The energy transition is our greatest source of risk, and opportunity

During the next 30 years, world energy demand will peak. We will undergo a rapid energy transition with electrification and decarbonization of an ever-more efficient energy system. I believe that understanding the nature and pace of the transition is a critical strategic exercise, for us, for you, and for our planet. 

The notion of ‘peak energy’ is quite new among energy forecasters. Essentially it refers to the point in time when the world will start to use less energy, even as the global economy continues to grow. Let me explain how I think this will unfold.

This week we launched our Energy Transition Outlook, a forecast of the energy future towards 2050. Most of our business is related to energy in one form or another. The energy transition is our greatest source of risk … and opportunity.

In 2050, our forecast shows that renewable energy sources, such as solar, wind, biomass and hydropower will provide half the energy supply the world needs. This is dramatically different from the 20% contribution today. Some may view that as a rapid transition. Others may view it as not fast enough. 

We see both a rapid ramp-up of renewables and an increasing role for natural gas. But the defining feature of the next three decades is energy efficiency. The average person in Europe will use 60% of the energy they use today to power what will undoubtedly be a much more connected, automated lifestyle in 2050. 

But relatively more dramatic changes will happen in the developing world. In 2050, the average person in Africa will use the same amount of energy as today, but much more efficiently. China will use slightly more energy per person than today, but it’s on track to decarbonize its economy faster than any other region in the coming decades.

When looking at what this means for certain industry sectors, electrification and efficiency gains will be even more apparent. For example, the transportation sector will grow, but energy used to transport goods and people will decline.

In our forecast period, shipping will grow, rising by nearly a third by 2030. And yet, we forecast maritime energy demand to peak in 2035. This is due to a wide range of energy efficiency measures – some linked to emission reduction regulations, others to digitalization. 

However, the real energy efficiency drama plays out on roads, not at sea.

We predict a very rapid uptake of electric cars once they reach cost parity with internal combustion cars in only six years’ time. Uptake will then follow the well accepted S-curve pattern, associated with the speed of adoption of innovation. Not only will battery technologies continue to improve dramatically over the next decades, but advances in digitalization will increasingly turn vehicles into wheeled, networked computers. By 2033, half of all new car sales globally will be EVs.

Heavy vehicles, such as trucks and buses, will undergo the same transition and half of new heavy vehicle sales worldwide will be electric by 2037. Already, China has a municipal bus fleet of over 400,000 electric buses – and exports buses to 60 countries. My home town of Oslo just acquired 42 of them. 

Tremendous efficiency gains will flow from the developing world switching from wood, charcoal and kerosene for cooking and lighting … to natural gas and off-grid electricity. In Africa, we estimate that by 2050, four times as many people will have access to modern energy than they do today.

While the manufacturing sector will grow strongly – in line with the world economy– it will become increasingly less energy intensive. And there will be efficiencies throughout manufacturing value chains, many of them owing to digitalization.

So, the net result of these developments, is peak energy demand in 20 years’ time. However, more work will increasingly be done by this energy and many more people will have access to modern energy in 2050 than today. Importantly, carbon emissions will start to decline before mid-century. Investment in new oil fields is needed through to 2040, for gas even longer, as the decline in existing production will be faster than the decline in demand.

What does this mean for the energy industry?

Coal already peaked in 2014. Driven largely by the rapidly changing transport sector, oil will during the next 10 years – but the peak there is not sharp – more of a Table Mountain than a Matterhorn. Nuclear will peak in 2033, while natural gas will continue to grow until 2034, and while it then declines, it will still be the largest energy source in 2050.

Electricity will more than double its share of the energy mix. Looking more closely at where that electricity is coming from, we see that solar PV and wind plays a hero role, ramping up to supply 70% of electricity demand by 2050. The reason for this is an accelerated cost attractiveness.

Yet, the transition we forecast will not be fast enough to meet the goal of the Paris Agreement to keep the global temperature increase to well below 2 degrees Celsius above preindustrial levels. Our Outlook points to a 2.6 degree future. So, our forecast shows we are still very far away from delivering an energy transition not associated with dangerous levels of global warming.

What will it take?

The short answer is that there is no single solution. A mix of leavers is needed, including higher uptake of cleaner technology, more carbon capture and intensified energy efficiency measures.

What role will your business play in the energy transition, and will the energy transition pose a risk or opportunity for you?