Natural gas has crucial roles to play over the coming two-and-a-half decades – in helping to meet fast-rising energy demand and in contributing towards the mitigation of climate change – according to the latest long-term energy forecast from BP. The role of gas is emphasised by an inexorable trend towards electrification of the global energy economy, because electricity generation is a sector in which gas has significant advantages over other fuels.
In a world where energy consumption will continue to be dominated by fossil fuels, natural gas consumption is expected to grow significantly faster than that of coal and oil. So said BP’s chief economist Christoph Rühl (pictured above) in January as he and CEO Bob Dudley launched the company’s latest long-term forecast of energy markets, the BP Energy Outlook 2035.
BP foresees primary energy demand growing by an annual average of 1.5% between 2012 and 2035, amounting to total growth of 41% over the 23 years of the forecast period. Almost all the growth is expected to come from emerging economies – led by China and India – while demand growth in the OECD countries slows and goes into reverse towards the end of the forecast period, despite continuing economic growth in these countries.
This, said Rühl, raised the “intriguing question” of “is it possible and what are the conditions under which sustained economic growth can be achieved without rising [energy] consumption growth?”
While the long-term slowing of growth in global energy demand is an encouraging prospect, the need to produce enough energy to meet growth of 41% by 2035 raises the question of whether we have sufficient resources.
According to Dudley, the answer is a firm “yes”. “The picture in terms of resources in the ground is good one,” he said. “It’s very different to past concerns about supply peaking. The theory of peak oil seems to have – well – peaked. New technologies mean we can get more from existing sources. And multiple new sources are opening up, notably shale gas, tight oil and deep-water fields . . . We are confident that production will be able to keep pace, given the trends in technology, investment and policy.”
Fossil fuels to dominate – even by 2035: When it comes to sustainability and carbon emissions the news is less encouraging. In BP’s forecast carbon emissions grow by 29% by 2035. “The semi-good news is that emissions grow more slowly than energy consumption,” said Rühl. “The bad news is that they are still way too high to let anyone interested in climate science sleep quietly at night.”
The chart on the left shows energy growth decoupling from GDP growth thanks to increasing energy efficiency. The chart on the right shows BP’s forecasts for the primary energy mix. Fossil fuels continue to dominate, with the shares of coal, oil and gas converging towards 26-27% each by 2035. Low-/zero-carbon sources each converge on just 5-7%.
Indeed, people hoping that we are on the threshold of an era dominated by zero-carbon energy sources such as wind and solar power will find BP’s forecast surprising, if not shocking. As the chart on the right above shows, BP forecasts that the shares of coal, oil and gas in the primary energy mix will converge towards 26-27% each by 2035, while low-/zero-carbon sources such as hydropower, nuclear power and non-hydro renewables converge on shares of 5-7%. In short, in almost quarter of a century’s time, we will be depending on fossil fuels for more than four-fifths of our energy needs.
The “relentless march of electrification” A major trend highlighted by BP’s forecasts that needs to be taken into account by policy-makers is what Rühl described as “the relentless march of electrification”. In other words, as time passes, a larger and larger share of primary energy is being converted into electricity. In 1965 30% of primary energy was used to produce electricity; by 2035 this will have risen to 46%.
“Why does it matter?” asked Rühl. “Because when we think of changes in the fuel mix, power generation is the biggest sector, and the one sector where all the fuels compete head-on.” This makes it a crucial sector when it comes to formulating policy around fuel mix and carbon emissions.
Gas to be the fastest-growing fossil fuel: Looking specifically at what the Outlook says about natural gas, BP forecasts that gas demand will increase by an annual average of 1.9% between 2012 and 2035, which compares with 1.1% for coal and just 0.8% for oil and other liquid fuels. Absolute demand reaches 497 Bcf/d in 2035, with growth in the non-OECD countries averaging 2.7%/year, compared with 1%/year in the OECD. In volume terms the largest growth comes from industry and electricity generation (each growing at an average of 1.9%/year).
The Outlook sees shale gas being the fastest-growing source of supply, providing nearly half the growth over the forecast period. Shale gas supply is dominated by North America, which accounts for 99% of shale gas supply until 2016 and for 70% by 2035. This in turn has a significant impact on international gas trade as North America becomes a net exporter.
An important message for policy-makers concerns the role of gas in reducing carbon intensity and mitigating carbon emissions.
“What really matters is substitution among fossil fuels, in particular between gas and coal,” said Ruhl. “If you switch 1% of global power generation from coal to gas you have carbon emission savings the equivalent of increasing renewables by 11%. A 1% switch can be done in the short term. An 11% increase globally of renewables takes a much longer time and is more costly.
“Sustainability is the biggest area of uncertainty. If it’s going to be tackled it will be by changing the fuel mix.”
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