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Analysis

Peak Oil Demand Still Looming, and Gas Too

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The strong rebound in oil demand following the Covid-19 crisis led several energy modelers to postpone the expected date of peak oil demand. Consultancy DNV and BP, which last year considered oil could have peaked in 2019, now see demand peaking respectively in 2024 and 2025. But the desired and likely direction of travel has not changed. In fact, the Intergovernmental Panel on Climate Change's (IPCC) recent warning — that keeping a 1.5ºC or even 2ºC warming limit in sight will require a big strengthening of policies — could mean an even faster phasing out of fossil fuels than initially envisaged. Indeed, Paris-compliant energy scenarios assume oil and gas demand will fall by respectively 40%-80% and 20%-60% between now and 2050. Gas demand would also need to peak only a few years after oil, around 2025-30.

Most scenarios, however, even among Paris-compliant ones, do not achieve net-zero — or near net-zero — CO2 emissions by 2050. This would only happen with the International Energy Agency's (IEA) and BP's net-zero scenarios, and the IPCC's 1.5°C group of scenarios with limited warming "overshoot" — in other words, there is a limited degree to which the average temperature increase misses or overshoots what is targeted. In the IPCC's 1.5°C scenarios with high overshoot, reaching net zero would happen five to 10 years later, and only around 2070 in the 2°C scenarios, in line with Shell's Sky 1.5 scenario. China, Indonesia and Saudi Arabia are targeting net-zero CO2 by 2060, and India by 2070.

Oil Demand to 2050
(million b/d)Peak2030204020502021-50
Energy Watch Group (0 Gt)<202172310-100%
UNPRI 1.5 (2 Gt)2025884620-79
IEA Net-Zero (0 Gt)<2021724324-74
BP Net-Zero (2 Gt)<2021905524-74
UNPRI Forecast Policy (9 Gt)2026996337-61
IPCC 1.5°C Low Overshoot (1 Gt)<2021866341-56
Total Rupture<2021885941-56
Equinor Rebalance (9 Gt)<2021886146-51
BP Accelerated (10 Gt)2025967247-50
IPCC 1.5°C High Overshoot (6 Gt)<2021997853-44
DNV (19 Gt)2024856949-48
IEA Sustainable Development (8 Gt)<2021886557-39
Total Momentum<2021947463-33
IPCC 2°C (14 Gt)20301008870-26
IEA Announced Pledges (21 Gt)2030968477-18
BP New Momentum (31 Gt)20301019281-14
Equinor Reform (24 Gt)20301009284-11
Shell Sky 1.5 (18 Gt)20251009485-10
IPCC 2.5°C (29 Gt)204010510799+5
Shell Islands (34 Gt)2040102104102+8
IEA Base (34 Gt)2040103104103+9
IPCC 3°C (38 Gt)2040104108106+13
Exxon>2040104107107+14
Opec (34 Gt)>2045107108108+15
Equinor Rivalry (32 Gt)>2050107110110+17
IPCC 4°C (52 Gt)2040107111111+18
Shell Waves (35 Gt)2040111119111+18
US EIA (43 Gt)>2050109117126+34%

Role of CCS

Many forecasters emphasize the role carbon capture and storage (CCS) needs to play to keep emissions within budget, based on its ability to limit emissions in hard-to-decarbonize industrial processes, along with its projected ability to achieve negative emissions by removing CO2 from the atmosphere when combined with bioenergy (BECCS). Conservative scenarios such as Equinor's Rivalry, the IEA's Stated Policies and BP's New Momentum only assume limited amounts of CCS of just a few hundred million tons per year of CO2 by 2050. That's a seemingly modest amount, but five to 10 times more than today's installed capacity of 40 million tons/yr.

Paris-compliant scenarios assume more substantial amounts of CCS, ranging from 4 billion tons/yr in BP's Accelerated scenario to 8 billion tons/yr in the IEA's net-zero and over 9 billion tons/yr in the IPCC's 1.5°C scenarios. This is considerable — and unrealistic, critics argue — as it more or less matches the current physical size of the oil and gas industry, which in 2021 has been handling 4.2 billion tons of oil and 3.4 billion tons of gas. Building such a big industry from scratch would require some $150 billion per year over 2030-50, according to a recent report from the Energy Transition Commission (ETC), an international think tank. This is huge but amounts to less than a third of today's oil and gas capital expenditure, at around $500 billion/yr, the ETC's Kash Burchett notes.

All Paris-compliant pathways involve rapid and deep emissions reductions in all sectors, but also deployment of negative emissions technologies such as afforestation-reforestation, BECCS and direct air capture (DAC) to counterbalance residual emissions and reduce excess CO2 concentration in the atmosphere. Negative emissions options, while "unavoidable," face substantial "implementation challenges" including technological and social risks, scaling and costs, the IPCC warns. It also stresses that negative emissions "cannot fully compensate for delayed action."

Gas Demand Up, Then Down

Natural gas demand increases in most scenarios in the current decade — with the notable exceptions of truly net-zero projections such as the IPCC's 1.5°C and BP's and the IEA's net-zero scenarios. Deep emissions reductions by 2030, particularly natural gas-related methane emissions, "reduce the likelihood of overshooting warming limits and lead to less reliance on negative emissions that reverse warming in the latter half of the century," the IPCC notes.

Sharper divergences on natural gas demand appear after 2030. Paris-compliant projections see it peaking no later than 2030-35 while several scenarios do not foresee a peak at all. Those include the notoriously bullish US Energy Information Administration's International Energy Outlook and Opec's World Oil Outlook, but also Exxon Mobil's base case, TotalEnergies' Momentum, BP's New Momentum and the IEA's Stated Policies scenario. The IEA's Announced Pledges scenario, which might replace the Stated Policies as the agency's implicit base case, and the IPCC's 2°C scenarios see gas demand peaking in 2030 at around 150 exajoules, just a few percent higher than today's 145 EJ. It would then decrease by around 0.5% per year to 2050.

Gas Demand to 2050
(EJ)Peak2030204020502021-50
Energy Watch Group (0 Gt)<202028120-100%
UNPRI 1.5 (2 Gt)20211047253-64
IEA Net-Zero (0 Gt)<20211297561-58
BP Net-Zero (2 Gt)20251339361-58
UNPRI Forecast Policy (9 Gt)20231229668-53
IPCC 1.5°C Low Overshoot (1 Gt)<20211118882-43
IEA Sustainable Development (8 Gt)203013910885-42
BP Accelerated (10 Gt)202515213094-35
Equinor Rebalance (9 Gt)2030149144107-26
IPCC 1.5°C High Overshoot (6 Gt)2030149129113-22
Shell Sky 1.5 (18 Gt)2035157151115-21
IPCC 2°C (14 Gt)2030149139130-11
DNV (19 Gt)2030159154131-10
IEA Announced Pledges (21 Gt)2030147136133-8
Total Rupture2040157160153+5
Shell Islands (34 Gt)2045152161160+10
Equinor Reform (24 Gt)2040156164161+11
Equinor Rivalry (32 Gt)>2050154165165+14
Shell Waves (35 Gt)2040161175169+16
IEA Base (34 Gt)>2050157169176+21
BP New Momentum (31 Gt)>2050160176181+25
Total Momentum>2050158175185+27
IPCC 2.5°C (29 Gt)2060156175186+28
Opec (34 Gt)>2045167186191+31
Exxon>2040175187197+36
US EIA (43 Gt)>2050176188204+40
IPCC 3°C (38 Gt)2080161189204+40
IPCC 4°C (52 Gt)2080168198217+49%

Topics:
Oil Demand, Gas Demand, Forecasts, CO2 Emissions, Carbon Capture (CCS)
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