BP's Global Energy Outlook 2035 - Confirmation of Some Key Energy Trends

January 22, 2014

Tom Syer

Given the critical importance of energy production and use to our societies (economic , social and environmental), the forecasting of energy supply and demand is an essential tool in helping to shape the myriad public and private sector policies and investment decisions required to ensure energy availability and effective energy resource use.

In addition to the excellent annual Global Energy Outlook produced by the International Energy Agency , a number of leading private sector firms in the energy sector also provide estimates of key supply and demand trends, along with corporate commentary on implications.

Last week, UK based energy giant BP released their Energy Outlook which reinforces several key trends outlined in the IEA’s 2013 World Energy Outlook as well as similar reports from industry peers (Exxon/Mobil, Shell, Chevron) and other forecasters. The chart below summarizes BP’s key global energy projections, to 2035, as detailed in their new report:

Energy Demand Growth	Total energy consumption rises by 41% over the forecast period (2012-2035); this is a slowing of BP’s previous projected energy demand growth (55% for a similar period) 95% of energy demand growth comes from emerging economies OECD’s 5% growth over the timeframe includes net declines in energy demand/consumption after 2030
Fuel Supply Mix	Share of fossil fuels (oil, natural gas, coal) in the global energy supply picture converges to around 27% each of the total mix, with natural gas the fastest growing component and oil the slowest Nuclear, hydro and renewables obtain a share of 5-7% each
Oil	Slowest growth of the fossil fuels, with all net demand increase coming from China, India and the Middle East Future supply increases from the Americas and the Middle East, with half of the growth from non-OPEC sources (US tight oil, Canadian oil sands, Brazilian offshore and biofuels) US oil imports are predicted to fall by a dramatic 75% by 2035
Natural Gas	Fastest growing fossil fuel, with non-OECD countries representing 78% of worldwide demand growth over the period to 2035 LNG exports to grow twice as fast as overall natural gas consumption, rising to 26% of all global gas consumed by 2035 Shale gas to meet 46% of demand growth (21% of global gas), with North America expected to account for 71% of world shale gas production
Coal	Coal demand will grow faster than oil, but slower than natural gas, with slowing demand at the back-end of the 2035 outlook 87% of net growth in coal demand is expected to come from China and India, increasing their total share of global consumption to 64%
Renewables	They represent the fastest growing energy sources, albeit building from a small base Share of global electricity production to increase from 5% to 14% Will exceed nuclear as a primary energy source by 2035
Nuclear	China, India, Russia will account for 96% of nuclear energy growth, with nuclear output declines in the US and Europe expected
GHG Emissions	Carbon dioxide emissions from energy are projected to rise by 29% to 2035, with all of the increase coming from emerging economies. Emissions decline in the US and Europe Emissions trend growth to slow, relative to the past, as natural gas and renewables displace market some uses of coal and oil

As part of the analytic context and commentary, BP addresses three important questions:

Is there enough energy to meet growing global demand?
Can we meet demand reliably? and
What are the consequences of meeting that demand?

Put differently, is the supply of energy for the world likely to be sufficient, secure and sustainable?

BP’s answers to the first two questions are largely a resounding “yes”. The shale oil and gas revolutions have de-bunked previous “peak” fossil fuel supply analyses that were based on examining mainly conventional fuel sources. We are now entering an energy development phase, perhaps of several decades duration, where energy conversations are primarily focussed on the third question posed by BP.

So what does this analysis mean for BC? Overall, the BP report validates much of the general discussion around the need to diversify the export profile of the province’s fossil fuel resources away from the United States and towards the faster growing economies in the Asia Pacific. From both a supply (USA has huge commercially accessible shale reserves) and demand (Asia is growing, USA is not) perspective, the development of an LNG export industry makes good sense for BC and Alberta too.

While some in the ENGO community may suggest otherwise, the analysis also validates the widely shared view of energy experts that natural gas is/will be vital as a transition fuel for a combination of reasons -- the most important being that to meet the large scale energy demand from emerging economies, natural gas is a better choice in terms of GHG output and other pollutants than coal or, in most cases, oil. Although renewables are expected (and should) play a bigger role in satisfying the growing energy demand of emerging markets, it will take many decades before renewables displace fossil fuels as a source with sufficient scale and cost profile to meet the energy needs of the rapidly growing emerging economies.

More challenging for our province and for Canada as a whole, in this analysis is that new supply options and market demand shifts translate into stiffer competition and more complex development processes for our energy resources. With Iran, Russia, Qatar and Turkmenistan holding over 50% of the world’s proven natural gas reserves and all anxious to grow exports, we face strong competition to meet rising Asian gas demand. When we drill deeper into the third question posed by BC, the issue we should increasingly be asking ourselves is who do we want leading the way and meeting the growing global demand for natural gas in the most economically and environmentally beneficial way possible?

I think you can guess where I land on this – and, with respect, it is not with Iran, Russia, Qatar or Turkmenistan. Fortunately, BC and Alberta (and the US/Australia) also offer key risk diversification benefits for hungry Asian energy consumers, in addition to our world class upstream oil and gas sector and proven resource base.