline in the carbon intensity of global GDP. ExxonMobil says global energy-related carbon dioxide emissions will likely peak by 2040 at about 10% above the 2016 level. BP put it more positively. It says emission growth will only be 0.4% p.a. up to 2040, down from the 0.6% up to 2035 predicted in 2017 and the 1.2% predicted in 2011. But emissions are still growing.

ExxonMobil and BP see nuclear expanding slightly, but not much – it only makes a 5% energy contribution in BP’s 2040 scenario. By contrast, as noted above, both see renewables accelerating ahead. However, there are some differences in presentation and emphasis between BP and ExxonMobil. BP sees renewables as supplying around 14% of global energy by 2040, or about 20% with hydro included, and it also explores a “renewables push” scenario, in which extra support results in renewables supplying around 85% of electricity by 2040, up from about 45% without the push. By contrast, ExxonMobil sees renewables as marginal in energy terms: “Wind, solar and biofuels reach about 5% of global energy demand.” And adding the 3% or so it estimates for hydro by then only puts this figure up to around 8%. But the company is talking about primary energy not delivered energy. Even so, that’s very low compared to BP’s 20% figure. And ExxonMobil thinks renewables will supply about 30% of electricity by 2040, much lower than BP’s 45% mid-range estimate. Both of these figures are low compared to most other renewable electricity forecasts (e.g. from the IEA & IRENA), which range past 50-60% by 2040 on the way to 70-80% or more by 2050. So, BP’s push scenario apart, these two oil companies are mostly being very cautious on renewables.

Other views

What about the other oil companies? Shell was a pioneer in producing energy scenarios and although most of them have seen fossil fuels still playing a major role, its more recent ones have been more exploratory and more upbeat on renewables. In its 2016 New Lens update Shell looked to solar (30%), wind (12%) and bioenergy (15%) supplying in all 57% of global electricity in an undated “net zero emissions” future, with carbon capture and storage (CCS) taking care of the carbon dioxide from the remaining 25% of fossil fuels that are used. Nuclear is at 8%, others 10%. In its earlier “Oceans” scenario Shell described an ambitious pathway in which solar grows to become the largest single primary energy source in the energy system by 2060, accounting for up to 30-40% of total primary energy. Longer term, the company says renewables might reach 60–70% of all energy. Its latest very ambitious “Sky” scenario, to 2070, has renewables, including hydro and biomass, then at 67% of the energy mix, led by solar at 32%. For interesting takes on Shell’s quite radical views see this from Vox and this from Carbon Brief.

It’s interesting to compare these global oil company projections with those for the US in the US Energy Information Agency (EIA) 2018 projections. In its Reference case, which is based on existing regulations and expected technology, economic and demographic trends, the agency sees gas booming, coal falling, but renewables also continuing their climb up, while energy demand continually rises. By 2050, in its projections, US energy production has risen by 31%, but energy intensity and carbon intensity are 42% and 9% lower than their respective 2017 values. That’s partly since renewable generation is projected to increase 139% by 2050, led by solar PV, as its costs continue to fall: PV supplies 14% of total electricity generation, 53% of it from utility-scale systems. New wind capacity additions “continue at much lower levels after the expiration of production tax credits in the early 2020s”; the EIA says “from 2020 to 2050, utility-scale wind capacity is projected to grow by 20 GW”, compared to 127 GW for utility-scale PV, while “utility-scale storage capacity is projected to grow by 34 GW”.

Overall, “wind and solar generation leads the growth in renewables generation throughout the projection, accounting for 64% of the total electric generation”. By contrast there is “a steady decline in nuclear electric generating capacity – from 99 GW in 2017 to 79 GW in 2050 (a 20% decline), with no new plant additions beyond 2020”.

What’s next?

So what happens next on the ground globally? BP, like ExxonMobil and even Shell, may see fossil fuels as still important, but the PV boom has led BP to get back into that field, after a long absence, and it is now looking to invest in other green energy projects. Shell is also engaged with a range of green energy projects. However, they could all basically be just hedging their bets and clearly they all hope that CCS will come to the rescue – most of their funding still goes to fossil fuel, though that is beginning to change.

Even so, that change has to be put in perspective, e.g. for Shell, evidently only 5% of its total investment is going to sustainable energy. More generally, consultancy firm Wood Mackenzie has produced an interesting review of what the prospects for renewables really look like from the perspective of oil/gas majors. It says “the entire global market for wind and solar is currently just 4% that of oil and gas, but is set to grow at a rapid rate and much faster than oil demand. By 2035 annual revenues from wind and solar will be around one-twelfth those of oil and gas in our base-case; a ‘carbon constrained’ scenario would result in much greater penetration”. However, the consultancy estimates that “a spend of US$350 bn on wind and solar out to 2035 is needed for the Majors to replicate the 12% market share they hold in oil and gas. But even this ‘bull’ scenario would lift renewables to just 6.5% of the Majors’ production in 20 years’ time”.

So fossil fuels may be with us for some time it seems, with some serious carbon emissions implications. Even Bloomberg New Energy Finance, which has wind and solar supplying 50% of global power by 2050, still has coal at 11%. In my next post I will look at the carbon implications of alternative possible lines of development, and in future posts, at what role carbon capture might play in reducing the impact of using fossil fuel.

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