Statoil: Macroeconomic and Energy Outlook to 2040

Statoil publishes its annual Energy Perspectives report outlining the analysis of macroeconomic and energy market developments towards 2040.

“Global economic development will continue to drive energy demand. At the same energy efficiency improvements, fuel mix changes and a changing economic structure give a decline in the OECD countries’ energy demand between now and 2040”, says Statoil (STO)’s Chief economist Eirik Wærness.

Energy Perspectives 2014 analyses three different scenarios for the development from 2011 to 2040, to illustrate the major uncertainties in modelling long-term developments.

The Reference scenario, where already decided energy and climate policies, as well as ambitions and targets, and our forecasts on likely developments in policy measures are the starting point for the modelling. The Low Carbon scenario, where more comprehensive energy and climate policies are applied to incentivize a more rapid increase in energy efficiency, green growth and technology development. The Policy Paralysis scenario, where protectionism and geopolitical rivalry lead to lower growth, a less green energy mix and lower energy efficiency.

Global primary energy demand grows by 44% in the Reference scenario, by 4% in the Low Carbon scenario and by 26% in the Policy Paralysis scenario. To a varying degree in each scenario, growth will mainly come from non-OECD countries, as a result of continued economic growth, urbanisation and improving living standards.

Annual global economic growth in the Reference scenario is projected to average 3.0% over the next three decades. This is in line with the growth over the past 20 years. Emerging economies are expected to continue to lead the way, with non-OECD growing at 4.5% on average per year and OECD at 1.9%.

Energy mix
In the Reference scenario, demand is projected to increase for all energy sources ranging from 0.6% growth per year (oil) to 8% (new renewables). As a result of climate and environmental policies and cost improvements, new renewables are expected to increase their market share from around 1% to almost 7%. Fossil fuels supply 75% of total primary energy demand in 2040 against 81% in 2010.
 
In the Low Carbon scenario the global fuel mix evolves in a less CO2-intense direction. The coal share of world primary energy consumption declines significantly by 2040, the oil share drops and all other energy carriers increase their shares of the only moderately growing total primary energy demand. Global gas use increases by about 16% from 2011 to 2040.

In the Policy Paralysis scenario the global fuel mix evolves in a less green direction, with a growing share of coal in world primary energy consumption, lower growth for renewables and CCS, steady nuclear share, lower oil share and big regional differences for natural gas (decline in importing regions and increase in exporting regions).

The analysis confirms the results presented by the IEA; that within a sustainable energy system, there is still a strong need for oil and gas in the energy mix over the coming decades.

“Given maturation of the world’s existing oil and gas fields, all three scenarios imply major investments to replace current production. Even a strong growth in renewables will not be enough to replace the natural decline from producing fields and meet the global demand for energy”, says Wærness.

Global CO2 emissions are projected to increase in the Reference scenario, in spite of expectations of gradually tightening efficiency standards and regional climate policies. Efficiency gains are mainly outweighed by global energy demand increase.
 
In the Low Carbon scenario energy efficiency, renewables growth, switching from coal to gas and CCS make CO2 emissions fall significantly, down 20-25% in 2040. A development according to this scenario requires big changes in global energy systems.

Natural gas demand grows in all scenarios

Due to its availability, flexibility and environmentally friendly characteristics compared to coal, natural gas is likely to become an increasingly important fuel in the decades to come. In the Reference scenario natural gas demand is forecast to grow faster than total energy demand, by 1.4% per year on average until 2040. In the Low Carbon scenario, the gas share of total primary energy demand grows from 21% to 24%. In the Policy Paralysis scenario the global market share for natural gas is relatively stable.

The supply potential of shale gas continues to surprise, both in terms of volumes and marginal costs. Environmental policies are expected to help improving the competitiveness of gas.

“The example of the United States serves as an example that increased availability of one fossil fuel, gas, could reduce demand for another fossil fuel, coal, with very positive effects on carbon emissions,” says Wærness.

The Energy Perspectives report is prepared by Statoil analysts with the purpose of presenting development scenarios for further discussion and analysis.