COP26 oil demand: in the cross hairs of emissions reduction
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Vice President, Oil Markets
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Given the significant contribution of fossil fuels to total carbon emissions, we expect oil use to loom large in discussions at COP26. The conference promises to shape the long-term future of the natural resources sector, and oil in particular will be a key target of post-conference global policy making.
With that in mind, this week’s COP26 briefing considers the implications for the oil market and refining industry of a concerted effort to reduce emissions and limit the average temperature rise by 2050 to 2 °C. Fill in the form to read the report, or read on for a quick overview.
Why is oil in the firing line at COP26?
Oil contributes about one-third of total global carbon emissions, with oil in transportation accounting for two-thirds of that. To pursue a two-degree pathway as set out in the Paris Agreement concerted action needs to be taken. Using regulation to drive electric vehicle adoption in particular is a relatively achievable way to significantly reduce global emissions, but it will have major consequences for oil.
What are the implications of a two-degree pathway for oil-related emissions?
Achieving the required reduction in overall emissions would necessitate a massive contribution from oil. In our base case Energy Transition Outlook (ETO), we expect emissions from oil to grow and then turn down moderately to 2050. By contrast, in our two-degree Accelerated Energy Transition (AET-2) scenario, carbon emissions from oil would have to account for a third of the total reduction needed by 2050.
What would this mean for oil use?
For such a huge reduction in emissions to happen, oil use would have to fall by 60% from today’s level. Under that scenario, current annual oil demand of 96 million barrels per day would decline from the mid-2020s to only 35 million barrels per day by 2050 (by contrast, in our base case ETO, global oil demand in 2050 would be unchanged from the present level).
What would be the impact on the industry?
Under a two-degree scenario the refining sector would see prolonged rationalisation, and by 2050 only 150 of the roughly 700 sites currently in existence would be operational. Precipitous year-on-year declines in demand would leave OPEC unable to curtail production enough to sustain higher prices. As a result, oil supply would increasingly rely on low-cost production in the Middle East, Russia and North America.
What’s inside our weekly COP26 briefing?
Our report on the implications of post-COP26 policy making for oil demand is the third in a series of weekly briefings in the run up to the start of the conference on 1 November. Each report includes:
- Key takeaways
- Charts and tables
- Where to find more information
- How Wood Mackenzie can help your business with issues raised
Fill in the form at the top of the page to read the full report, or scroll down to see what to expect in future editions.
What’s coming up?
25 August COP26 briefing: Upstream
1 September COP26 briefing: Power, solar, wind and storage
8 September COP26 briefing: Gas and LNG
15 September COP26 briefing: Coal (thermal and met)
22 September COP26 briefing: Carbon capture and storage (CCS) and hydrogen technologies
29 September COP26 briefing: Base metals
6 October COP26 briefing: Petchems
13 October COP26 briefing: Electric vehicles and battery raw materials
20 October COP26 briefing: The corporate response
27 October COP26 briefing: Economics of energy
1-12 November COP26 in Glasgow