Global oil demand outlook significantly depends upon the energy transition which world is witnessing today. The major factors that drive the energy transition are:
i) Global concern on climate change
ii) Global economic development
iii) Energy access and affordability
iv) Energy intensity and energy efficiency
Global concern on climate change has manifested in several countries taking steps to reduce greenhouse gas (GHG) emissions. These steps are in line with Paris agreement on climate change which calls for limiting global warming to well below 2 degree Celsius and preferably 1.5 degree Celsius. GHG emissions can be reduced in following ways:
i) Increasing share of renewables (majorly solar and wind) in energy-mix
ii) Increased penetration of electric vehicles
iii) Focus on carbon capture, utilization and storage (CCUS)
Specific actions taken by some countries are the following:
i) US has announced the goal to achieve net zero GHG emissions by 2050. It aims to reduce emissions by 50-52% from 2005 level by 2030 and make electricity sector carbon free by 2035.
ii) China has set target to achieve carbon neutrality by 2060 and increase share of fossil fuels in its primary energy-mix to 20% by 2025 and to 25% by 2030.
iii) European Union (EU) has set a target to achieve net zero emissions by 2050, and reduce GHG emissions by 55% from 1990 level by 2030, increase the share of renewables in energy-mix to at least 32% and increase energy efficiency by at least 30% by the same period.
iv) EU has also decided to phase out use of coal and that there would be no new coal- based power plant after 2020.
v) In yet another step to reduce GHG emissions, EU has set an objective to increase proportion of electric vehicles and hybrid electric vehicles to total vehicles.
vi) United Kingdom has set a target to phase out completely sale of new passenger cars running on petrol and diesel by 2030 and increase the use of electric vehicles.
The above actions will potentially reduce the oil demand in future. Renewables are mostly used for electricity generation and oil’s demand for electricity generation is very small (approx. 5.5%) relative to total demand. However, increased use of electrical vehicles will have significant downwards impact on oil demand as nearly 55% of total oil demand is for transportation sector. Focus on CCUS will have likely upside demand impact on oil as it would reduce net GHG emissions.
Global economic development is expected to drive global energy demand growth. World economy, with current size of approx. USD 85 trillion, is likely to expand more than twice in next 25 years. Consequently, global energy demand is expected to increase from current approx. 275 million barrels of oil equivalent (mboe) per day in 2020 to approx. 350 mboe per day in 2045. While energy demand is likely to increase in developing countries, it is likely to decline in developed countries. This is due to declining energy intensity (energy consumed per unit of GDP increase) in developing countries as a result of energy efficiency measures taken by them coupled with their service oriented economic growth.
On other hand, energy poverty of developing countries will drive their energy demand growth. Average per capita energy consumption of developed countries is slightly more than 30 mboe per day, while global average per capita energy consumption is approx. 15 mboe per day, China’s approx. same as global average, India’s approx. 5 boe per day and other developing countries’ approx. 6 mboe per day. Therefore, developing countries have potential to increase their per capita energy consumption to reduce their energy poverty.
Bulk of the energy demand growth over next 25 years will come from developing nations and approx. 65% of that growth shall be contributed by India and China only. Average per capita income of developed nations is approx. USD 40000 whereas that of developing countries (excluding China) is approx. USD 2000, China approx. 11000 and global average approx. 11000. This shows the gap between developing and developed countries on prosperity front. Given this fact, affordability or cost of energy will play an important role to decide the course of energy transition.
Cost competitiveness of electric vehicles is less vis-à-vis conventional vehicles with internal combustion engines due to higher battery cost and battery charging infrastructure cost. However, developed countries can afford the cost of electric vehicles and therefore approx. 55% of new passenger cars in those countries will be electric battery powered in 2045. Globally, the share of new passenger cars on electric battery in total passenger cars shall be approx. 30% and share of new passenger cars on natural gas and other power trains taken together shall be about 10%, which means nearly 60% of total new passenger cars shall be fueled by petrol and diesel in 2045.
Globally, number of passenger cars is expected to increase by nearly 80% between 2020 and 2045. This coupled with high share of new passenger cars on petrol and diesel in total new passenger cars will drive the oil demand growth over next 25 years. Consequently, world oil demand is expected to rise from nearly 91 million barrels per day in 2020 to about 108 million barrels per day in 2045 i.e. nearly 20%. But, share of oil in total primary energy demand is expected to decline from 30% in 2020 to 28% in 2045 due to renewed global push for clean energy in future. However, a bigger push for clean energy transition on global front could drastically reduce oil (and other fossil fuels) demand in future. In the most optimistic but least practical scenario of achieving target of net zero emission by 2050, oil’s share in total primary energy demand could be as low as 8% in 2050 meaning an oil demand of just around 22 million barrels per day.
About Author: Satyendra Kumar Singh, B.Tech. (Chemical Technology) + M.B.A., is proprietor of Satsha Management Services-an award winning design engineering and management consulting company (www.satshamanagement.com). He possesses approximately 30 years’ experience in engineering consultancy in process and energy industries. Satyendra has authored several papers on energy, business and management, which have been published in some renowned journals/magazines such as ‘Chemical Engineering’, ‘Process Worldwide’, ‘Modern Manufacturing India’. He may be reached at satyendra.singh@satshamanagement.com, Ph. +919811293605.
