The Russia-Ukraine war is likely to accelerate the pace of the energy transition, BP said today in its latest Energy Outlook.
"The war has long-lasting effects on the global energy system. The heightened focus on energy security increases demand for domestically produced renewables and other non-fossil fuels," the report said.
The Energy Outlook provides an update on three scenarios that span a wide range of possible outcomes out to 2050. This year's report identifies four key trends concerning the future of global energy: a declining role for hydrocarbons, a rapid expansion in renewables, increasing electrification and an increased role for low-carbon hydrogen.
Under BP's baseline ‘New Momentum' scenario — which reflects the global energy system's current trajectory — primary energy demand in 2035 is down by 2pc compared with last year's outlook, with lower oil, gas and coal consumption partially offset by higher demand for renewables and nuclear power. Carbon emissions under New Momentum are down by almost 4pc in 2030 and by 9pc in 2050 compared to the previous outlook, with the Russia-Ukraine war and the US' Inflation Reduction Act cited as key factors.
In contrast to New Momentum, BP's two other scenarios — 'Accelerated' and 'Net Zero' — are "broadly aligned" with Paris climate goals. Both have global energy demand peaking in the mid-to-late 2020s, whereas demand in New Momentum rises until around 2040. Fossil fuels still make up around half of 2050 demand under New Momentum, while the share declines to 20pc under the Net Zero scenario.
Global oil demand remains around 100mn b/d over the next decade under New Momentum, with the world still consuming around 75mn b/d by 2050. In last year's outlook, oil demand under New Momentum holds firm at around 100mn b/d up to 2035 and is around 80mn b/d by 2050.
Under the Accelerated and Net Zero scenarios, this year's outlook shows oil demand falling to 70mn-80mn b/d by 2035, before dropping to 40mn b/d in 2050 under Accelerated and just 20mn b/d under Net Zero. BP notes that under all three scenarios, "there needs to be continuing upstream investment in oil and natural gas over the next 30 years".
Prospects for natural gas demand growth diverge sharply under the scenarios. Under New Momentum, gas consumption grows all the way up to 2050, hitting around 4.62 trillion m³/yr. In contrast, Net Zero has demand falling from the mid-2020s to as low as 1.66 trillion m³/yr by 2050. BP says the trajectory will depend on the extent to which demand increases in China, India and other developing countries in Asia, and by how much this is offset by developed nations shifting towards lower-carbon energy.
Pick up the pace
In all three scenarios "the pace at which renewable energy penetrates the global energy system is quicker than any previous fuel in history", the report said. Wind and solar installed capacity increases by around 15-fold up to 2050 under the Accelerated and Net Zero scenarios, and grows nine-fold under New Momentum. The electrification of the global energy system is a key trend across all three scenarios, with final electricity demand rising by around 75pc by 2050. Almost all of this growth is accounted for by emerging economies.
BP sees low-carbon hydrogen playing a crucial role in the decades to come, mostly helping to decarbonise hard-to-abate sectors such as iron and steel. But growth only really takes off after 2030 under the Accelerated and Net Zero scenarios, while low-carbon hydrogen only plays a "relatively" limited role under New Momentum.
One of the most notable effects of the Russia-Ukraine war is the effect on global GDP growth, according to BP. This year's Energy Outlook assumes GDP will be around 3pc lower in 2025 and 2035 than the previous outlook — which did not take the impact of the war into consideration — and around 6pc lower in 2050. This downgrade limits emissions growth, according to BP, with the hit to international trade flows also triggering a shift towards a more local and lower-carbon energy mix.
Russia, which was the world's largest exporter of energy prior to its invasion of Ukraine, is set for much lower oil and gas production in the decades ahead. Its oil output declines from around 12mn b/d in 2019 to between 7mn b/d and 9mn b/d in 2035 across all three scenarios. While the initial hit to Russia's oil and gas output is driven by western sanctions on imports, further out restrictions on Moscow's access to western technology and investment is set to play a key factor.
