During the last two months two major reports were released reviewing world energy. First was the Energy Institute’s (EI) ‘Statistical review of world energy 2024’ published in June, followed by BP’s ‘World energy outlook 2024’ published in July.
The two reports are “instrumental in providing comprehensive data on global oil, gas and coal production and consumption, as well as on carbon dioxide emissions and renewable energy.” Together they provide a comprehensive picture of where world energy is and where it is going.
Statistical review of world energy
According to the review, global primary energy demand increased by 2 per cent in 2023, higher than the 1.4 per cent average during the previous 10 years. Even though renewables provided 44 per cent of this growth, fossil fuels provided the remainder.
The contrast between developed and developing countries is stark. In 2023, primary energy demand actually declined by more than 1.5 per cent in OECD (Organisation for Economic Co-operation and Development) countries, but increased by a staggering 4.3 per cent in non-OECD countries, with fossil fuels providing close to 80 per cent of this growth.
In fact, fossil fuels provided about 84.5 per cent of primary energy demand in non-OECD countries despite the rapid growth in renewables. Solar and wind provided less that 6.6 per cent of primary energy demand in non-OECD countries, even after growing by 18 per cent in 2023.
Evidently, during the energy transition oil and gas will continue to be important to the global energy mix, especially as the penetration of renewables in sectors other than electricity is very low, and more so in Asia and Africa.
Globally, electricity demand grew by 2.5 per cent in 2023, much the same as in 2022, and comprised 17.4 per cent of global primary energy demand, only marginally up on the 17.3 per cent in 2022. At this rate, energy transition will be a long-drawn process.
Investments in renewables and the growth in low-carbon electricity generation are thriving. But, so far, renewable energy sources have been unable to cope with rising energy demand on their own.
Clearly, maintaining oil and gas reserves and production to support this demand is critical to global energy security. The oil and gas majors have been making this point for a while, but it is important to now see international banks and lenders coming to a similar conclusion.
Global energy demand carries on growing, driven by non-OECD countries, and while this is happening, as EI’s review has shown, the world will need all the energy it can get.
The review states that in 2023 the average amount of energy consumed per person in Africa, South Asia and South and Central America, comprising 48 per cent of the world’s population, was 30 Gigajoules (GJ), about 27 per cent the global average of 110 GJ/person.
The populations of these countries are increasing and by 2050 they are expected to comprise 61 per cent of the world’s population. They are also aspiring to better living standards, which means their energy consumption will inevitably get closer to the global average. Even if their energy use only doubles to 60 GJ/person, this would lead to global energy use increasing by 35 per cent by 2050.
These factors alone explain why global energy demand will carry-on growing, dominated by non-OECD countries, with renewables alone not being able to provide it.
On that basis, the notion that oil and gas demand would peak in 2030, as the International Energy Agency (IEA) claims, looks unlikely. To a large extent, the impact of increasing EV penetration is expected to be offset by petrochemical demand growth.
Such factors are more often than not glossed over in climate change debates, but they will not go away – it’s reality. Even the EI, a strong advocate of transition to clean energy, recognises that this will lead to “significant energy demand growth in the future.” This poses the biggest challenge to the arguments of climate change activists.
These are also the reasons why oil and gas companies, such as Shell and BP, and now banks, have been backtracking on energy transition commitments and are increasing their oil and gas investments.
World energy outlook
Much in agreement with EI’s statistical review, the key conclusion from BP’s outlook is that low-carbon energy sources are not growing quickly enough to keep up with global demand.
Apart from the scenario exploring what needs to be done to achieve net-zero by 2050, BP considered the ‘current trajectory’, which is designed to capture the broad pathway along which global energy systems are currently travelling. I will concentrate on this.
BP states that “the world is in an ‘energy addition’ phase of the energy transition in which it is consuming increasing amounts of both low carbon energy and fossil fuels.” This is driven by population growth, prosperity and living standard improvements in non-OECD countries, as well as demand driven by cooling needs and the voracious energy needs of AI data centres.
BP stresses that any successful and enduring transition needs to address all three elements of the trilemma: energy security, affordability and sustainability, and the economic and social costs they entail.
Based on ‘current trends’ oil demand carries on growing, peaking during this decade at 102 million b/d and then gradually declines to about 77million b/d by 2050. But, in reality, based on IEA’s June Oil Report, this peak has already been exceeded.
This supports other outlooks, such as Goldman Sachs’, that show oil demand peaking later, in the 2030s and then plateauing, rather than declining sharply. Even BP’s outlook shows oil demand remaining at high levels well into the 2030s.
In contrast, natural gas demand grows throughout the outlook, expanding by around 20 per cent by 2050, driven by a 50 per cent demand growth in non-OECD countries, with its share of primary energy increasing to over 25 per cent.
LNG demand grows robustly in the first part of the outlook, driven by increasing demand in non-OECD countries, with the increasing use of natural gas in these economies largely met by imported LNG. By 2050, LNG demand will be 80 per cent higher than in 2022.
The projected growth in fossil fuel consumption means that even though emissions will start declining later this decade, the process will be slow and, without technology advancements and policy change, by 2050 emission reduction will be about 25 per cent, consistent with a global temperature rise of 2.5°C. In order to achieve net-zero by 2050, consumption of all fossil fuels should reach a peak by next year and decline rapidly thereafter – something that ‘current trends’ show is quite unlikely, even though decarbonising power systems could help. With an orderly transition becoming increasingly impossible, the world must invest more in adaptation, as COP28 identified.
As BP concluded, we cannot predict the future, but “the one thing we know for sure is that over the next 25 years, the energy system will change in ways that we can’t even imagine today.”
Charles Ellinas is Senior Fellow at the Global Energy Centre of the Atlantic Council. This piece is also posted on the blog of the Cyprus Economic Society https://cypruseconomicsociety.org/blog/blog-posts/
