Solar may not be ‘the new shale’ yet, but making impact on hydrocarbon demand faster than previously expected
More than any other region, North America and Europe will see an underlying narrative of declining fuel demand as a result of de-carbonisation efforts and the availability and relatively low cost of gas.
As we approach 2035, Wood Mackenzie expects to see energy demand flatten as North America’s growth becomes more moderate and Europe’s tapers off.
While demand will remain strong, moderate growth in North America will offset contraction in Europe — the only region where energy production is in decline.
European oil demand will stagnate in the near term, and in the US, oil demand will decline after 2020. Greater fuel efficiency will more than offset the effects of increasing vehicle numbers and vehicle miles travelled.
In the EU, policy measures will target reducing vehicle CO2 emissions, with consumers incentivised to choose lower-emitting vehicles.
Even though demand will decrease, US tight oil production will be the one significant non-OPEC growth play, with volumes more than doubling by the middle of the next decade.
Wood Mackenzie asked Paul McConnell, Research Director for Global Trends, to talk more about the changing face of energy demand in North America and Europe, including the future of oil, gas, tight oil, and renewables.
Under the Paris Agreement, EU member states have committed to absolute emissions cuts significantly in excess of our base case view, requiring additional policy measures to more aggressively curtail hydrocarbon consumption.
Although the Agreement was ratified by President Obama, we anticipate the Trump administration will ignore the US emissions targets, rendering the goal of limiting global warming to no more than 2 degrees above pre-industrial temperature levels unachievable.
Developments in renewable subsidies have demonstrated a growing commitment to reduce the support costs of carbon-free power and increase the integration of subsidised technologies into wholesale markets.
Renewables will contribute around 30 per cent to Europe’s total power production in 2016 — up from half that level a decade earlier. In particular, solar development will accelerate rapidly.
By 2020–2025, utility scale solar will become the most attractive technology from a purely economic standpoint in many parts of North America.
Some Majors have already begun to put together new, modern renewables portfolios. Statoil is acquiring stakes in large offshore European wind projects, leveraging its offshore oil and gas experience.
Total is taking a lead role in a strategic shift aimed at low-carbon assets accounting for 20 per cent of its portfolio by 2035 (versus 3 per cent today).
The company has a majority stake in US solar player SunPower and this year paid US$1.1 billion for a French energy storage business.