ExxonMobil’s Energy Outlook: A View to 2040: Where are we headed? A peek over the fence

Ever since energy became part of our lives it has raised a number of questions. From questions about how it came to be, how can we use it to questions like: is there an end to it? We answer these questions day by day as we continue to have energy as an integral part of our lives. But there is a catch. Energy must be sustained. It just doesn’t exist on its own. Not without an input from us. Just like all resources, it must be exploited. But for how long can we exploit it? A metaphorical sword of Damocles seems to be hanging above all our heads. To put it simply, it’s about demand and supply. Can we balance the two? Are we at a point where this balance is unachievable? Will we ever reach such a point? All these are pertinent questions. And the team at ExxonMobil claims they have the answer. Let’s see their Outlook for Energy and plan for the next years.

exxonThe context is clear. Global economic output has risen about 50% since 2000. Even with the global recession the standard of living has improved. On the other hand, the global demand for energy rose by about one third in recent years. As of today oil alone represents one third of the world’s energy consumption. This is today, but what about tomorrow?

Significant changes are coming, and the biggest growth is envisioned to be in the natural gas sector

According to this study the global energy-related CO2 emissions will likely peak around 2030. And then as a result of economic and climate policies they will be cut in half by 2040. The global demand for energy will rise by 25%. Oil and gas will provide about 60% of global supplies. One thing is certain; oil will remain the world’s primary fuel.
There’s another thing that all studies must take into consideration: the holistic approach. And Exxon does it right. Let’s see the bigger picture, the global fundamentals. There are three factors that we must take into consideration: population growth, economic expansion and demographic shifts. China, India and other non-OECD countries will need much more energy for economical development and rising living standards. Conversely, the OECD nations, here including USA and Europe will meet declines in energy emissions and demand even if their economic output continues to grow. Another important topic is the risk of climate change and the result seems to be that we can expect an increase in cleaner fuels.

By 2040 the GDP will more than double. The world population will reach 9 billion. How will this growth be handled?

To answer these questions the study proposes a look at three different sets of nations. China and India lead the race for development, raising standard of living and achieving technological improvements. Steps toward adopting more policies on energy and climate change are also a priority. Together, these nations are predicted to form almost half the projected growth in global energy demand by 2040. Another group is comprised by countries with rising populations that will drive strong increases in energy demand: Brazil, Mexico, South Africa, Nigeria, Egypt, Turkey, Saudi Arabia, Iran, Thailand and Indonesia (The Key Growth Group). Together they will account for 30% of the growth in energy demand. The last group is the OCED32 countries that are already developed and feature some of the harshest policies on curbing emissions and improving efficiency. Their energy demand is envisioned to drop by 5%.
But there’s one more variable at play: demographics. Keywords here are income and living standards. These can be measured by GDP per capita. It seems that by 2040 the GDP per capita will rise widely across the globe, mostly in the non OECD countries. This will lead to the largest expansion of the middle class in history.

The middle class will grow from just over 2 billion in 2014 to about 5 billion in 2030, with the biggest growth in India and China - as estimated by The Brookings Institution

Also, urbanization will be of utmost importance. By 2040, around 65% of the global population will live in cities. Compare that to 55% as of today and you get an increase of 10% that will greatly impact energy demand. Economy and energy still go hand in hand. The message is clear: keep an eye out for long term forces that shape energy trends. And the major factor here is population. As population and living standards rise, so does the demand for energy. The first talking point is transportation. As time goes by and science advances we will come to know cleaner and more efficient ways of transportation, maybe even ones that will lead to significant fuel savings. But, for the time being, the projections indicate that the global demand for energy in the transportation sector will rise by 30% come 2040. Exxon expects that over 90% of the demand in this sector will be met by oil through 2040.

The most prominent fuel is still gasoline

Even if oil will still be prevalent, a change in its formula is expected to take place. And that is the shifting towards diesel fuel. At the moment, diesel holds about 35% of the total energy used for transportation, but in the future it will surpass gasoline and be at 40, maybe even 45%. A rising competitor, even if it is in its early stage, is natural gas. It is attractive because it has the potential of reducing fuel costs and meeting emission requirements.
Apart from transportation we also need to talk about energy use in the residential and commercial sector. The demand for the two of them together is expected to rise by 25% by 2040.

The number of households worldwide is expected to increase by 40%

But, thanks to the efficiency gains this can still be held in check. Efficient home design is the way to go towards residential energy efficiency and China has this marked as a top priority. Solar energy is also expected to play a big role. Next up is the industrial sector, the largest direct user of energy, but also producer (companies like ExxonMobil). The demand for energy in this sector is expected to rise about 30% by 2040. The two important drivers will be chemicals and heavy industry. In the timeframe it is expected that heavy industry will start to attain a greater share of energy from natural gas and electricity rather than from oil and coal. The demand of gas in heavy industry is expected to rise from 15 to 20% by 2040. In what pertains to the chemicals, it is simple: they are a part of everyday life and their production uses both oil and natural gas as fuel and feedstock. As population increases so too will the production of chemicals. We simply can’t talk about energy and not mention electricity: global demand is expected to rise by 65% come 2040. Half of it is coming from the industrial sector, the other from commercial and residential usage. By 2040 it is expected that 30% of energy will be produced by natural gas and be about even with coal generated one. Coal will still remain important depending on area or availability of resources. Apart from these it seems that nuclear, solar and wind energy will also play a part, even if a less substantial one. But with the production of electricity comes another hurdle: CO2 emissions. The solution, the best one at the moment, at least in the US, is natural gas. More than 60% of avoided emissions in the US power sector came from substituting natural gas for coal and petroleum. The rest was from solar and wind energy. This happened in the 2005-2013 timeframe.

Reliable gas avoids the intermittency issue and emits up to 60% less CO2 than coal when used for power generation

In order for us to keep advancing we must reduce the damage we inflict upon nature. Climate change is a very delicate topic. The 2015 United Nations Climate Change Conference in Paris highlighted this. It is expected that all nations will follow the OECD measures. Still, it is likely that Europe will remain the least carbon-intensive economy. The climate change challenge is real: one of the 17 measures adopted by the United Nations is clearly focused on reducing this risk.
Now that the safety is on we still need to think about safeguarding future production. It seems we are indeed in luck. The offer is plentiful and diverse: shale gas, tight oil, LNG, wind and solar facilities. The possibilities are endless. But, in concordance with the measures I’ve just mentioned, these years will mark a decided shift towards cleaner fuels, enter natural gas. As stated above, oil will remain the top energy source. It is expected that by 2040 unconventional and technological-driven sources of oil and gas will meet one fifth of the world’s energy needs. Liquid fuels will continue to play a major role with an output of about 112 million barrels a day in 2040. Conventional oil deposits are still front and centre but most of the growth will come from technology driven supplies like tight oil, NGLs, oil sands and deepwater production.

The IEA estimates the global recoverable crude and condensate resources at 4.5 trillion barrels. This should meet the global oil demand well beyond the 21st century

Coming back to natural gas, the study shows that the global demand will rise by 50% from 2014 to 2040. This is faster than most other fuels, and more than twice as fast as oil. All this is thanks to versatility. Low carbon content is just the icing on the cake.

At current demand levels, natural gas has the possibility to last for the next 200 years or more

But the problem of distribution still remains. Luckily there is a solution: inter-regional trade. It is expected that nearly half the growth of the global gas demand will be met through this method. And most of it will be done by using LNG. These exports are expected to triple by 2040. Inter-regional pipeline exports will also grow, by about 70% by 2040.
This, in a nutshell, seems to be The Outlook as envisioned by Exxon. The company has clearly stated that the aim of this report is to help governments and people understand the processes and challenges in the industry. It’s not all speculation; it’s based on facts and research. Not everything may come to pass, but it’s better to face this fast changing world with a plan. Exxon has one, do you?

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