8 min read

Breaking Down the 2020 DNV-GL Energy Transition Outlook

This week, DNV-GL released its annual Energy Transition Outlook. The report is 305 pages long and is a statistical analysis of the energy transition to date with projections until 2050.

Since this post is much longer than my normal posts, and you all have varied interests, I've sectioned out each set of notes with a toggle list.  If you click the arrows, each section expands in more detail.

One note on “peak energy” as defined in this report. It’s naive to believe we won’t find new uses for a free resource that has no carbon impact on the planet which is where we are headed.

Of course, those new uses are impossible to predict so it makes sense that they are not included here.

1. 10 Insights Worth Considering

  1. It's extremely unlikely that we meet the Paris climate goals, our current path has us increasing temperatures by 2.3°C by the end of the century.  Decarbonization of industrial high-heat processes, the heating of buildings, and heavy transport is proceeding too slowly
  2. The report does not include agriculture which is an important consideration for energy consumption.
  3. Transportation is the big story and biggest threat to oil and gas's dominance in energy. As a result, electricity consumption is set to double in the next 30 years.
  4. Geography and economic maturity of various markets are massive drivers of energy intensity and emissions. They are also largely out of our control.
  5. COVID-19's impact on renewable energy sources was small, primarily because they still play an insignificant role in manufactured goods and transportation - the two largest impacted sectors.
  6. The continued increase of a global middle-class drives demand, but the supply needed to meet that demand will decline due to efficiencies in buildings, manufacturing, and transportation.
  7. Global GDP will roughly double by 2050 and the needed expenditures to improve efficiency remain virtually flat meaning the energy transition is long-term affordable on a GDP-adjusted basis.
  8. Oil fields are depleted faster than demand for fossil fuels declines, so continued investment in new fields will be required until at least the 2030s. Big oil has been criticized for continued drilling, but our demand is not shifting fast enough to offset our consumption.
  9. Fossil fuels will continue to play a role in our power consumption until we solve how to dispatch variable power in a cheap, flexible way or create favorable market structures. Natural gas will take over as the largest energy source this decade and will remain that way until 2050 - only 13% will be decarbonized
  10. It's still undetermined if NG is a bridge or the destination, if we do carbon capture it would be the destination but there are still hurdles even if that unlikely event happens. Power grid infrastructure is cheaper to build than its natural gas counterpart and much of our gas infrastructure needs to be replaced by 2050. Regardless, natural gas remains a strong force for at least the next 30 years.

2. COVID-19 Impacts

  • COVID-19 brought peak oil-demand forward; it's possible oil use may not exceed 2019 levels ever again
  • COVID-19 created behavioral shifts like remote working and reduced commuting that will have a lasting effect in lowering energy use
  • COVID impaired global GDP growth for at least 5 years, decreasing the pre-COVID 2025 projection by 9%
  • Aviation demand projections for 2025 are 5% lower, while commuting is estimated to decline by 2% and office space requirements by 1%
  • Work-related flights are forecast to decline by 10% in the near term, while leisure travel rebounds fully.
  • The drop-off in demand will most severely impact oil and coal, followed by gas, with renewables least effected.
  • Coal use peaked in 2014, crude oil use likely peaked in 2019, and natural gas will peak in 2035. It's possible energy related emissions will not return to 2019 levels.
  • To meet the Paris Agreement, we need to meet the 8% reduction brought on by COVID-19 every year through 2050.

3. Long-Term Forecasts

  • In 2018, only 19% of final energy demand was delivered in the form of electricity, by 2050 that will more than double to 41% and 60 PWh.
  • The electrification of passenger vehicles leads leads this transition - half of all vehicles sold will be electric by 2032.
  • The share of electricity demand in transport will grow from 1% in 2019 to 27% in 2050 while oil use in the sector declines by 50% and emissions almost halve.
  • Variable renewable energy will deliver 60% of global power by 2050, 50% from wind and 50% from solar.
  • Natural gas will become the largest energy source in 2026. Gas demand peaks in 2035 and remains the largest source of energy though 2050 when it represents about 30% of global use.
  • Power, buildings, and manufacturing are and will continue to be the largest consumers of natural gas.
  • The 1.5C carbon budget will be exhausted by 2028 and the 2C budget by 2051.

4. Energy Demand

  • Final energy demand will peak in 2034 at a level 4% higher than today and 2050 demand in 2050 will be similar to today's.
  • Peak final-energy demand will occur at different times depending on region and some regions will not peak until after 2050.
  • Buildings will collectively consume 24% more energy in 2050 than in 2018 and their share of consumption will grow from 29% to 35% by 2050.
  • Electricity represents just 19% of the world's final energy demand as of 2018, but will represent 41% by 2050. That is an annual average growth of 2.4% per year which is double the rate we've experienced since 2000.

5. Power and RenewablesDemand and GenerationSolarWind6. Energy Efficiency and Finance

  • Global energy intensity has been decreasing by 1.7% on average for the last 2 decades
  • The largest reductions in intensity are coming from China
  • Electrification and increased share of renewables in the power mix are the main drivers of intensity improvements
  • Coal is 30-40% efficient, gas is 60%, wind and solar are 100%
  • The demand for energy services - transport, manufacturing, etc... - grows as a function of economic activity and growth meaning energy efficiency is highly dependent on market maturity and growth rates.
  • GDP will roughly double by 2050 and the needed expenditures to improve efficiency remain virtually flat meaning the energy transition is long-term affordable.
  • CapEx will decline rapidly in the oil and gas sector, but will increase rapidly in the power grid and non-fossil segments

7. Energy Supply and Fossil Fuels

  • Primary energy supply will peak in 2032 at a level only slightly higher than today's energy use
  • The fossil-fuel share of the energy mix will decline steadily, falling from 81% today to 54% by 2050
  • 7% of global primary energy consumption comes from mining for fossil fuels
  • Primary energy consumption will grow by only 3%

CoalOilNatural Gas8. Road Transportation

  • Transport was responsible for 27% of global final energy demand in 2018.
  • 92.4% of road-sector energy use is refined oil, this is mirrored by aviation and maritime transport as well.  Rail is 42% electric.
  • Battery cost-learning is the largest lever for EV adoption, for every 50% increase EV sales increase 6% and commercial sales increase by 11%.
  • Current Li-Ion battery technology requires so much cobalt that known reserves will last for less than a decade.
  • Larger battery sizes in new EV's is detrimental for short term sales. Savings from cheaper batteries are used mostly to produce cares with longer ranges which keeps costs the same and slows adoption.

9. Aviation

  • 4% of the world's energy is consumed by civilian aircraft
  • The number of annual air trips will double by 2050, but fuel use only increases by 9% due to efficiency gains in engine and aerodynamic innovations.

10. Buildings

  • Total energy consumption from buildings will grow 24% by 2050, led by space cooling and lighting
  • In 2018, ~29% of the world's energy was consumed by buildings, most of it used for heating and 3/4 of it consumed in residential buildings.
  • Space cooling accounted for 4.6% of energy demand in the building sector, but will increase to 12% by 2050. Demand for cooling is shaped by:
  • Growth in square footage that requires cooling
  • Increase in market penetration of air conditioning
  • Increase in usage of cooling due to climate change
  • Developments in insulation technology
  • Improved efficiency of air conditioners
  • North America accounts for 55% of global demand for cooling, but in 2050 China leads the way with 40%.
  • Space heating declines by 10% in 2050 - mostly due to better insulation and efficiency gains by conversion to heat pumps.

11. Manufacturing

  • Manufacturing demand falls slightly in 2050, in spite of a 70% rise in the production of goods and 27% increase in need for base materials.
  • Manufactured goods: general consumer goods, food, textiles, and transport
  • Base materials: non-metallic minerals, chemicals, and petrochemicals plus energy used by mining and construction
  • Iron and steel: production of iron and steel and energy needed for the conversion
  • The manufacturing sector is the largest consumer of energy, making up about 31% of final-energy demand in 2018.
  • Manufactured goods: 40%
  • Base materials 40%
  • Iron and steel: 20%
  • Manufacturing demand increases 4% towards a peak in the mid-2030s and declines by 10% towards 2050, driven by recycling and efficiencies in production.
  • Manufactured goods: 52%
  • Base materials 30%
  • Iron and steel: 18%
  • The base materials sub-sector is energy intensive and most of the use (80%) comes from the need for industrial high-heat processes.
  • The reduction in demand comes largely from increasing efficiencies and learning how to reuse already extracted materials rather than extracting new material and processing it.
  • Example: recycled aluminum requires 95% less energy than transforming bauxite from raw material fo finished product
  • 72% of global energy used for manufacturing is for heating, 17% for machinery, 9% for iron-ore reduction and 2% for vehicles

12. Non-energy use (Plastics, etc..)

  • 8% of global fossil-fuel supply was used for non-energy purposes in 2018
  • This represents the consumption of coal, oil, and natural gas as feedstock
  • 45% of the consumption in this sector was used to produce plastics, this is predicted to increase to 60% by 2050
  • Recycling of plastics is growing faster than the consumption rate. In 2018, 13% of plastics were recycled but that number grows to 47% in 2050 led primarily by China.

The link to the full report can be found here.