North America & Europe: the push for renewables

More than any other region, North America and Europe will see an underlying narrative of declining fuel demand as a result of decarbonisation efforts and the availability and relatively low cost of gas. As we approach 2035, we expect to see energy demand flatten as North America's growth becomes more moderate and Europe's tapers off. In this series based on our hydrocarbons report, we explore these demand trends and the emergence of renewables over the next 20 years.

While demand will remain strong, moderate growth in North America will offset contraction in Europe — the only region where energy production is in decline. European oil demand will stagnate in the near term, and in the US, oil demand will decline after 2020. Greater fuel efficiency will more than offset the effects of increasing vehicle numbers and vehicle miles travelled. In the EU, policy measures will target reducing vehicle CO2 emissions, with consumers incentivised to choose lower-emitting vehicles. Even though demand will decrease, US tight oil production will be the one significant non-OPEC growth play, with volumes more than doubling by the middle of the next decade.

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We asked Paul McConnell, Research Director for Global Trends, to talk more about the changing face of energy demand in North America and Europe, including the future of oil, gas, tight oil, and renewables.



Gas demand in North America is growing, driven by export industries such as steelmaking. However, the European gas market is almost saturated. This combined with low overall growth, increasing energy efficiency and competition from electricity will lead to weak sectoral demand growth. Coal will increasingly come under pressure from more stringent environmental legislation. Long-term, we expect renewable costs to fall further, and the break-even costs of wind and solar generation will drop potentially below gas-fired plant costs in some markets.

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Under the Paris Agreement, EU member states have committed to absolute emissions cuts significantly in excess of our base case view, requiring additional policy measures to more aggressively curtail hydrocarbon consumption. Although the Agreement was ratified by President Obama, we anticipate the Trump administration will ignore the US emissions targets, rendering the goal of limiting global warming to no more than 2 degrees above pre-industrial temperature levels unachievable.

Developments in renewable subsidies have demonstrated a growing commitment to reduce the support costs of carbon-free power and increase the integration of subsidised technologies into wholesale markets. Renewables will contribute around 30% to Europe's total power production in 2016 — up from half that level a decade earlier. In particular, solar development will accelerate rapidly. By 2020–2025, utility scale solar will become the most attractive technology from a purely economic standpoint in many parts of North America.

Some Majors have already begun to put together new, modern renewables portfolios. Statoil is acquiring stakes in large offshore European wind projects, leveraging its offshore oil and gas experience. Total is taking a lead role in a strategic shift aimed at low-carbon assets accounting for 20% of its portfolio by 2035 (versus 3% today). The company has a majority stake in US solar player SunPower and this year paid US$1.1 billion for a French energy storage business. Solar may not be 'the new shale' yet, but it is certainly making an impact on hydrocarbon demand far faster than previously expected.

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