A closer look at the effects of renewable energy on the oil and gas industry.
What does the growth in renewable energy mean for oil and gas?
In its recent World Energy Outlook, the International Energy Agency (IEA) anticipates a thirty percent increase in the global energy demand by 2040. Renewable energy sources are growing quickly: in 2016, they accounted for two-thirds of the new power added to the worldwide energy grid.1 As demand for power grows in developing economies, and especially in Asia, the focus on renewable energy sources will increase considerably.
There are several factors driving the growth in renewable energy sources. Prices for wind- and solar-generated power are declining, and at the same time, demand is increasing. At the enterprise level, customer demand is driving the transition to renewable energy sources, and many local governments are pledging to transition to renewable sources as well. Demand, as well as environmental concerns, are fuelling the development of new technologies. There is also considerable interest in developing new options for energy storage, and as a result, battery storage costs are declining.
Despite the growth in renewable energy sources, the IEA estimates that they still need to grow within the “power mix” from being one-quarter of the mix today to two-thirds in 2040.2 Most of the remaining energy needs will be met by fossil fuels. While coal consumption is likely to remain flat over the next twenty years, oil consumption is expected to rise by 10 percent, and demand for natural gas will grow even more sharply, at 45 percent.
For oil, although passenger vehicle use is projected to peak by the mid-2020s, shipping and transport needs will continue to grow, and improvements in fuel efficiency will more than outpace the potential fuel savings resulting from the growth in the electric car market. The largest use for oil will likely be petrochemicals. Even allowing for a doubling in the current recycling rates, oil usage is still expected to grow by more than 3.5 million barrels per day.
Overall, the highest growth in demand for oil will come from developing economies. Regarding natural gas, it is forecast to surpass coal and become the second-largest source of fuel worldwide in the next decade. China's demand for LNG will continue to grow. Combined with growing demand from developing economies worldwide, the trade in LNG is expected to double by 2040. As oil and gas producers meet the challenge of reducing carbon emissions in coming years, challenges in reliability of production and issues with integrating renewable sources into the existing energy grid will ensure that oil and gas remain indispensable sources of energy worldwide.
- Mike Hayes, Global Leader of Renewables, KPMG in Ireland
Note: The forecasts/analyst estimates above from Brent & Henry Hub are an indication based on third party sources and information. They do not represent the views of KPMG.