The energy transition has shown signs of losing momentum in recent months: EV sales are slowing, wind and solar capacity additions are not expanding fast enough, and electricity prices are rising instead of falling.
Along with these signs, other signs are raising red flags: Despite the pressures on oil and gas, these will be here to stay for the long term, and the latest data suggests that demand will not decline much after it peaks. Energy Outlook BP’s.
The oil giant, which used to compile the World Energy Statistics report, now produces its own report, and in its latest edition it says that oil demand will peak next year. This isn’t the first time that peak oil demand has been said.
The last statistical survey, in 2019, said demand growth had peaked, but this turned out to be a big mistake: in fact, oil demand surged to record highs after the pandemic lockdowns ended.
BP notes that while oil demand has grown by an average of 500,000 barrels per day since 2019 over the past five years, this growth will soon end as demand declines over the coming decades. But here’s the thing: BP previously predicted that the decline will be much larger. Now, the company expects global oil consumption to still be 97.8 million barrels per day in 2035. That’s a relatively small decline from current consumption of about 100 million barrels per day, but could surpass that amount this year if demand strengthens in the second half of the year.
In other words, BP is acknowledging that it will not be easy to break human civilization’s dependence on hydrocarbons simply by adopting alternative energy sources. Furthermore, primary energy demand is still on the rise, and hydrocarbons will continue to be the energy source that meets much of that demand until that demand declines.
Energy demand is key to a successful transition to energy sources that still have room for improvement in areas such as energy density and storage costs. To make this work, we need to consume less energy, not more. In fact, in BP’s net-zero scenario, energy demand growth would peak by next year, if governments and business could secure all the funding and regulatory support they need for the transition in one go.
Unlike that perfect scenario, in the current trajectory scenario, energy demand growth is projected to continue until the middle of the next decade, then peak and level off, as developing countries continue to need more energy.
BP’s outlook essentially outlines a widening gulf between developed countries, where the push for the transition has begun and been most strongly driven, and developing countries, where access to energy remains a luxury in many places. But as developing economies grow, this luxury will become available to more and more people, and these people will consume more and more energy until they reach a peak.
The fact that the growing demand for oil and gas is being driven by developing countries, while developed countries are only slightly declining in demand for oil and gas, at the great cost of deindustrialization, highlights a contradiction in one of the transition theory’s best-known arguments: the transition theory claims that the transition will ensure abundant and affordable energy for all. However, the current state of the world amply proves that this is wishful thinking at best. The facts suggest that energy abundance is due to the very energy sources that the transition theory seeks to phase out and replace.
Thus, developing countries increase overall global oil demand, while developed countries try, and mostly fail, to reduce consumption. This is why BP predicts that oil and gas will continue to dominate in the long term, and in its outlook, the decline is mainly due to improvements in energy efficiency. Interestingly, in the company’s current trajectory scenario, oil demand remains strong, even though wind and solar PV deployment will double by 2050, by which time these two, along with geothermal and biogas, will account for about 25% of total primary energy.
This suggests that the current energy policy trajectory, with its rapid expansion of wind and solar power deployment, EV sales, and a range of other transition-related activities, is lagging far behind the goals of the net-zero plan. This is something that many transition advocates have been warning about, and the IEA has been the most vocal about: the world needs to act faster, tougher and more urgently to make the transition to net-zero a reality.
But that’s not how things are going. Rich developed countries are getting less and less wealthy because they’re directing ever-increasing cash flows towards the transition, and poor developing countries are getting richer because they’re consuming more and more hydrocarbon energy — and they like it. Thus, oil and gas will continue to dominate the global energy landscape. The developing world is a big place.
By Irina Slav of Oilprice.com
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