Hello, everyone. Welcome to the launch of the 2019 Energy Outlook. It's great to see so many of you here in St. James's in London. And a big welcome to the thousands of you that we see joining us on the webcast from around the world.
And I just looked at the number, it's 8,435. So some of them have a couple of people or more. So welcome, welcome, everyone, from everywhere. We've been issuing the statistical review, which is our annual review, for over 65 years. And this is the 9th edition of the outlook, which goes out further in time.
So many of you will be familiar with what it does. As I'm sure Spencer will remind you shortly, this is not a forecast. I think the lawyers have us say that's not a forecast. But we do some pretty remarkable things in this industry, but we draw a line at predicting the future. Instead, the energy outlook helps inform our understanding of the forces that shape the global industry, the uncertainties of energy all around the world.
And one thing this year's addition certainly does is it brings into sharper focus just how fast this industry is changing and how the dual challenge is framing the future. The world needs more energy but demands fewer emissions. We have to do both. If we just focus on demand or just emissions, we won't succeed. So let me start with some thoughts on the demand side of the dual challenge.
We've known for some time about the relationship between improved access to energy and better living conditions. But what struck me in this year's report is how clearly it underlines the strength of that link and just how much more energy the world might need. Like last year, the outlook suggests energy demand could rise by around a third by 2,040. That's if current trends continue. And most of that growth is driven by rapidly developing Asian Economies.
Just a fact, I'm going to go off what's written here, but I learned something 2 weeks ago by the CEO of Boeing that said that Asia is only beginning to fly. 82 percent of the people on the planet have never been on a plane. There'll be 100,000,000,000 more people this year and 100,000,000,000 more plus the next year, the next year, the next year. That's just one insight into how demand may grow. This year, Spencer and his economics team have taken a closer look at the numbers by analyzing human development data from the United Nations.
They found that 80% of the world's population currently lives in countries where more energy would go hand in hand with significant improvements in quality of life. I thought that was really striking. So if you factor in global energy consumption rising by around a third over the next 20 years, that is likely to improve a lot of people's lives. It's even more striking when you learn that around 2 thirds of the world's population will still be living in countries with low energy use. I think that gives a sense of the sheer scale of the demand side of the dual challenge.
And if that wasn't enough, we have to address, of course, the other side of the equation that we need and must bring down emissions. As the outlook points out, the rate of growth in carbon emissions may have slowed considerably compared to the last 20 years. But on current trends, carbon emissions are most likely to rise by about 10% by 2,000 40. So the emissions are still moving in the wrong direction and a real step change is needed to get them going in the right direction. So across the industry, we're working hard to play our part, whether that's within our operations or helping consumers lower their carbon footprint.
But when we're talking about what happens within our industry and outside it, much more needs to be done. This report adds weights to calls for a comprehensive set of policy measures to help the world meet the dual challenge. There's no silver bullet to solving the dual challenge. The truth is everyone has a role to play, those that produce it and societies and how carefully they must use it. Many forms of energy will be needed.
For that reason, I'm very glad to have the energy outlook refer to that. As always, it looks at a range of possible scenarios. Some of these touch on issues that may seem familiar, But this year, the team has also explored some new themes that are high on the agenda. One of these is what could happen in a world where more barriers to trade occur, something that could certainly interrupt the global flow of energy. Another considers the possible impact of increasing controls on the use of plastics, an issue that's growing in the public's consciousness.
And in transport, it looks at the likely combined impact of applying a whole range of measures designed to reduce carbon emissions. All of these scenarios are helpful as we think about the future of the industry and the dual challenge. It's a vast and complex problem, perhaps the defining one of our time. Still, I'm not daunted by it. The world already has the know how resources and increasingly the will to make it work.
So I'm optimistic about this. As you can probably tell by looking around this room, we see possibilities everywhere. I think that's the right approach. While we know the outcome that's needed for the energy transition, we don't know the exact path it's going to take. I would say no one does.
Fortunately, the outlook puts a structure and a discipline to our thinking as we consider tomorrow's challenges and opportunities. And I hope it helps others in the industry just as much. I do want to thank Spencer Dale and his very talented team for all the efforts they put into this report. They pulled together data from all over the world. It's an amazing job to analyze vast amounts of data and more importantly, make sense of it.
They don't use AI on this. So with that, I'd like to hand it over to Spencer to take you through some of the details. Spencer?
Thank you, Bob. And let me add my thanks to everybody for sparing the time to come to the launch of this year's Energy Outlook. Here in London, where there are many familiar faces, it's great to see so many people. And as Bob said, also around the world via the web, where we have over 8,000 people registered for today. And I know watching this via a webcast is not the same as being in the room, but please do stick with us.
We have lots of interesting things today. And you have one big advantage watching it online. You can post your questions whenever you want to. Everybody here has to sit on their hands for the next half an hour listening to me. So take that advantage and you can get your questions in first.
For those of you who are watching the video, you may have seen that we've changed slightly our logo for the Energy outlook this year. Gone is the green and yellow globe. And instead, we swapped it for this sort of urban backdrop. It's very nice, but I thought this was more appropriate for today. It's Valentine's Day.
Now you know on Valentine's Day, traditionally, you give tokens of your affections to your loved ones. And although there are many familiar people in the room today, I don't wish to appear over familiar. And although I'm very excited by the energy outlook, even I know it's not quite the same as a bunch of flowers or a box of chocolates. But please know the thought is there. In a similar spirit, if I just continue to spread the love by just talking thanking a few people that have been helping us produce the energy outlook over the last few months, that includes in particular the rest of the economics team, many of whom are here today.
One special note, if I can, one member of the economics team, Mark Finley, who has worked for the team for over 17 years, retires next month, and we're going to miss you a lot, Mark. But the work of this goes beyond the economics team. It goes right across BP as we pull in expertise and insights from right across BP, upstream, downstream, trading, technology, regions and so on. The economics team holds the pen, but the content is very much a team BP effort. So many thanks to all of you for all your help over the last few months, especially right through the Christmas period.
The basic structure of this year's outlook is similar to last year's. The outlook considers a wide range of scenarios to explore and better understand the uncertainties surrounding the energy transition. There's no central or base case. The probability that the world will unfold exactly in line with any of these scenarios is, of course, almost 0. But as with last year, for ease of explanation, much of the narrative and the outlook is based around the evolving transition scenario or ET scenario, which gives a sense of the broad path the global energy system may travel along if government policies, technologies and social preferences continue to evolve in a speed and manner consistent with the recent past.
They won't, of course, and considering how and why they may differ from the past gives rise to a range of alternative scenarios shown here on the screen, and I'll take you through these scenarios and several other ones as I go through the presentation today. Again, as with last year, we consider the outlook for energy from 3 different perspectives. First, how is that energy ultimately used in sectors, so in transport, industry or buildings? Then where in the world is that energy coming from and where is that world being produced and being consumed? And finally, what fuels and energies are rising to meet the growing demand?
Three different windows onto the same changing energy landscape. The charts here are for the updated ET scenario in which energy demand increases around a third by 2,040. If we look through these different windows to get a little bit more detail, starting first with that sector window about how energy is used across different sectors. One thing I'm always struck by is that despite the considerable attention many of us pay to emerging trends in the transport sector, transport only accounts for around 20% of energy consumption today. It's important not to overweight the significance of the transport sector, and I'm going to come back to that point later.
Indeed, although it typically attracts far less column inches and far less policy attention, the use of energy within industry, shown here in red, accounts around half of all energy the world uses, almost 2.5x that used in transport. How industry's use of energy changes over the next 20 years, both in terms of efficiency and fuel choice, will have a major bearing on the energy transition. Residential and commercial buildings, the next largest source of energy demand shown here in pink, is the fastest growing sector in terms of energy use in the ET scenario. The vast majority of that additional use within buildings takes the form of rising power demand as increasing prosperity and living standards in the developing world leads to greater use of lighting, household appliances and air conditioning, all of which are predominantly powered by electricity. Finally, in terms of transport, shown here in the dark blue, in last year's energy outlook, we spent quite a bit of time considering the potential impact of the so called mobility revolution, the interaction of electric cars, shared mobility and autonomous driving.
We have updated that analysis in this year's outlook. I'm not planning to go through that in detail today, but just to say that the prospects in the updated ET scenario are broadly unchanged from last year, with a similar number of electric cars and around 25% of all passenger car kilometers powered by electricity by 2,040. If we go back to my three windows and consider next the country and regions accounting for the increase in energy demand, the story here is similar to recent outlooks. All of the growth in energy demand comes from the developing world, led by Asia. Energy demand in the OECD, these green bars here, is essentially flat.
One difference from previous years is that in the updated ET scenario, India, shown here in the light blue bars, overtakes China to be the largest growth market for energy over the outlook. The big factor driving this switch is the sustained slowing in Chinese energy demand as economic growth moderates and the pattern of that growth shifts to less energy intensive sectors and where the pace of that slowing in recent years has repeatedly surprised us. Another point we've made in previous outlooks, but it's important to remember, is that although some of the increase in energy demand stems from population growth, the majority is due to increasing prosperity, rising income per head, shown there by this orange bar, as productivity in developing economies increase. In the ET scenario, billions of people move from low to middle incomes, increasing their access to electricity and clean cooking facilities, improving the housing in which they live and the way in which they travel. This increasing prosperity, the emergence of a growing middle class in the developing world, especially in Asia, is the major factor accounting for global economic growth over the next 20 years.
And likewise, it's the major factor accounting for the growth in global energy demand. Without plentiful supplies of energy, this increase in global living standards will be suppressed and with it, the major factor driving global economic growth. And I will come back to the importance of the world providing more energy in a moment. The amount of additional energy needed to support this rising prosperity is offset by significant gains in energy efficiency, shown here by the blue bar, which is assumed to improve at an average rate of almost 2% a year, somewhat quicker than the average over the past 20 years. So although global GDP more than doubles, energy demand increases by only a third.
When considering the future growth of energy demand and the related uncertainties, it's worth bearing in mind this basic chart. The 2 big determinants of future energy demand are the growth in global prosperity, the orange bar, and the extent to which that demand is offset by improving energy efficiency, the blue bar. I do worry that in many mainstream discussions of the outlook for energy demand, these two factors often don't quite get the attention they deserve. If we turn back to my windows and look through the 3rd window now onto the fuels which are growing to meet this demand, renewable energy shown here in orange, led by wind and solar power, is the fastest growing source of energy in the ET scenario, accounting for around half of the increase in primary energy, with its share here increasing to around 15% of primary energy by 2,040. Oil demand continues to grow during the first part of the outlook before broadly plateauing in the 2030s.
All of the growth in oil consumption sent from the developing world with a combination of U. S. Tight oil and OPEC meeting this increased demand. Natural gas, shown here in red, grows much faster than either oil or coal, and it overtakes coal to be the world's 2nd largest source of energy, converging on oil by the end of the outlook. The demand for natural gas in the ET scenario increases in almost every country and region considered, so broad based demand, supported by the expansion of liquefied natural gas, LNG, increasing the accessibility of gas around the world.
Renewables and natural gas together account for almost 85% of the growth in primary energy. So nearly 85% of new energy is either clean or cleaner energy. The corresponding contribution of renewables and natural gas over the past 20 years was less than half that, with coal the largest source of energy growth in that period. In contrast, global coal demand in the ET scenario is essentially flat, with falls in China and the OECD barely matched by increasing demand in India and other parts of Asia. The world of energy is changing.
That's a very quick overview of some of the key features of this year's updated ET scenario, but the real value of the outlook is going deeper. What are the main factors underpinning these trends? And more importantly, what are the key sources of uncertainty? To make this manageable and also ensure that you all finish in time to get home to spend your Valentine's evenings with your loved ones rather than with us talking about energy, Rather I'm not going to go through the whole book, rather I'm going to focus on 5 key questions and uncertainties highlighted by this year's outlook. How much more energy does the world need?
How important are plastics for the future of oil demand? What might happen if the trade wars escalate? Just how quickly could renewable energy grow? And a low carbon energy system, what more needs to be done? The good news is you will get home.
The bad news is this only covers a small part of the analysis and thinking in this year's outlook. There are all sorts of issues and insights that I don't have time to mention today. So if by the end this presentation your curiosity has been peaked, please do look at the whole of the outlook online atbp.com. We've updated quite significantly the way we show the outlook on the web this year, and the site now is far more interactive and user friendly. So please do check it out.
So I'm going to start with this first question, how much more energy does the world need? There's a strong link between human progress and energy consumption. This chart shows the relationship between human development, as measured by the UN's Human Development Index, and energy consumption across a large number of countries. It suggests that increases in consumption are correlated with increases in human development, with that correlation particularly pronounced for increases in energy consumption up to around 100 gigajoules. What I found really striking is that around 80% of the world's population today live in countries where average energy consumption is less than 100 gigajoules per head.
In that steeply sloping part of the relationship where increases in energy consumption and human development are particularly pronounced, 80% of the world's population. In the ET scenario, despite the substantial growth in energy demand, this proportion is still around 2 thirds even by 2,040. The world will need substantial amounts of more energy as it grows and prospers. In this year's outlook, we consider an alternative more energy scenario in which the share of the world's population living in this low energy region is reduced to onethree by 2,040. Other things equal, that requires around 25% more energy by 2,040 than in the ET scenario, So roughly equivalent to China's entire energy consumption today.
To repeat, the world will need substantial amounts of more energy if it's to continue to grow and prosper. In his opening remarks, Bob stressed the importance of the dual challenge, the need to provide both more energy and less carbon. This next chart tries to illustrate the dual challenge in the context of the scenarios in this year's energy outlook. So the green lines here show the outlook for energy demand and carbon emissions in the ET scenario. The solid line shows energy demand, where as I mentioned, it grows by a little over by around onethree by 2,040.
And the dotted line shows CO2 emissions, which I'll show you later, increased continue to edge up and increased by around 7% by 2,040 in the ET scenario. In the more energy scenario, with U. S. Share of the world's population living in the low energy region to a third, energy demand is around 65% higher than it is today. But neither the more energy scenario or the ET scenario are consistent with meeting the Paris climate goals.
In this year's outlook, we developed another alternative scenario, the rapid transition scenario in which CO2 emissions fall by around 45% by 2,040, broadly consistent with meeting the Paris goals. And this is the essence of the dual challenge facing the global energy system. The world needs increasing levels of energy as the global economy grows and living standards improve. But at the same time, there needs to be a sharp reduction in carbon emissions for there to be a good chance of meeting the Paris climate goals. There's no simple solution to this challenge, but any viable, sustainable path for the energy system needs to take account of both elements, more energy, less carbon.
We turn to the next question to the importance of plastics for oil demand. To set the scene, this chart summarizes the outlook for oil and other liquid fuels in the ET scenario. Consumption of liquid fuels increases around 10,000,000 barrels a day over the outlook, rising from around 98,000,000 barrels a day to 108,000,000, with the majority of that growth occurring over the next 10 years or so, after which demand gradually plateaus. The growth stems partly from increasing demand from the transport sector, shown here by these blue bars, but these blue bars gradually fade as vehicle efficiency increases and other fuels penetrate the transport sector. The single largest and the most persistent source of demand growth is the noncombusted use of liquid fuels used in industry, shown by the gray bars here, especially as a feedstock into the petrochemical sector.
Much of the growth of the noncombusted use of liquid fuels is driven by the increasing production of plastics, which is by far and away the fastest growing source of non combusted demand. So what might happen if increasing environmental concerns cause the regulations of plastics to tighten significantly? How big an impact could that have on oil demand? The likelihood of some material tightening plastics regulation is already built into the ET scenario, including a doubling of recycling rates to around 30%. As a result, the growth rate of plastics over the outlook almost halves relative to the past 20 years despite only a slight slowing in GDP growth, And this tightening reduces the growth of oil demand by around £3,000,000 a day.
This is all shown by this little arrow box here relative to the counterfactual extrapolation of past trends. So quite a bit already built into the ET scenario, but it's possible that regulation may tighten by even more. When assessing this risk, it's worth remembering that around 2 thirds of the plastics of all plastics are used to produce durable goods. Just look around you, the chairs you're sitting in, the TV monitors you're watching, the microphone I'm using, the lectern I'm standing at, these long lived products are not the focus of current concerns. Rather, the environmental concerns are concentrated on the use of plastics for packaging and other single uses, plastic bags, bottles, straws, etcetera, which currently account, you can see there by the blue bars here, for around 3,500,000 barrels a day of oil.
And in the ET scenario, that increases to around 6,000,000 barrels a day by 2,040. So what would happen if the regulation of plastics tightened even faster than assumed in the ET scenario, assuming culminating in a worldwide ban on the use of all plastic packaging and other single uses from 2,040 onwards, as shown in this yellow alternative single use plastic ban scenario. The demand for oil and other liquid fuels used in the non combustible sector still grows, but only just so this yellow line is only just above the blue line. And overall growth of oil and other liquid fuels is reduced to around £4,000,000 a day. So the growth in overall oil demand is roughly halved over the next 20 years.
I took 2 main points from this scenario. 1st, although a complete worldwide ban on single use plastics looks pretty unlikely, it does highlight that the speed and extent to which the regulation of plastics does tighten over the next 20 years could have a material impact on the pattern of oil demand growth. The numbers are big enough. 2nd, and this is important, I think, the scenario doesn't account for the energy needed to produce the alternative materials that are used instead of single use plastics. The point here is that the reason why the demand for plastic packaging and other single uses is set to increase so substantially over the next 20 years is because they provide an effective and efficient solution to many everyday needs.
They work. Several experts have raised concerns that without further advances in alternative materials and the widespread deployment of efficient collection and reuse systems, such a ban could lead to an increase in energy demand and an increase in carbon emissions. Beware unintended consequences. When responding to the environmental concerns associated with single use plastics, it's important to also consider the alternative products and materials that will be used instead and the impact they may have on the energy use and the environment. Just to round off this discussion on the prospects for oil demand, this chart shows the different profiles for oil demand implied by the various scenarios considered in this year's outlook.
The green line is the ET scenario, the red and orange lines at the top and bottom of the range are the Moore Energy and the rapid transition scenarios I mentioned earlier. One other scenario to highlight is the greater reform scenario shown by this sort of burgundy line here, which considers the possibility that the increasing abundance of oil resources and the resulting risk that large quantities of recoverable oil may never be extracted leads to greater competition between oil producers, lowering prices and so boosting demand growth somewhat. The scenarios differ in terms of the point at which oil demand peaks, if it peaks at all, And they also differ in terms of the level of oil demand in 2,040 ranging from around 80,000,000 barrels in the rapid transition scenario closer to 130,000,000 barrels in that top scenario. But despite these differences, all the scenarios suggest that oil demand will play a significant role in the global energy system out to 2,040. And just to repeat a point that we made in last year's energy outlook, all the scenarios imply that significant amounts of investment in new oil production will be needed over the next 20 years to meet these levels of demand.
This black dotted line is based on some analysis in the IEA's World Energy Outlook, which considers the consequences if all future oil was restricted to managing existing fields and there was no new investment there was no investment in new fields. The IEA estimate that will be consistent with an average rate of decline in global oil production of around 4.5% a year, which in our framework causes oil supplies to fall to around 35,000,000 barrels a day by 2,040. To increase production to even the lowest level of oil demand in our range, the rapid transition scenario of 80,000,000 barrels a day would require many 1,000,000,000,000 of dollars of investment, many 1,000,000,000,000 of dollars of investment in new oil. Without that investment, the world will not even be close to delivering on the more energy aspect of the dual challenge. Remember, we need to think about both aspects of the dual challenge.
That's all I wanted to say on oil demand.
I wanted
to turn next to the issue of the recent trade disputes and how they may affect the global energy system if they were to escalate further. Now the aim here is not to consider the implications of any particular dispute, but rather to think about the more general issues of how the energy system may be affected if these types of disputes became more frequent and commonplace. To assess their possible impact, we consider a scenario in which increasing trade disputes lead to 2 persistent effects. First, the reduced level of openness in trade causes productivity advances in one part of the world to spread more slowly to other regions, leading to a slight reduction in the trend growth of global GDP, and that type of mechanism is pretty commonplace within the economics literature. The second impact is that increased concerns about energy security leads countries to attach a small risk premium of about 10% on imported sources of energy.
So for example, suppose a country which imports oil and suppose the oil price was, let's say, dollars 60 This would imply they would be willing to pay up to $66 for domestically produced oil or an equivalent given the extra security that would provide. What is quite striking is that although the assumed size of these two effects is pretty modest, the impact on the global energy system in this alternative less globalization scenario are really quite significant. The level of global GDP is around 6% lower than in the ET scenario, and global energy demand is around 4% lower. Now some of you may be thinking, 4%, that doesn't sound that big. 4% the reduction in energy demand associated with 4% by 2,040 is roughly equivalent to the entire energy consumption of India today.
So fairly material, I'd say. The other key impact is the reduction in energy is concentrated in traded fuels, particularly oil and gas, as you can see here, the green and the red bars, as countries switch to domestically produced energy because of the excess security that provides. The combination of this lower level of energy demand, together with the increasing home buyers for domestically produced energy, leads to a sharp reduction in energy trade. For example, China's net imports of oil and gas in 2,040 are 20% lower than in the ET scenario as they switch into domestically produced coal and renewables. This in turn has a knock on effect for energy exporters.
U. S. Net exports of oil and gas in 2,040 are around 2 thirds lower than in the ET scenario, with the emerging U. S. Trade surplus in oil and gas severely dented.
I've always been struck that the share of oil in the global energy system peaked in 1973, the year of the oil embargo, and has pretty much declined every year since. The message from history and from the less globalization scenario is that concerns about energy security can have persistent scarring effects. That's what I wanted to say on trade disputes. On to the 4th question of just how quickly could renewable energy grow. As I mentioned, renewables are the fastest growing source of energy in the ET scenario, accounting for around half of the increase in primary energy and around 2 thirds of the growth in power generation.
This rise and rise of renewable energy is led by wind and solar power, which increased by a factor of 510, respectively, over the outlook, accounting for broadly similar increments in Global Power. As shown on the chart on the right here, the growth in renewable energy means it replaces coal as the primary source of global power generation by 2,040. The growth of renewable energy is dominated by the developing world, which accounts around twothree of the increase. The particularly rapid growth of renewables in the developing countries is helped by the strong growth in power demand, which ensures there's considerable scope in which renewables can grow. In contrast, the much slower expansion of power demand in the OECD means that the scope for renewables to grow in many developed economies is often limited by the pace at which existing power stations are retired.
Indeed, this year's outlook includes some analysis, which shows that a doubling in the rate at which existing thermal power stations are retired, increases the penetration of renewable energy almost as much as the doubling in the pace of technological progress. Continued technological gains in renewables are a necessary condition to achieve a rapid decarbonization of the power sector, but they are unlikely to be sufficient. This is a particular example of the more general point that the capital intensity of the energy system acts as a sort of speed bump on the pace at which New Energies can penetrate. This chart, which some of you have seen before, puts this point into a broader historical perspective. For those who haven't seen this chart before, it's a really cool chart.
You just need to spend a moment to get your head around how it works, then it's a cool chart. So the clock on this chart starts at the point when each one of these fuels provided 1% of world energy. And it then shows how that share of world energy increased over the subsequent 50 years. So for oil, the chart starts in 18/77 when oil first accounted for 1% of world energy. For nuclear, it was 1974, and as you can see, we haven't quite reached the end of the 50 years of nuclear.
The key point to take away from this chart is the sheer length of time it takes for these new energies to penetrate the energy system. It took almost 45 years for the share of oil to increase from 1% to 10%. It took natural gas in red over 50 years. The capital intensity of the energy system acts as a brake on the pace at which new energies penetrate. Energy transitions in history have taken multiple decades.
So what about renewables? Renewables in Orange, a clock for renewables started 10 years ago in 2006, so just over 10 years ago. And you can see so far, renewables have followed pretty much the path of nuclear energy. What will happen next? The profile implied in the ET scenario suggests that the share of renewables in World Energy increases from 1% to 10% in 25 years, so more quickly than any fuel ever seen in history, helped by policy support and sustained technological improvements.
In the rapid transition scenario, which is consistent with meeting the Paris climate goals, the growth of renewables is literally off the charts. I had to rescale the chart for it to fit in here with renewables accelerating from 1 to 10 in just 15 years. I'm not suggesting this is implausible or impossible, rather I drew two points from this analysis. 1st, to get anywhere close to a pathway consistent with Paris will require a speed of change and transition in the global energy system, which is truly unprecedented. 2nd, to achieve this pace of transition will require a comprehensive set of policy measures, which brings me to my 5th and final question.
What more needs to be done to ensure a rapid transition to a lower carbon energy system? As I mentioned earlier, in the ET scenario, CO2 emissions shown here on the left continue to edge up, increasing by around 7% over the next 20 years. The good news is that the pace of this growth is far slower than in the past. Over the previous 20 years, CO2 emissions increased by almost 45%. You can see how that line is flattening off relative to the past.
So the world is making some progress. The bad news is the pace of this progress is nowhere near fast enough to be consistent with the Paris climate goals. CO2 emissions need to fall substantially over the next 20 years, not just grow less quickly. The chart on the right shows a sectoral breakdown of those carbon emissions. The power sector, here in purple, accounts around 40% of CO2 emissions in 2,040 in the ET scenario.
It's the single biggest source of CO2 emissions from energy use both today and in 2,040, this despite, remember, the unprecedented growth in renewables we just saw. Industry and transport each account for around 20% for a quarter of the emissions and building about 10%. The idea behind the rapid transition, or RT, scenario is to consider a range of policy measures that can be applied in these sectors to achieve a faster transition to a lower carbon energy system. We don't have time today to go through all the various policy measures. They are described in some detail in the main booklet where we go through each sector in turn.
So what I'm going to try and do today is just give you a flavor of what we try to do. So we applied a wide range of measures stretching across each sector with the policies chosen so as to be broadly equivalent in terms of their implied costs and effort. As Bob said, there's no silver bullet. A comprehensive set of policy measures is needed. Carbon prices play a central role, particularly in the power and industrial sectors, encouraging a switch into lower carbon fuels and supporting investment in carbon capture, use and storage, CCUS, with carbon prices reaching $200 per ton of CO2 by 2,040 in the OECD and $100 elsewhere.
The carbon prices are increased only gradually to avoid a premature scrapping of productive assets, and this means there's a role at least for a period for targeted regulatory measures to help create the right incentives for new investments until carbon prices get to meaningful levels. If we go back to the chart showing CO2 emissions for the ET scenario, I can now add in the rapid transition scenario in which carbon emissions fall by around 45% by 2,040. The blue swathe shows a sample of external projections, which claim to be consistent with meeting the Paris climate goals. What is striking about this wave is just how wide it is, and this is by no means exhaustive. It would be the middle of this range.
So in that sense, you can think of the rapid transition scenario as being on a pathway consistent with meeting the Paris goals. In terms of the sectors which essentially get us off this green line and onto something closer to the orange line, which what's doing the work getting us off the green onto the orange. Around 2 thirds of the movement from green to orange is due to the reduction in carbon intensity of the power sector, the purple line here. As some of you remember, we discussed last year, policies aimed at the power sector essential to achieving a material reduction in carbon emissions over the next 20 years. Much of the remainder of the movement from green to orange is due to reductions in buildings and industry, the red bar.
In absolute terms, the increased use of CCUS in the power and industrial sectors to around 4.5 gigatons of CO2 by 2,040 accounts around a quarter of the reduction in carbon emissions relative to current levels. It's striking that the transport sector, despite an equally stringent set of measures being applied, accounts for only a very small proportion of the carbon emissions relative to the ET scenario. The point here is most of the low hanging fruit in terms of reducing carbon emissions over the next 20 years lies outside of the transport sector. In terms of the nature of the global energy system in 2,040, Despite significant gains in energy efficiency, global energy demand still grows by around 20% in the rapid transition scenario, that need for more energy again. All of the growth in energy demand is met by increasing renewables, with our share of primary energy increasing to over 30% by 2,040.
Remember that off the charts growth in renewables we just saw a moment ago. But even in that case, with our off the charts growth of renewables, with renewables accounting for around a third of global energy in 20 14, something has to provide the other 2 thirds. With oil and gas, shown here in the green and red bars, together accounting for almost 50% of primary energy in 2,040 in the rapid transition scenario. As we saw earlier, the level of oil demand forced around 80,000,000 barrels a day by 2,040. In contrast, the demand for natural gas actually increases over the outlook, helped by the growing use of CCUS.
By 2,040, around 40% of natural gas consumption is used in conjunction with CCUS in this scenario. The rapid transition scenario is obviously highly stylized, but the hope is that it provides some guidance of the type of actions that might help to make a decisive change over the next 20 years. At its heart is a set of policy measures focused on the lowest hanging fruit in terms of carbon emissions. The power sector is key in that respect. Think power first, second and third.
Carbon prices are critical. They provide incentives for everyone, producers, consumers, investors to play their role. Supplemented by targeted regulations, especially in initial phases if carbon prices are increased only gradually. Finally, many energies are likely to be required for many years. As Bob has often said, this is not a race to renewables, it's a race to reduce carbon emissions.
Just one final point before wrapping up. Even if the world was to achieve everything envisaged in the rapid transition scenario, a significant level of CO2 emissions from energy use would still remain in 2,040. The rapid transition scenario represents a major step towards Paris, but it represents just that. It takes us roughly halfway. For those of you who live in London, it's like getting to Calais, right?
It's a good start, but there's still a long way to go. This chart shows a structural breakdown of carbon emissions that still remain in 2,040 in the rapid transition scenario. These emissions are concentrated in hard to abate processes and activities, particularly in the transport and in industry. This year's energy outlook considers the role that different technologies and activities may play in greatly reducing these emissions beyond 2,040 if we are to move to a net zero emissions world in the second half of this century. Now we don't have time to go through that analysis in detail, but just to highlight a few of the key points.
A key development would be the need for an almost complete decarbonization of the power sector, together with greater electrification of end use activities. That in turn is likely to require more renewables, more CCUS to support gas and perhaps even coal and energy storage and demand side response to help alleviate some of the growing intermittency issues associated with the increased reliance on renewables. But the IEA recently estimated that only twothree of final energy use has a technical potential to be electrified, highlighting the need for other forms of low carbon energy and energy carriers such as hydrogen and bioenergy. There will also be a need for accelerated gains in energy efficiency, including a substantial expansion of the circular economy. And finally, a range of technologies for the storage and removal of carbon emissions, including CCUS, as I mentioned, and also a range of negative emissions technologies such as land carbon.
The road to Paris is long and challenging. On that sobering thought, let me conclude. The global energy system is in transition. One obvious dimension of that transition is the need to shift to a lower carbon energy system, but that's only one dimension. The pattern of energy demand is also in transition, driven by growing prosperity in the developing world as billions of people start to enjoy just a tiny fraction of the comforts that most of us take for granted.
Meeting the dual challenge for more energy to continue to support growth and prosperity while reducing carbon emissions is a key challenge facing all of us. It turns out there is some uncertainty as to the precise origins of Valentine's Day. My preferred version is of the Roman priest Valentine, who married soldiers in secret after they were forbidden to marry because apparently single men made better soldiers. I'm afraid a new energy outlook can't compete with the excitement of clandestine weddings, and it certainly won't make you a better soldier. But I hope at least it will make you a bit better informed about the considerable uncertainties and challenges facing the global energy system over the next 20 years.
And for those of you who've left it too late to buy a Valentine's gift for your loved ones, we have some small bags of special energy outlet Valentine's chocolates for you to pick up on your way out. Thank you very much.
Great. Well, Spencer, thank you and your team for that wonderful review. And I think the books are outside as well, and they're much thicker. So as Spencer said, there's a lot more inside the report. So I hope you'll enjoy it.
Those of you are joining us from all over the world, almost all time zones around the globe, thank you for joining us. We've already got a fair number of questions here, sort of helpfully grouped into subjects. But because you're here, think about ones that you might have for a second, but I'm going to go to Africa. Spencer, what will Africa's role be with regards to the energy market?
And in some sense, that's one of the things which we just don't talk about. It's sort of very sort of conscious by its absence today. In the evolving transition scenario, Africa accounts for around half of the growth of global population but accounts for less than 10% of the growth of GDP and less than 10% of the growth in energy. And that's because just a matter of logic is because productivity trends in Africa are so poor. But when you look beyond 2,040, I think that's one of the sort of key uncertainties beyond 2,040.
At some point, if you start to get any sort of increase in productivity growth in Africa, then certainly Africa will start to emerge as a sort of major growth center for energy demand in that period from 2,040 to 2,060,070. So in some sense, it feels like the Sleeping Giant at the moment, but it feels like that's the next big wave of energy demand. And that's important that's another really important point about the more energy pit. There are many people there who are living without access to electricity. Even far more people, I think the IEA recently estimated that 2,700,000,000 people don't have access to clean cooking facilities.
They are killing themselves and their families every day by not being having access to clean cooking facilities. That is why that's the underlying essential point of the more energy component of the dual challenge.
Thank you. Maybe one question here and then next from Carol. Here first, she was first. Carol? Yes, okay.
And then we'll go back here and then behind you and 3rd. How about that? And then we'll go.
Carol, Natalia Cristo Energy. Spencer, I can see that you placed a strong emphasis on carbon capture and storage or now it's becoming CCUS. But the technology has been around for decades, and it has failed to make a big difference. Why is that? And what would make it any different in the coming decades in your forecast?
Sorry, carbon capture and storage does not play a big role in evolving transition scenario. It plays a little role, but not very much. So the trajectory is sort of we're moving along at the moment, absent the change, it doesn't play a big role. And the simple argument there is because there's a public there's a big public good element to carbon capture use and storage. It's solving an externality.
And to do that, private sector needs to have had the incentives to go and invest in it. If you we know in any type of public good, if you allow just the private sector to invest in it itself, you'll get suboptimal levels of investment. The natural way in which to do that is a carbon price. There are many other ways of doing it, but the carbon price is 1. In the rapid transition scenario, as carbon prices increase, as I say, very substantially to over $200 a tonne in the OECD, dollars 100 a tonne in the non OECD.
That provides incentives for that investment in carbon capture use and storage. And as I said, in that rapid transition scenario, CCUS is accounting for around a quarter of the reduction in carbon emissions from current use. So I think that's true in our analysis. It's true in almost all the analysis that I've seen of 2 degrees C scenarios. A significant role has to be played by CCUS.
So from Carlos Gustavo Cano from Ecopetrol at Colombia and several other questions on the same subject. What is the impact, Spencer, of electrification of vehicles on the prices of oil? What is the impact on the demand for oil? And how fast? There's a collection of questions there.
Yes. And there's one on shared mobility as well here as well. So the analysis here is very similar. Our analysis is very similar to last in terms of electrification of cars. The number of electric cars on the planet today is about 4,000,000 barrels is about 4,000,000 cars out of a global car park of about 1,000,000,000.
And in evolving transition scenario, it gets to around 300,000,000 by 2,040. How confident am I about that GBP 300,000,000 number? Not the least bit confident. And the uncertainty bounds are very large. But very roughly, if it did get to that €300,000,000 number, we estimate that would reduce oil demand by around 3,000,000 or 4,000,000 barrels a day by 2,040.
Now the question here is what impact may that have on the price of oil? If the demand for oil fell by 3,000,000 or 4,000,000 barrels a day tomorrow, that would have a very big impact. But if the growth of oil was just slower over the next 20 years, so it grew less quickly, such that by 20 years out, it was 3 or 4,000,000 barrels a day lower than it was today. My instinct that would have very little impact on oil prices. And the underlying belief there is, in my view, is sort of the oil supply curve over that sort of range is relatively flat.
So you do not so the significance in terms of the marginal barrel for 3,000,000 or 4,000,000 barrels a day is not very large. So with the growth, the pace at which electric cars will grow, that's likely to have pretty, I would say, almost very little impact on the price of oil.
I'd just add that most of the electric cars in your projections come from power. It comes from coal. So on the emissions, this really has to change.
Yes, it does. And the point here, and it's sort of related to the point I was making earlier about where the low hanging fruit lies. Those some of you may remember last year that we did a scenario where we had a ban on the sale of all internal combustion engine cars after 2,040. That was equivalent to the number of electric cars on the planet by 2,040 being over 1,000,000,000 electric cars. So not 300,000,000, over £1,000,000,000 And then to sort of anticipate Bob's question, we said, let's suppose all of those are powered by renewables.
So it had no impact in terms of carbon at all. And then so what impact does that have in terms of reducing carbon emissions? And in terms of that moving from the orange to the green line, it made almost imperceptible difference in terms of moving the 2. Electric cars are very important in terms of improving urban air quality and pollution, which are very significant issues. In terms of carbon emissions, they just don't move the dial.
Sir? And then next no, first, second and then back to the world. Yes. 2nd, yes.
Thank you. Kassem Solta, National Grid. Thank you for the very interesting presentation. One thing that really stuck out to me on your scenarios, I think somebody has mentioned Africa already is the affordability going forward. You mentioned 30% more energy demand by 2014.
All of that's coming from the developing world, not the developed world that can afford to subsidize new technologies and renewables to an extent. Has that been taken into account? Or how much weighting would you put on that because they all want energy, but they want it relatively cheaply?
Yes. And as I said, the reason why we're seeing that growth in energy demand in the developing world is because we have this emergence of this growing middle class, these people that are moving from low to middle incomes. And as they move from low to middle incomes, there's a relationship where you look at energy consumption per family or per head. When people are relatively poor, even as they get a little bit wealthier, their increases of consumption doesn't increase very their increases of energy doesn't increase very much. The main focus is sort of making sure there's food on the table and there's shoes on their children's feet.
As they go from low to middle incomes, as you go through that period, their demand for energy increases really quite substantially. They get access to electricity. They can start using household appliances. They can save and opt for their 1st motorbike. Eventually, they can have their 1st motor car.
As they get richer and richer and they move into high incomes, essentially energy consumption then starts to plateau out. You've got enough cars. You've got a TV in every bedroom. You don't need any more. We have 2,500,000,000 people, a third of the population moving through that very rapidly increasing period in that rapid period where you're really increasing energy demand very substantially.
And that's what's driving that growth. Affordability is a key part of that. But in some sense, it's because those countries are becoming wealthier. There's this emergence of the middle class, which is that's the key driver of global economic growth and it's also the key driver of energy demand growth.
It's for the so the webcast can hear you.
Yes, sorry about that. It's more about the conflict between the need for energy, which should be cheaper for the developing world, but at the same time, what do they prioritize, the need for energy or to pay for cleaner energy?
Yes. And we had some analysis in the book, which looks at that sort of trade off, particularly within the power sector. So if you think about some of those economies, in those economies power demand is growing very rapidly. And because power demand is growing rapidly, that means there's plenty of scope for renewables to grow. So that's helping renewables to penetrate.
So that's a good side of it. But because power demand is increasing so rapidly, often in many of the economies and regions we look at, renewables can't grow sufficiently enough and they need another source of energy. And often coal is the natural source of energy because there's plentiful supplies of domestically available coal. And so there's a trade off between those two things. Renewable energy is growing, helping them to decarbonize the power sector.
But unless they can grow it quickly enough, in many of those economies, the other next fuel in line because the priority is making sure there's plentiful supplies of power means you suck in coal. And as a result of which, the rate at which those power sectors decarbonize is limited.
Thank you. John Hall, Alpha Energy. Bob, you sort of started out by talking about the need to reduce emissions. If you look at what the Trump administration is doing to the EPA, is trying to not say destroy it, but completely break down all the work they've done and reverse the environmental controls being put in by the previous administration. I mean looking at what the individual states are trying to do in terms of agreeing with Paris or whatever, is this a real threat from what America is doing?
Or is it just a PR thing to sort of say, we don't recognize climate change, but in reality it's all going well in the background?
Well, I think there's obviously lots of politics going on in the U. S. Right now. And the states are different. What people want to do and say they can do and what's possible are all very different.
I will point out that the emission levels in the United States are now down to where they were in about 1990. And the reality is the regulation and the position of government regulation isn't what's driving it. It is the price of natural gas. It is the market that has driven down natural gas, which is moving coal out of the system. And that's why the emissions are so low.
I don't we deal a lot with the U. S. I wouldn't say dismantle the EPA and destroy what's been done. What we see as a company is the pace of getting decisions, permits is much more reduced. And the answer is not always yes, but we get a decision quickly.
And I think that's where the frustration has been. It's being interpreted in different ways. And it's not just the energy industries, it's all industries, infrastructure, bridges, roads, decisions are made quickly. So the business community broadly says it's not about destroying it, it's actually getting decisions made or not made quickly because things would go in and just sit. Anybody who's done business in the U.
S. Realizes almost anything that you wanted to do could be delayed forever, And you didn't know. So and I think given it's the results that matter and the market really works in the United States. Britain is a good example where regulation has made a huge difference and people talk about pollution in Britain, greenhouse gas emissions in the UK are now down to Victorian times. And that's because there has been a price put on carbon and has basically phased out coal.
Remarkable set of results and is admired all around the world for that. So there you see a market example, a regulatory example. But I think right now, there's just a lot of rhetoric out of the U. S. And I think it's time to sit back, not draw too many conclusions from statements and headlines.
Right. Here's an interesting question from OPEC in Austria. They know everything. So Spencer, your ET scenario shows relatively fast penetration of electric vehicles in the overall car park. To enable this, the cost of electric vehicles and especially batteries must decline significantly.
When do you expect that the battery cost decline somewhere closer to or below $100 per kilowatt hour? You know
about that?
I do. So in the evolving transition scenario, the cost of batteries gets to 100 kilowatts an hour by the late 2020s. So that's pretty much in line with the consensus, perhaps a few years later than some, but pretty much in line with the 2020s. The point I would make to Mr. Ban is that's important in terms of the penetration of electric cars, but it's nowhere near as important as the stringency of vehicle regulations, vehicle efficiency regulations.
The biggest driver of the pace at which electric cars are like to be rolled out over the next 5, 10, 15 years isn't the cost of batteries, it's the pace of tightening in vehicle efficiency standards. And just connecting to the previous question, this year, we've actually assumed given the current administration in the U. S. Administration that the CAFE standards between 2022 2026 stay at their current levels rather than declining. As a result of which, we had the penetration of electric cars overall in particular in America less than in last year's.
It's not much, but if that's the sort of the biggest factor and piece of news thing because so the battery costs are one thing, but the key driver of why car manufacturers make electric cars today and tomorrow isn't because the cost of batteries are cheap, it's because this is a way of meeting their vehicle efficiency standards.
Gentlemen in the 3rd row and then another one behind you in about the 5th row, one more and then 4, and then we'll go back to the rest of the world. So there you go.
David Elms from Warwick Business School. Thank you very much, Spencer, for looking into the area of plastics, which is obviously very topical. You sort of offered some hints that there might be some unintended consequences. Can you give a bit more detail as to how you might see some of the alternatives having implications for energy, which may not be what we would like?
Well, so I'm an economist. I'm not a chemist or a manufacturer. So I'm going to be I'm going to quickly get out of my comfort zone. And so I will condition what I'm going to say is this is based on the things I've read and who knows what but to give you one example, some of the analysis I saw suggested that if you replaced a plastic bottle with a glass bottle, that would take roughly about 80% more energy to produce, 80% more energy to produce. And so that and then that glass bottle would weigh about 40% more.
So when you think about the cost of transporting that bottle, you've got almost 50% more weight to transport. So that's just one simple example here. When you go into your supermarket and it's wrapped in the form of plastic to keep that meat fresh, We know the impact that agriculture has on the environment. If we start seeing food being wasted, the impact that could have on the environment is very, very substantial. The point here, I'm not going to tell them an apologist for plastics.
I understand the environmental concerns of plastics. We all have seen the terrible things that plastics can do when they're not recycled in the right way or treated in the right way. All I'm saying is though, just think about what you're going to replace them with. 1 of the biggest users of single use plastics today in the UK is the National Health Service. How do you think you get sterile when you have your sterile instruments?
You take out your syringe and you use it for one time and then you throw it away. What are we going to do if we ban all that? And so all of my point was we should think about this in its entirety before jumping on to say, well, let's just all ban all these plastics. And that was the point of that exercise. It was to acknowledge this is a big deal for oil demand.
And I was very open about it's a big deal for oil demand. But I also want to put that on the table as well.
And I'd add to that. There was a conference last month about the use substitution. A lot of it comes back to paper, obviously, agricultural again, trees. And then the coatings you have to put on paper often come today would probably have some plastics involved with it to be able to keep freshness with it. I mean, it's very complex.
And I also learned something, and again, I in fact checked it, that the majority of plastic bags that flow out now is polluted and unrecycled is coming out of 7 rivers in Asia. And that's the primary epicenter right now of those particular things. And there's all kinds of different other plastic things. But as you said tripling of recycling, you have that built into your
So we have already in the ET scenario a doubling in recycle rates. Now it all depends how you measure recycling. The measure the way I'm using here is collection rates. There are different ways in which you measure it. So roughly, roughly today, about 15%, 16% of plastics are recycled as measured by collection.
We have it going to about 30% in the ET scenario. And clearly, obviously, in that ban scenario, the single use plastics ban scenario, then we're doing an outright ban on it.
Thank you. Good question. And then there was a gentleman very far back, it seemed like that he was very tall.
Thanks. Graham Meeks at Green Investment Group, part of Macquarie. Spencer, I was really interested by your interesting chart, the one which compared the historic rates of deployment over the 1st 10 50 years of different technologies. I guess, the question I have, to what extent are we necessarily having to follow that the past performance isn't necessarily going to be an indication of future results. And in particular, I guess, when you look at the technologies that we're talking about here, a lot of the historic technologies in and of themselves, the single investments that you're making are each in themselves very capital intensive.
When we look at the technologies that we're looking from a renewable point of view, they're much more distributed, both physically, but also in terms of the way that the capital flows into them. And they're also less dependent to an extent on large centralized grid infrastructure, which itself is capital intensive. So I just wonder how confident perhaps you are that we could perhaps bust the past performance on this one?
Well, first of all, you would have saw an evolving transition scenario, which is sort of our best guess of sort of the broad path the world is traveling on absent a shock. We busted history, right? So already built into that one was a busting of history. So in that sense, I'm already with you because I've busted history. I guess two points I'd make.
There was quite a lot of technological advances in the past as well. So when oil went from 1 if you remember that chart, you can go back and have a look at the chart, it's a really steep bit towards the end. One of the reasons why oil increased very dramatically then because the Model T Ford was invented. So there are technological movements there's technology in the past, which is quite significant as well as the future. And the other point, I'll bring you back to that point I was talking about, the capital intensity, it's capital assets.
So it's not the cost per se of renewable assets. The question is, is society willing to scrap productive assets? So if we're willing in the OECD, unless you're willing to scrap productive assets or unless renewables, the whole all in cost of renewable plant is cheaper than just the operating cost of an existing thermal plant, then the scope for that renewables to penetrate is limited. And that's not a technology issue. That's where the society is willing to scrap productive assets.
And if it's not willing to scrap productive assets, then that break is still there. But to remind you again, I was busting because people say, oh, BP, they're all very negative on renewables. Remember, in that evolving transition scenario, renewables were penetrating the energy system more quickly than any fuel ever seen in history in that evolving transition scenario.
And I'd say the replacement of coal with renewables would have the most impact in the world in a short period of time. And as with the Chinese minister last month who said, you have to realize and there's a coal fired power plant being built 1 a week in 7 or 8 countries right now. And he said, well, it's easy for the West to tell us and we're moving as faster growth in anything renewables, wind, solar, hydro than in any country in the world, but 60% of their power today comes from coal. And he said, you can the West can lecture us about shutting down our coal plants, but ours are on average 6 years old and in the West they're 43 years old. And this is a huge trade up that has to be made.
It's easy for us to say us, I would say the real wealthy part of the world, to tell other countries what to do. This is the epicenter, I think, of major change. And I don't think this is an easy answer. But renewables for coal would probably have and combination then of renewables with natural gas has got to be a big key to this transition, I think, in my opinion. Yes, sir?
Hi there. Hi, Spencer. It's Rob Gross from Imperial College. Kind of related question really because it's about how you treat so you said carbon pricing and in particular you mentioned carbon pricing in the power sector. So I was curious about how your model treats that because in many instances now we're getting renewables projects that are bidding in at or below current wholesale prices.
So they're coming the cheapest of anything on a levelized cost basis. The problem for them is they can cannibalize their own economics for various reasons. They tend to co produce at the same time. And so, what investors are looking for is more regulatory intervention to try and stabilize the revenue stream. And that cannibalization problem is not really fixed by carbon prices.
So I just wondered if you could respond to that or elaborate a bit on how your model treats carbon pricing in the electricity sector in a world of price parity for renewables?
Yes. And I can use this as a just as an also an excuse to just say, we worked very closely when doing our modeling of the power sector particularly our lower carbon power sector stuff with Aurora Energy. For those of you who don't know Aurora Energy, I think they're one of the smartest institutions out there who are doing really sophisticated modeling. And we are very happy to work with Aurora to do that for us. So in terms of I don't think Rob, I can answer in this space with enough sophistication.
I think it's obviously having 2 or 3 big impacts that carbon price. 1 is obviously helping to crowd out very significantly coal. By doing that, that's increasing the attractiveness of renewables as well as natural gas. It's also making the economics of CCUS work better. And by making the economics of CCUS work better, that helps to sort of alleviate the intermittency problem because I've got a base load there to help support some of that intermittency issues.
But in the rapid transition scenario, renewables are getting to around 50% penetration in terms of the power sector. And so those intermittency issues are starting to become an issue. And how what I mean, the levelized cost of energy doesn't really price in those intermittency issues and that's not and that's part of the issue. And so that's how carbon prices are doing it, but we need to take offline for more sophisticated answer.
1, 2 and then back to the world. There's a couple that are coming through there. Interesting.
Thank you for your emphasis on CCUS and which is I think new compared with previous years. How much is BP investing in CCUS compared with how much it's investing in oil and gas, the one obviously going to be reducing carbon and the other increasing carbon? So I may pass to Bob in a moment. It's a little bit of a forced comparison. There's not a big externality associated with investing in oil and gas.
We generate the returns and so we have a big incentive to do that. In CCUS, some of the returns come to us, but the vast majority of the returns come to society. And unless we find a way in which to provide the incentives to do that, then it's very hard for a company like BP just say, well, I'm just going to do this because it's good for everybody. So I think for us, it's partly trying to show the demonstration that CCUS can work and then try and work with governments hand in hand to do that. And there are some projects being developed and the OCGI, which is the BP is part of is developing one particular project in CCUS.
Do you want to mention anything more about that
or? Yes. So CCUS is carbon capture, use and storage. So we have done CCS projects before. We have a capability.
One of the great things that will be part of this solution is you take CO2 and you inject it into the rock way down, miles down. We've done several projects like that. Basically, they have a use for the CO2. There's some use of CO2 and can actually sweep reservoirs better oil by re injecting the CO2, it comes back out and then you either reuse it again, inject it in the ground. So those we're good at and that's our expertise.
There are 4 countries in the world. So the OGCI, the Oil and Gas Climate Initiative, the 14 companies who have gotten together and created the beginnings of a fund, committed a $1,000,000,000 fund and that's rising now. The three focuses of that are methane or methane, gas detection monitoring and then elimination of leaks, all the technologies required to do that, satellites, drones and then is one area of the focus. The second area of focus is CCUS as a group. And then the third is efficiency because we can do so many things.
So CCUS involves things like investments that BP has made outside of that and OGCI, for example, in a cement company, Solidia. It has developed a mechanism which actually takes CO2 out of the air because right now cement is one of the greatest sources of CO2. You put it in, it eliminates and it's actually good technology that's economic. We're thinking about we'll make it a standard in all the construction we do, as one example. But OGCI is working and studying 52 projects around the world that are CCS projects, CCUS, to figure out where can it possibly, maybe with a price on carbon and government, be economic.
So there's one that wants to create a ring around the port of Rotterdam, take it offshore and put it in the Dutch reservoirs. That has potential, all the refining system, aluminum, other things. There's one here in the UK that is working up in the north to try to bring together CO2, possibly scrubbing, power plants, industrial events, maybe recycling from some of the oil or gas fields. And then we're working on the front end engineering of that, the U. K.
Government. It's a great project and concept has the potential to be economic at a relatively low carbon price. And our role with some of the other energy companies might oil and gas companies might be to inject it out in the North Sea, deep down, not at near aquifers and sequester it. The best regulation, to the point about what's happening in the United States, when you go through the best regulation that is now law in the U. S.
Is it's called Q45 or it's 45Q, but it actually creates an incentive to store CO2 and gives government support to projects that might take CO2 out of production in Texas or a quarter all the way down from Chicago in the middle of the U. S. For injection into the Gulf of Mexico. And it has the best economics, believe it or not, to the point of what's really happening in the U. S.
Is not always clear. Norway has moved in that direction. It has gone right up to the edge several times and pulled back. So the economics of this are not great, but price on carbon could certainly start to make this economic. We're getting closer.
And these things are of scale. I don't think it's necessarily scrubbing the flu stacks from power plants. It's really hard to do. It's very dispersed. It works better where there's concentrated CO2.
It's a long answer to your question. I'm optimistic where this is going. So where was the set your eyes yes, general, sir.
Hi, Spencer. Hiran Mochandani, Aurora Energy Research. We don't just have power models at Aurora, we have commodities forecasting suites as well, as you're aware. And one of the scenarios we have is where we see that electrification has a nontrivial impact on both global oil demand and also prices. So that was just a comment to say that perhaps the margin, depending on the other assumptions, there could in fact be a non trivial impact on prices.
The question I have specifically on the stuff you've presented today is there's a huge bit of commentary out there saying that LNG projects that are coming online are driven by the kind of Asian demand story, right, the kind of a miracle in Asian demand. But in your kind of in your analysis, have you looked at the impact of if policy support mechanisms for this are slowed down? So example, there's talk that the Chinese having to subsidize domestic rural consumers consuming gas with the coal to gas, which they're doing. What happens in a world where actually that has to be pulled and the miracle decreases or stops altogether?
Thanks. Yes. So it's a good point. So what happens if you stop the policy support for natural gas starts to wane? What happens to that story for natural gas?
And we did some detailed analysis on that last year it follows through into this year's book as well. Very roughly, oil demand gas demand in that evolving transition scenario grows by about 1.7% a year. So just roughly and that compares with oil of 0.3% and coal of 0, okay? What we did is a thought experiment last year and we said, suppose we look in all the regions of the world where you're seeing gas to coal coal to gas switching motivated by policy. So not motivated by economics in the U.
S, but motivated primarily by policy. So that's primarily Asia, Middle East and Europe. And we said, suppose we stopped all of that coal to gas switching and suppose all of that went away and we just instead made coal stickier and we reduced the level of gas. The growth our new growth rate of natural gas in that world fell from about 1.6 to about 1.2. So roughly it's about a third of it off.
So it's important that coal to gas switching is there and it matters, but it's not the linchpin of everything. Even without that, you still saw this underlying growth. In this story, in the evolving transition scenario, I mentioned that you saw demand for natural gas growing in pretty much every country and every region that we looked at. The underlying story of that is growth of power demand, where we don't expect in that evolving transition scenario, the share of natural gas and power demand doesn't increase. It pretty much stays flat.
If anything, it edges down. But overall, power demand is rising so much, it just lifts up gas demand. And the other key source of it is the growth of gas within industry. And it's industrialization, particularly in Southeast Asia, which is the other key component of that. The other point, and this relates to the other piece of analysis here, in some of the Asian countries I traveled to over the last year, what they raised concerns to be about the natural gas was the security of supply.
And that was one of the reasons which motivated the work we were doing here on those trade disputes. Suppose you just think, well, how vulnerable do I want to be to natural gas if this world is becoming far less dependable in terms of the level of trade disputes? Perhaps at that point, I may at the margin swap into clean coal rather than natural gas. And just to be clear, I know sort of the slightly disingenuous nature of the clean coal point. The nature of clean coal is if you scrub that coal and use it in efficient furnaces, it solves the air pollution problem.
It doesn't solve the climate problem. But if as a local politician, you're most concerned about available, secure energy and local air quality, clean coal looks quite attractive to you. And so that was what we were trying to sort of capture by thinking about that trade dispute, the impact that may well have on gas demand as well.
So over here, still some really good questions starting to come together on categories.
Hello, great presentation. Thank you very much. Ben Coombs from PwC. I just want to build on the point made by the gentleman at the Green Investment Group at Macquarie. And I agree with everything he said about sort of decentralized modularlowercapitalintensiveinvestment.
I'd also add to I'd like to layer
in the 4th Industrial Revolution because most of the clients I speak to now want things that are digitally AI enabled or AI ready. And I think what we're seeing is there are a lot of people who really want to be on digital platforms and that often means renewables. And I think that's what's driven a lot of the growth in the data centers with Google et al. And I just wondered if you'd thought much about how AI, 3 d printing, on shoring, all those types of technologies, which are digital systems rather than mechanical systems and the interface between AI and digital systems would affect this whole outlook? Thank you.
It's hard. A couple of years ago, I made this mistake. Somebody said, what's not in your outlook? What do you think is a big thing which is not there? And I went, oh, I don't know.
How about 3 d printing? And at this point, the rest of my team put their heads in their hands and go, why does Spencer do that? And so the next and the reason why I thought 3 d printing could be a very big deal was because if 3 d printing really grew very substantially, you think about transportation of the world and the amount of finished and semi finished goods which are being transported over the world. If we move to a world of 3 d printing, all I need is a raw product and I can just print just in time with I can just in time locally. And that could fundamentally change the nature of supply chain models and so on.
And so I said this and said, so next year we're going to have a really big thing in the energy outlook. We looked into it and we just cannot convince ourselves that you will see mass manufacturing done by 3 d printing. It also has a slightly odd sort of perverse thing. The energy needed to produce something via 3 d printing, I think it's orders of magnitude greater than if you do it in a conventional manufacturing. So it doesn't save energy like you one would naturally think.
Digitalization is underpinning sort of the whole of the sort of the way we think about the future on both the production of energy side as well as the demand side for energy. And that's sort of another part of the problem, which is limiting the growth of renewables. I think many people who are predicting renewable growth 20 or 30 years ago were quite right in terms of predicting how much renewables would have fallen by now, the cost of renewables would have fallen. But they also expected by now that the supplies of oil and gas would be running out by now and the price of those would be rising. But as I was saying, the issue of oil and gas is not a shortage of supply.
There's an increasing abundance of supply. And so that's keeping them more and more competitive as well. So we see a big role for digitization. If you work in an institution like this, I think the upstream is completely revolutionizing in real time in terms of the way they are using big data and digital technology to get to be able to increase the efficiency of what they do. It will also improve on the demand side.
I think the issue on the demand side, which we don't know yet, is whether does that improving efficiency mean people use less energy? Or often what we find is if demand falls and prices fall, that just means they end up in using energy in other types of ways as well. And that's what we don't know. In the outlook here, we have energy efficiency growing by almost 2% a year. So that's far not far quicker, but that's quite a bit quicker than you've seen over the last 20 years.
A big part of that is the assumption that technology will allow us to use energy more efficiently, but it's going on both sides. And the impact that has on the sort of renewables versus oil and gas split, as I say, I think it's unclear because it does also mean the abundance of oil and gas is increasing as well.
I'd just add to that because we do research and talk to people all around where we work and this drive to energy efficiency, smart buildings and all the things you can do to optimize energy is absolutely what people want. But I note that it primarily is Europe and North America. And you look at the population growth of the world, you look at Africa, I was just spending time in Egypt and there were representatives from Africa. And when this subject comes up at their conference, basically we just need people that can have cooking fuel, electricity that's reliable, even 5 or 7 years ago, Egypt's electricity was intermittent. And you look at the population growth and how are you going to create jobs there and you need some form of heavy energy.
I don't think the world really wants it to be coal. There's a lot of use for renewables there, but you're going to need heavy industry and possibly mechanical manufacturing to put people at work. And that if you don't, there will be really large migrations into Europe when you look at the population growth. And I saw one the other day that because there's no energy growth in Spencer's outlook for Europe and North America, none. Everything is in other parts of the world.
I saw one figure the other day. I don't know if it's right, but it's a projection by someone with a lot of credibility. Today, Europe has about 1,000,000,000 people, Africa has about 1,000,000,000 people. 2,040, 2050, Europe will have about 1,000,000,000 people and the population of Africa will be 4,000,000,000. So there's a lot of energy that's going to have to be done in the right way or you're going to have movement of people.
And I'm very was very disappointed last year when the World Bank announced that they were no longer going to lend money to fossil fuel projects. So fossil fuels to me go from here to here from coal to natural gas. So when big financial institutions say they're not going to lend even to natural gas, I think this is going to create a problem for what's actually sensible for climate change, for political reasons. And so I hope that changes. And if they don't, they will go to cheap coal and that might not necessarily create the jobs and the infrastructure.
So it's a the optimization point, it's everywhere, smart buildings. The Chinese are really amazing in what they're doing to optimize. But the real bigger problem, I think, is the left side of Spencer's curve. So in the very back row, lady, young lady.
Thanks. Jo Howes from e4Tech. You talked about the hard to abate sectors and the emissions that would be remaining in 2,040 and some of the technologies that we might need to deal with those emissions like hydrogen, bioenergy, negative emission technologies. I mean, we're seeing increasing interest in those routes. I wondered how your analysis takes those into account now and plans to take those into account into the future, especially if they follow the same curves that we've been debating and take a while to get to scale?
Yes. And it's a good point. And in some sense, the reason why we wanted to do that bit was based on sort of so if looking out to 20 years, with the carbon price increasing only gradually, that's not you're not getting a substantial role, for example, of hydrogen or very substantial role of bioenergy in over the next 20 years. But the point what we wanted to do is say, but that's because we're stopping this sort of play relatively short. We're only 20 years in.
We're only halfway through the play in terms of getting to a net zero emissions world. And so we wanted to flag there are other things. We also wanted to flag that a complete decarbonization of the power sector and electrification of end use facilities at end use activities is a big part, but it's not going to be sufficient. There are other things. We are not going to have well, we're not going to have my hunch is, it's pretty unlikely that we're going to have transatlantic electric planes.
So we need to think about some other way of doing that. Bioenergy, biofuels seems to be key, for example, when thinking about aviation. So one of those key sources of a heart of baked sectors in the transport bid in that 2040 rapid transition scenario was the amount of was the aviation sector, long distance road haulage was also part of that. We had some role for hydrogen in that rapid transition scenario, but we still need to take more out. So I think when one starts how to participate in that process because you can't wait till 2,000 40, I don't know.
And I think I guess part of the point of raising this now was to say this is on our agenda, this is on our radar. It's on in our radar as an objective analysis of the energy system, but it's also on our radar as a commercial company thinking about what role should we play in participating in these types of technologies because many of them look like they will play a significant role going forward and working out is when should we start making sure we participate.
Thank you. So we're a little bit over. People all over the world have a schedule. I am going to ask one question. You and I might take it.
It's actually from a cluster of young people from around the world. And I'll just pick out the one from Konstantinos Perperakis, who's from the National Technical University of Athens in Greece, and he says to anyone, is a job as a petroleum engineer a good idea for the next decades? And then there's a whole grouping around geophysics, geology. Is this a good industry? Is it high-tech?
And I think I'm just going to I'll be really quick here. I think a job or training as an engineer of any kind is so important. There's so going to be such huge need for that. And as you've seen from Spencer's outlook, petroleum engineering, which is it's actually one of the most high-tech things you can do, the visualization, the 3 d understanding below and aground and above the ground and how reservoirs work and produce them, the technology is unbelievable. I'm not worried about young people coming to our industry.
We are overwhelmed with people who'd like to come. And when they come, they love it because they get to do things with data analysis. It's unheard of in universities. And then same with geology and then same with all the fields around it. In my opinion, it's a great thing to do.
I did but there are places in the world where they say, well, it's completely dead end industry, shouldn't do it. I realize that. But around the world, it's a very popular field to go in the majority of the world. But we live in places where it doesn't seem that popular. And then in anything, and I just want to add, someone also is sort of questioning our commitment, renewables, is it real?
Are you doing this because you're an oil and gas company? I said to somebody again this week at a conference who I said, Look, why don't you come to the stadium and you can tell the 6,000 to 7,000 people at BP that get up every morning and come and work in renewables all around the world and our researchers, not counting light source BP and solar, and you tell them what they do doesn't matter. It really does matter and it is a big part of our company. You hear about the oil and gas, it does have the highest rates of return, but we do lots of things all across the spectrum. And I think with that, to everyone around the world, everyone here in London, Happy Valentine's Day, which I know is not celebrated everywhere.
But a big thank you for your time today. Thanks for your great questions and enjoy the rest of the week.
And remember your chocolates. And remember
the chocolates that are here.