For the first time in history, energy demand will peak

For the first time in history, energy demand will peak

When a company like DNV GL makes projections of our energy future, this carries some weight. The company employs some 3400 energy experts, who are active across the entire energy value chain, from generation, transmission and distribution to sustainable use, covering sectors including renewables, storage and grids, as well as oil and gas. DNV GL prides itself on its “technology neutrality”. It has no special interests, and no axes to grind. Moreover, its experts work all over the world. In fact, the company’s first Energy Transition Outlook report includes different projections for 10 major regions in the world, so it has a truly global perspective.

It is precisely the unique position DNV GL has that motivated the company to develop its own Energy Transition Outlook, says Sverre Alvik, who works in the Strategic Research section of DNV GL in Oslo, and is head of Energy Transition research within the company. “We have a history of over 150 years of building trust and providing forecasts. We believe it is important for all energy industries to understand the current reality.”

That reality, according to DNV GL, is about to undergo an unprecedented transformation. “Changes are coming so fast that it will surprise many people, even inside the industry”, says Alvik.

More efficient

The first major change that will have huge implications for the energy sector is that, perhaps for the first time in human history, global energy demand is about to plateau. And this will happen in the 2030s, according to the Energy Transition Outlook.

This conclusion seems to fly in the face of most other energy scenarios. The oil companies in particular count on continued demand growth many decades into the future. “It is a rather unique finding, yes” says Alvik. “That is to say, you do find this in 2-degree scenarios, such as the IEA’s 450 scenario, but not in any reference scenarios or even scenarios that take into account existing climate policies.”

There are three main reasons why DNV GL expects energy demand to peak, explains Alvik. “First, we assume a somewhat lower population growth than the UN median forecast. We use the IIASA/Wittgenstein Centre for Demography and Global Human Capital model, because it seems to better take into account the influence of rising urbanization and education levels on fertility growth. Second, we assume lower GDP growth than the IEA and the oil companies do, although our projections are in line with other sources such as McKinsey, PWC, MIT and Statoil. Economists like to see growth rates of 3 or 3.5%, but we think that’s unrealistic.”

“And thirdly, we have a more optimistic view on the continued cost reduction potential of solar and wind power and on improvements in energy intensity than many of the reference scenarios used in the industry.”

Alvik notes that “the growing electrification in combination with the growth of renewables will make the energy system more energy efficient, leading to important energy savings.”

Oil demand peak

The second major transformation that the Energy Transition Outlook foresees is a renewable energy revolution. Although the model takes into account that cost reductions will take place in the oil and gas sector, and assumes only a modest carbon price (at most $60 per ton in 2050), it finds that solar and wind will rapidly become cheaper than fossil fuels. As a result, renewables will expand to make up 44% of primary energy supply by 2050 and 85% of electricity supply, at the same time that the share of electricity in total energy supply will rise dramatically from 18% today to 40% in 2050.

Natural gas is the only fossil fuel that will see growth (14% from now until its peak in 2035), while oil demand will decline by 38% and coal 73% until 2050. Biomass and nuclear are projected to remain fairly stable.

DNV GL has oil demand flattening from 2020 to 2028. “Not so very different from what Shell and Statoil have said they expect to happen”, notes Alvik “but considerably earlier than BP or the IEA have said. We know this conclusion will be challenged and I should say that continued investment in oil production will be necessary to make up for depletion.”

La crescita globale della capacità elettrica per fonte (Fonte: DNV GL)

Source: DNV GL

Rapid shift to EVs

The oil demand peak is mainly caused by a third major transformation forecast by DNV GL, which is a very rapid shift to electric vehicles (EVs). “This is a change that looks sensible”, says Paul Gardner, segment leader storage at DNV GL and the lead author of the renewable energy supplement of the report. “Many people I talk to are saying their next car will be electric.”

According to Gardner, EVs will win out because of their superior performance and – in time – lower costs. “EVs have so many advantages.”

Source: Energy Post

Date: October 2017

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Tags assigned to this article:
energy policyfossil fuelsrenewables

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