Cost, convenience and availability mean hydrocarbon fuels will maintain their position as the foundation of world energy supply and demand, but environmental policies and the emergence of new technologies will drive growth in alternative sources of energy. In the first of a series covering our hydrocarbons report examining demand through 2035, we explore the current state of the market and what energy sources major regions will use to meet their needs over the next 20 years.
The energy world is undergoing profound change due to persistent low prices, new technologies, and mounting concerns over greenhouse gas emissions. The lasting impact of the financial crisis has impaired the rate of energy demand growth, and the development of new production capacity in coal, gas and oil has led to oversupply. Even though world primary energy demand is growing, particularly in emerging markets, short-term demand growth will be weaker than expected.
Oil prices will steadily recover, but the deferral of new projects will lead to 4 million b/d (4% of global demand) lost to the market by 2021, which the growth of US tight oil can only partially mitigate. Historically strong demand growth for gas will ease in the core demand centres. New volumes of LNG will lead to an oversupply in the next few years, and the enormous shale gas resources of the US will contribute to this. Coal prices will normalise but global demand will remain flat through to 2020 due to declines in Europe offsetting the increase in southeast Asian consumption.
In spite of this, we do expect growth in coal, oil and gas markets between today and 2035, but the demand for coal and oil will slow in favour of gas and renewable energy. This trend will be particularly marked in the power sector, and by 2035 wind and solar will represent 11% of world electricity demand, up from 5% today.
Oil and gas operators have so far made limited investments in developing low-carbon technologies, but consumer preferences and policy initiatives like the Paris Agreement will help tip the scales towards growth for renewables. In some locations, the structural fall in costs for solar and wind capacity has already made these grid-competitive. In this series, we'll explore how four regions — North America and Europe, Asia, and the Middle East — will meet their unique energy needs and what sources they'll use to do so. In addition, are energy companies finally ready, willing and financially able to make renewables a priority?
Our next instalment, North America and Europe: the push for renewables amid declining demand for fossil fuels, will examine the potential decline in oil demand regionally, with analysis on the future of North American gas, US tight oil and how the Paris Agreement is prompting growth for renewables.
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