PARIS: A global pact to battle global warming entered into force last week, but the latest long-term look into the energy market by the OPEC oil cartel sees climate change measures failing to quench the world’s thirst for crude.
Each year OPEC releases a report that looks at how the energy market will evolve in the coming two decades, and Tuesday’s report slashed estimates of coal and gas use due to efforts to limit climate change, but left oil unscathed.
The report comes as nations reassemble to discuss how to make good on their promises to cut planet-warming greenhouse gases following the entry into force last Friday of a worldwide pact to battle global warming.
Dubbed the Paris Agreement, it is the first-ever deal binding all the world’s nations, rich and poor, to a commitment to cap global warming caused mainly by the burning of coal, oil and gas.
The long-term base scenario for the evolution of the energy market in OPEC’s report takes into account greater measures to limit climate change, but not full implementation of pledges made by countries.
In this scenario, greatest impact will be on the use of coal and then later gas, used particularly in electricity generation, which OPEC said “is not surprising given that policymakers are increasingly engaged in climate change mitigation initiatives”.
The report slashed its estimate of coal demand to 91.5 million barrels of oil equivalent per day (mboe/d) in 2040, from 98.3 in last year’s report, although that still represents a jump from the 77.1 mboe/d of demand in 2014.
The estimate for gas demand in 2040 was cut to 101.7 mboe/d from 111.5 mboe/d, but demand is still seen soaring from the 59.6 mboe/d of demand in 2014.
Meanwhile, the estimate for 2040 oil demand was only trimmed to 99.8 mboe/d, from 100.6 mboe/d.
With demand of 85.1 mboe/d in 2014, crude is expected to see the slowest growth over the next two and a half decades.
Cars driving oil demand
“A declining share for oil in the energy mix is mainly the result of tightening fuel efficiency standards across most countries of the world,” said the report.
However, with the number of passenger cars on the road expected to double, and electric vehicles still only accounting for a single digit percentage of vehicles, demand for oil is expected to continue to increase.
Growth in the aviation and the petrochemical sectors will also support oil demand.
Estimates that see little impact for the oil sector would be welcomed by the industry, which OPEC also said in its report needs $10 trillion of investments in order to meet future demand.
OPEC’s main scenario sees overall energy demand grow from 273.9 mboe/d in 2014 to 382.1 mboe/d in 2040, although is a drop from the 399.4 mboe/d it forecast last year.
Implementation risk for oil
OPEC also presented two alternative scenarios. The first would have countries implement climate pledges faster than its base assumptions, while the second foresees full implementation, along with accelerated technological developments.
But this would again mostly impact coal and gas use for electricity and, with added efficiency gains, total energy demand would drop by almost 30 mboe/d.
Oil use is also expected to be curbed. Under the first alternative scenario this would be mostly via quicker and greater fuel efficiency gains. In the second, electric vehicles are expected to account for one in five cars by 2040.
The second scenario would oil demand peaking in the 2030s, with demand in 2040 at a level only 3 mboe/d above that seen in 2014.
OPEC’s base scenario would see greenhouse gas emissions continue to rise throughout the period, but to begin declining in the 2030s if all commitments were honoured.