Global oil demand, GHG emissions may already have peaked: DNV GL

London — Global oil demand may have peaked in 2019 ahead of COVID-19, but the world is nowhere near being on track to limit global warming to 2 degrees Celsius, consultancy DNV GL said in its fourth annual Energy Transition report Sept. 8.

Pandemic-linked behavioral shifts, such as remote working and reduced commuting, would have a lasting effect on energy use, DNV GL said, potentially bringing forward peak energy-related CO2 emissions five years to 2019.

"Despite flat energy demand and a growing renewable share, the energy transition is nowhere near fast enough to deliver on the Paris Agreement. Most likely we are heading towards 2.3°C warming by the end of the century," it said.

Early peak

DNV GL's previous forecast predicted peak oil demand in the early 2020s, ahead of mainstream outlooks such as the International Energy Agency's Stated Policy Scenario (2040) and BP's most recent Evolving Transition Scenario (mid-2030s).

S&P Global Platts Analytics sees global oil demand about 3 million b/d lower than its pre-COVID forecasts out to 2040, with jet fuel and marine fuels suffering the biggest losses.

Rather than accelerating peak oil demand, however, Platts Analytics believes the effects of COVID will extend peak oil demand by about a year to 2041, propped up by petrochemicals demand.

"Our forecast is usually closer with 'green' scenarios provided by others," DNV GL told S&P Global Platts.

There were a number of reasons for that.

"First, we foresee a faster uptake of electric vehicles in many regions, driven by declining battery costs and ever strengthening policy support in many countries. We do not expect major hindrances from raw material availability or production capacity, as alternative battery chemistries are already becoming available," the consultancy said.

Second, although feedstock use of oil was expected to grow in the near term, DNV GL expected plastics recycling to reverse that trend in the 2030s while other outlooks foresee continued growth in non-energy use of oil.

Finally, DNV GL's outlook was based on more conservative assumptions on population and GDP growth than others, "where we account for the impact of education on fertility, and the impact of transition to service sector economies in economic growth," it said.

Holistic view

Technology could still deliver a Paris-compliant future if scaled properly, the report said, with encouraging progress being made in solar PV, wind and battery storage.

But the report's holistic view tempered undue optimism, Liv Hovem, DNV GL's CEO, Oil & Gas, told Platts.

"One can easily fall into the trap of seeing all the investment in renewables, and assuming it will take us to where we need to be. There is no way within the timeframe that renewables can meet all our needs, that is why we have to decarbonize hydrocarbons."

Carbon capture, electrolysis and energy-efficiency technologies existed but needed a policy push to achieve scale sooner than forecast, Hovem said.

"We are not on the right track yet," she said. "We need 8% emission reductions every year, similar to 2020, up to 2050, in order to reach the 1.5 degree target. COVID has given us 1-2 years more to solve the problem, that is all."

Decarbonizing gas

A core finding in the report was that natural gas becomes the world's single most important energy source this decade, remaining so until 2050.

"However, decarbonization of gas will not start in earnest until after 2035 and, even then, will be quite slow, with just 13% of natural gas effectively decarbonized by 2050," Hovem said.

It will only be in the 2040s, when carbon prices start to approach the cost of carbon capture and storage, that CCS uptake will accelerate, the technology capturing 11% of global energy-related emissions by 2050.

"Although renewables will play an increasingly important role, accounting for more than 60% of global electricity generation in 2050, we still have to de-carbonize all that gas, and that is where a policy push for CCS and hydrogen comes in to play," Hovem said.

Blue and green H2

Steam methane reforming with CCS to produce blue hydrogen would be the main production pathway for sustainable hydrogen over the next decade, Hovem said, reaching 2.3 exajoules per year in 2035.

That was three times more than renewable hydrogen produced from electrolysis (one EJ is equivalent to 278 TWh).

From 2035 the situation would start to change, with electrolysis supplying slightly over half the 23 EJ/yr of hydrogen produced by 2050 (just above 5% of the global energy mix).

Floating wind emerges

In power systems, most regions become dominated by solar and wind within a few decades, boasting cost learning rates of 16%-28% for the core technologies.

From 2018 to 2050, solar PV capacity will grow 20-fold, reaching 10 TW just before 2050, while installed wind capacity will increase 10-fold to 4.9 TW for onshore, 1 TW for fixed offshore and 260 GW for floating offshore wind.

"According to our best estimate, solar and wind will provide 24% of the world's electricity in 2030 and 62% in 2050," DNV GL said.

Affordable transition

The transition was affordable, Hovem said, even including major expansions in high capital-cost renewables and electricity networks.

"In contrast to a near-doubling of global GDP between now and mid-century, global energy expenditure will increase by only 5%, rising from $4.2 trillion in 2018 to $4.4 trillion in 2050. The fossil-energy share will decline by almost half of today's 77%, dropping to 44% of expenditures by mid-century," the report said.

Most upstream fossil-fuel expenditure would disappear due to oil capex falling by a factor of nine to 2050. Neither oil opex nor gas capex would decline by more than a quarter to 2050, it said.

On the power-system side, world grid spend would increase from $410 billion today to about $930 billion in 2050, while capex in non-fossil plants would more than triple to $1 trillion globally in 2050.