Speaking at the BP Week investor event from London, BP’s Group Chief Economist Spencer Dale (a former longtime member of the Bank of England’s Monetary Policy Committee) unveiled three working scenarios for modeling energy consumption patterns over the next 30 years.
Under the Rapid Transition Scenario (hereafter abbreviated as Rapid), governments will introduce a series of targeted, sector-specific policy measures, leading carbon prices to spike up to $250/ton of CO2 (in 2018 prices) in the developing world, and $175 in emerging economies. These measures will, in turn, lead to a drop in total carbon emissions of around 70% by 2050, roughly in-line with scenarios limiting the rise in global temperatures to less than 2 degrees Celsius above pre-industrial levels by the year 2100.
A second, more robust, Net Zero scenario includes all of the policy measures from Rapid, along with shifts in societal behavior and preferences that accelerate global carbon emissions reductions by over 95% by 2050. This is in line with scenarios limiting the global temperatures rise to 1.5 degrees Celsius by 2100.
Finally, the third, less robust Business-as-Usual (BAU) scenario assumes that policies, technologies and preferences continue at the rate and manner of the recent past. Under this scenario, carbon emissions will peak in the mid-2020’s, but with a reduction in carbon emissions by 2050 of less than 10% below the level of 2018. Due to a less robust policy response, carbon prices will reach only $65 and $35 per ton of CO2 by 2050 in developed and emerging economies, respectively.
Across all three scenarios, emerging markets are expected to account for 70% of growth in energy demand up from around 50% in 2008. BP’s economists expect growth to be led by India and Asia/ex-China, which together account for more than the entire increase in primary energy under the Rapid and Net Zero scenarios, and nearly 60% in the BAU scenario. India is the largest contributor to demand growth by 2050 across all three scenarios.
Notably, BP forecasts energy demand growth from China to slow dramatically compared to past trends, peaking in the early 2030’s in all three scenarios. Despite this growth slowdown, BP expects China to remain the largest overall market for energy in all three scenarios, accounting for more than 20% of total global energy demand in 2050 (nearly twice the level of India).
All three scenarios show a decline in the share of hydrocarbons in the global energy system: a phenomenon that Chief Economist Spencer Dale noted would be entirely unprecedented in recorded history, which has never before witnessed a sustained decline in absolute consumption for any traded fuel.
Across its three scenarios, BP’s economists see the energy mix rapidly diversifying, with growth in primary energy dominated by renewable sources (excluding hydroelectricity), from a current 5% to somewhere between 20-60% across the three scenarios.
In so doing, renewable energy sources in all three scenarios—including Business-as-Usual—will penetrate the energy system more quickly than any fuel in modern history.
Greater diversification of the overall fuel mix is expected to lead to more aggressive competition, as resource owners compete to ensure that their energy resources are produced against a backdrop of declining overall demand.
BP’s outlook points to more electrification in the global energy mix, with share of electricity in total final consumption increasing across all scenarios.
The analysts anticipate that this will be particularly pronounced in energy use for road transport, particularly under the Rapid and Net Zero scenarios, with electric vehicles expected to account for around 30% of all four-wheeled vehicle kilometers (VKM) traveled on roads in 2035 and 70-80% in 2050, compared to less than 1% in 2018. Both scenarios also point to electric vehicles accounting for 80-85% of the stock of passenger cars, and 70-80% of light- and medium-duty trucks, against a broader backdrop of increasing vehicle efficiency, higher emission standards, and higher carbon prices.
Finally, BP’s economists are modeling for a “persistent” impact of Covid-19 on economic activity and total global energy demand.
“The central view used in the main scenarios is that economic activity partially recovers from the impact of the pandemic over the next few years as restrictions are eased, but that some effects persist,” the economists write. “The level of global GDP is assumed to be around 2.5% lower in 2025 and 3.5% in 2050 as a result of the crisis. These economic impacts disproportionately affect emerging economies, such as India, Brazil and Africa, whose economic structures are most exposed to the economic ramifications of covid-19.”
IOC —> IEC
Over the summer, BP announced the launch of an ambitious strategy to transition the company “from IOC [international oil company] to IEC [integrated energy company] by the year 2030.
This plan is to include a ten-fold investment in low carbon energy initiatives, a 20-fold increase in renewables capacity, emissions reductions of 30-40% for the aforementioned aims, and a 40% reduction in oil and gas production, with an overall focus on lower production volumes and higher production values.
And just last week, BP announced its first move into the market for offshore wind—the fastest-growing renewable energy source, on track to expand from 30 GW to 190 GW by 2030. BP’s wind energy debut will come via a strategic partnership with Norwegian energy major Equinor to provide electricity to 2 million energy customers in the U.S. states of New York and Massachusetts, through a $1.1 billion acquisition of assets from Empire Wind and Beacon Wind on the East Coast.