05/11/2018 – Trends in Trade / Energy
Preparing for peak energy demand
Global spending on energy, as a proportion of economic output, is set to slow sharply, with the world’s energy demand declining from 2035 onwards – that’s according to DNV GL’s latest Energy Transition Outlook.
The world is set to reach peak energy demand in 2035 – a historically significant change in our energy needs that is largely down to rapid electrification and its inherent efficiency.
Since the Industrial Age, economic growth and energy usage have grown hand in hand, yet that relationship is set to decouple definitively in 2035 when energy demand will start to drop and GDP continues to rise. Overall, the rate of energy expenditure will slow to such a degree that by mid-century, as a percentage of GDP, the world will be spending 44 per cent less than today.
The decarbonisation of the energy mix will be reflected in investment trends, with money spent on renewables set to triple by 2050. Conversely, fossil fuel spending will drop by around one-third. Indeed, coal demand has already peaked, oil will peak in 2023, and natural gas will become the largest single energy source from 2026. Renewables and fossil fuels will equally share supply by the mid-century point.
The rapid transition DNV GL forecasts will not be fast enough to meet the sub-2⁰C climate goal. A strong combination of several measures will be the only way for the world to meet the ambitions of the Paris Agreement.
“Dramatic energy transition”
“The attention of boardrooms and cabinets should be fixed on the dramatic energy transition that is unfolding,” said Remi Eriksen, Group President and CEO of DNV GL. “As money and policy increasingly favour gas and renewables, the rapidly electrifying energy system will deliver efficiency gains that outpace GDP and population growth. This will result in a world needing less energy within half a generation from now,” he advised. “The transition is undeniable. Last year, more gigawatts of renewable energy were added than those from fossil fuels – and this is reflected in where lenders are putting their money.”
Fossil fuels will play an important, if reduced, role in our energy future with their share of the energy mix set to drop from around 80 per cent today to 50 per cent by the middle of the century – the other half will be provided by renewables. Natural gas will become the single largest source in 2026 and will meet 25 per cent of the world’s energy needs by 2050. Coal has already peaked and oil will peak in 2023. Yet existing fields will deplete at a faster rate than the decrease in oil demand – resultantly, new oil fields will be required through to 2040.
Elsewhere in the energy mix, solar PV and wind will grow to become the most significant players amongst the renewable sources with both set to meet the majority of new electricity demand – accounting for 16 per cent and 12 per cent of world energy supply respectively by the mid-century point.
Electrifying energy reductions
The electrification trend is already enveloping the automotive industry. By 2027, half of new cars sold in Europe will be battery powered and the same will be true five years later in China, India and North America. This will contribute to an overall reduction in the transport sector’s share of global energy demand from 27 to 20 per cent by 2050.
The reduced requirement for energy will be reflected in investment, with overall expenditure set to drop to 3.1 per cent of global GDP – from 5.5 per cent today. As fossil fuels will have a smaller slice of a smaller pie, spending will fall by around a third – to US$2.1 trillion. This will be offset by the tripling of both renewables (US$2.4tn) and grid expenditure (US$1.5tn). The nature of the spending will also alter with wind and solar projects typically requiring greater upfront CAPEX and then less operating expenditure – that is, the opposite to oil & gas.
“Extraordinary measures” required
The planet is set to warm beyond the 2-degree limit as set by the Paris Agreement, although the affordable nature of the energy transition means there should be capital available for extraordinary measures to further reduce carbon emissions. There is no ‘silver bullet’ – and energy efficiency, renewables and carbon capture and storage (CCS) must all be ramped up to combat climate change.
“We need to capitalise on the affordability of the energy transition and take extraordinary measures to create a sustainable future. We have a window of opportunity to increase energy efficiency, renewable energy and CCS to meet the Paris Agreement, but we must act now,” said Mr Eriksen.
DNV GL serves both the renewables and oil & gas industries and its Energy Transition Outlook has become a leading impartial voice on the energy future. For more insights, visit: www.eto.dnvgl.com/2018/