BP's Energy Outlook for 2023

Exploring the key trends and uncertainties surrounding the energy transition, Multinational Oil and Gas giant British Petroleum (BP) shared their research note titled “BP Energy Outlook - 2023”

Some of the key highlights from the above report:

Three scenarios to explore the uncertainties surrounding the speed and shape of the energy transition to 2050

  • The following 3 scenarios (Accelerated, Net Zero & New Momentum) are not predictions of what is likely to happen or what bp would like to happen. Rather, the scenarios are designed to span a wide range of the outcomes possible out to 2050.

  • Accelerated and Net Zero explore how different elements of the energy system might change in order to achieve a substantial reduction in carbon emissions. In that sense, they can be viewed as ‘what if’ scenarios: what elements of the energy system might need to change if the world collectively takes action for CO2-equivalent emissions (CO2e) to fall by around 75% by 2050 (relative to 2019 levels) in Accelerated and 95% in Net Zero. Both scenarios are conditioned on the assumption that there is a significant tightening in climate policies. Net Zero also embodies a shift in societal behavior and preferences, which further supports gains in energy efficiency and the adoption of low-carbon energy.

  • New Momentum is designed to capture the broad trajectory along which the global energy system is currently traveling. It places weight on the marked increase in global ambition for decarbonization in recent years, as well as on the manner and speed of decarbonization seen over the recent past. CO2e emissions in New Momentum peak in the 2020s and by 2050 are around 30% below 2019 levels.

The future of global energy is dominated by four trends

  • The role of hydrocarbons diminishes as the world transitions to lower carbon energy sources. The share of fossil fuels in primary energy declines from around 80% in 2019 to between 55-20% by 2050.
  • The total consumption of fossil fuels declines in all three scenarios over the outlook. This would be the first time in modern history that there has been a sustained fall in the demand for any fossil fuel.

  • Renewable energy is largely made up of wind and solar power and bioenergy, and also includes geothermal power. Renewables expand rapidly over the outlook, offsetting the declining role of fossil fuels. The share of renewables in global primary energy increases from around 10% in 2019 to between 35-65% by 2050, driven by the improved cost competitiveness of renewables, together with the increasing prevalence of policies encouraging a shift to low-carbon energy

  • In all three scenarios, the pace at which renewable energy penetrates the global energy system is quicker than any previous fuel in history

  • The growing importance of renewable energy is underpinned by the continuing electrification of the energy system. The share of electricity in total final energy consumption increases from around a fifth in 2019 to between a third and a half by 2050.

  • The decarbonization of the energy system, especially in Accelerated and Net Zero, is supported by the growing use of low-carbon hydrogen in hard-to-abate processes which are difficult or costly to electrify. The share of primary energy used in the production of low-carbon hydrogen increases to between 13-21% by 2050 in Accelerated and Net Zero

Increased energy security concerns trigger a shift towards a more local, lower-carbon energy mix

The increased importance placed on energy security as a result of the Russia- Ukraine war leads over time to a shift away from imported fossil fuels towards locally produced non-fossil fuels, accelerating the energy transition.

  • Since oil and natural gas are the two most heavily traded fuels internationally, they are most impacted by the increased focus on energy security. In New Momentum, the 2% lower level of primary energy demand in 2035 relative to Energy Outlook 2022 is largely accounted for by a 5% downward revision to oil demand and 6% lower natural gas demand. These effects are most concentrated in emerging Asia and the EU, both of which currently have significant reliance on oil and natural gas imports.

  • Together, the EU, China and India accounted for around 45% of global oil imports and around 50% of natural gas imports in 2021. In all three regions, heightened energy security concerns lead to a permanently lower share of imported oil and gas in primary energy. In 2035, their combined imports of oil and natural gas are over 10% lower in New Momentum than in Outlook 2022. Similar effects are apparent in Accelerated and Net Zero.

  • The limited scope to increase domestic production of oil and natural gas in these countries and regions means that the reduced share of imported oil and gas in primary energy is offset by greater consumption of domestically produced renewables.

Oil demand falls over the outlook as use in road transportation declines

  • Global oil demand plateaus over the next 10 years or so before declining over the rest of the outlook, driven in part by the falling use of oil in road transport as vehicles become more efficient and are increasingly fuelled by alternative energy sources.

  • Oil demand in emerging economies is broadly flat or gently rising over much of the first half of the outlook across the three scenarios, but this is offset by the accelerating declines in oil use in the developed world. These contrasting trends are reflected in a gradual shift in the centre of gravity of global oil markets, with emerging economies’ share of global oil demand increasing from 55% in 2021 to around 70% in 2050 in all three Scenarios.

  • The single biggest factor driving the decline in oil consumption is the falling use of oil within road transport. Rising prosperity and living standards in emerging economies support an increase in both the size of the global vehicle parc and in distances driven, boosting the demand for oil. But this is increasingly offset by a combination of the road vehicle fleet becoming more efficient and the growing switch away from oil to alternative energy sources.

  • Lower demand for oil in road transport accounts for more than half of the reduction in total oil demand in Accelerated throughout the outlook. In 2030, this largely reflects the impact of the increasing efficiency of the global vehicle fleet, which is more than twice that of the switch to alternative energy sources. By 2040 these two effects are broadly equal, and by 2050 the switch to alternative energy sources, led by the increasing electrification of vehicles, accounts for more than twice the impact on oil demand than the effects of greater Efficiency.

Wind and solar power expands rapidly, requiring significant acceleration in financing and building new capacity

  • Wind and solar power expands rapidly, driven by increasing cost competitiveness and policies supporting a shift to low- carbon electricity and green hydrogen.

  • Wind and solar installed capacity increases by around 15 fold over the outlook in Accelerated and Net Zero and 9 fold in New Momentum.

  • The expansion in installed capacity by 2035 requires a significant acceleration of the pace at which new capacity is financed and built. The average rate of increase in installed capacity in Accelerated and Net Zero out to 2035 is 450-600 GW per year – around 1.9 to 2.5 times faster than the highest rate of increase seen in the past.

  • The growth in installed wind and solar capacity out to 2035 is dominated by China and the developed world, each of which accounts for 30-40% of the overall increase in capacity in all three scenarios. This pattern of growth switches significantly in the second half of the outlook, with emerging economies excluding China accounting for around 75-90% of the growth in the 2040s in Accelerated and Net Zero.