Oil remains king of fuels to 2035, while gas demand displaces coal

24 August 2017 Consultancy.uk 4 min. read
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Oil is set to remain the largest in-demand fuel type up to 2035, according to five of the world’s most renowned energy analysts. On the development of coal or gas there is more debate, with China to remain the runaway leader when it comes to energy consumption.

According to new research from energy consultancy Wood Mackenzie, oil is due to remain the most high-demand fuel source in the world. Each year, Wood Mackenzie benchmarks an analysis of global cross-commodity trends to similar outlooks from the International Energy Agency (IEA NP), BP and ExxonMobil (XOM). The comparison addresses several major cross-commodity uncertainties, which include the impact of renewables on fossil fuel demand, along with when or if emerging markets will leapfrog from traditional hydrocarbons.

Despite former predictions from McKinsey & Company suggesting that improved renewable energy technology and energy efficiency measures could lead to peak energy demand, followed by a drop in demand for fossil fuels, five top analysts have forecast that oil could remain king of fuels until at least 2035, closely followed by coal and gas. Renewable Energy Sources (RES), meanwhile, will continue to lag far behind.Global demand by fuel 2035With major uncertainties facing commodity markets, such as the UK, and France’s recently announced plans to ban the sale of petrol and diesel cars by 2040, Wood Mackenzie’s analysis is designed to assist companies target new opportunities and analyse how disruptive trends will impact energy markets in the long term.

While the experts consulted agree that oil will remain the largest fuel, XOM were forecast as the leading supplier as far as projections are concerned, followed by BP; Wood Mackenzie (WM EMS) and the IEA NP are very similar. While coal will remain one of the most in demand fuel sources meanwhile, gas will displace it as the second largest fuel across all forecasts, except the IEA NP, especially with the emissions levels of coal making it decreasingly viable for nations concerned with meeting Paris Agreement targets. Nuclear power, meanwhile, will remain a key mid-level energy source, largely above demand for RES, barring the lone supplier of BP. Fuel demand growth will be strongest during 2015-2025, and while outlooks expect gas growth at around low to mid 3% from 2015-2025; in the back half of the forecast, post 2025, growth moderates materially – between 1-1.5% over 10 years due to slower economic growth and more efficient energy production, especially in the power sector.

For energy markets, growth over the coming two decades is no longer just about China. Despite the Asian superpower remaining the region with the highest demand for energy come 2035, China’s total energy demand by 2035 will equal around a 28% share of total energy demand globally. Analysts confirm through Wood Mackenzie’s collection of outlooks that China’s demand profile is moderating long term, including WM EMS. Other Asia-Pacific nations will see a significant boost in demand meanwhile, and will likely make rapid ground on the energy demands of the North American region over the same period.

2035 total primary energy demand by region

A supply glut had left the American oil market particularly vulnerable since 2016, with a study from BDO showing a massive drop in revenues and profits in the preceding year, resulting in investors taking stock of the situation. The situation also began to hit UAE and Dubai in the same year, while in 2017 global oil companies were forced to decrease operational costs by 29% on average, with around 50% of cost cutting likely to be sustainable in the longer-term. Despite this, growing industrial demand is likely to see oil sustained as the top energy source.

According to David Brown, a Senior Product Manager at Wood Mackenzie, “With energy demand growth in China and Japan moderating, where are the major growth markets in Asia Pacific? Let’s focus on India, where WM EMS expects Total Primary Energy Demand (TPED) to nearly double over the next 20 years. The industrial sector is on pace to be one of India’s largest sources of demand by 2020, supporting the country’s industrialisation process. India’s swift demand growth and infrastructure requirements will increase demand for coal, despite the ramp-up of gas and renewables.”