2016 has been a turbulent year, to say the least. Historic events such as the UK’s withdrawal from the European Union, or ‘Brexit’, and the unexpected outcome of the US presidential election have rocked the political world - and the entire world for that matter - and the oil and gas industry has remained on constant tenterhooks as crude prices linger on shaky ground. However, as the year draws to a close, now is the time to look to the future.
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Accordingly, the International Energy Agency (IEA) has released its World Energy Outlook?2016 (WEO-2016), reviewing the movement of global energy systems to 2040. Reassuringly, the analysis finds that the era of fossil fuels appears far from over, although government policies, as well as cost reductions across the energy sector, will enable a huge push in the renewables arena, as well as improvements in energy efficiency, over the next 25?years.
However, an energy mix makeover also brings its fair share of security risks. Concerns related to oil and gas supply remain, and are reinforced by a decline in investment levels. In the longer term, investment in oil and gas will be absolutely essential to meet demand and replace declining production, but the growth in renewables and energy efficiency will diminish the need for oil and gas imports in a number of countries. Increased LNG shipments will also change how gas security is perceived, according to the WEO-2016. Meanwhile, the changeable nature of renewables in power generation (wind and solar in particular) necessitates a specific focus on the security of electricity.
The analysis notes the growth of global oil demand until 2040, mostly due to the lack of 'easy' alternatives to oil in areas such as road freight, aviation and petrochemicals. But, despite this, demand from passenger vehicles is expected to decline, even as their number doubles in the next 25 years, due to marked improvements in efficiency, an increased use of biofuels and rising ownership of electric cars.
Of course, the much-celebrated Paris Agreement, a major step in the fight against global warming, takes a leading role in the outlook, but meeting these ambitious climate goals will be a tremendous challenge for both developed and developing economies – with huge pushes in the area of decarbonisation and efficiency required. According to IEA data, the implementation of current international pledges will only slow down the projected rise in energy-related carbon emissions from an average of 650 million tpy since 2000 to around 150?million tpy in 2040.
While this is an achievement to be proud of, it is far from enough – only limiting the rise in average global temperatures to 2.7°C by 2100. The mission to attain 2°C is very tough, but feasible, if policies to accelerate further low carbon technologies and energy efficiency are established effectively across all sectors, resulting in a peak in carbon emissions over the next few years, and the global economy becoming carbon neutral by the end of the century. A simple example from the WEG-2016 illustrates the scale of this challenge. In the ‘2°C scenario’, the number of electric cars would need to exceed 700 million by 2040, and displace more than 6 million bpd of oil demand – ambitions to further limit temperature gains, beyond 2°C, would require even bigger efforts.
Efficiency and emissions reduction are, of course, vital issues that must be addressed to ensure the long term health of our planet, and its residents. However, the analysis is clear in its view that fossil fuels still, undeniably, remain king. This, and the fact that our industry is constantly thinking up new and innovative ways of advancing emissions reduction technologies – I had the pleasure of witnessing some of these innovations myself at the ERTC 21st Annual Meeting in Lisbon in November – is certainly a comforting notion looking forward.
I would like to take this opportunity to express my sincere gratitude to all of our authors, advertisers and readers for your continued support in 2016. On behalf of the whole Hydrocarbon?Engineering team, I wish you all a very relaxing and gratifying holiday season and a happy New Year!