THE ENERGY OUTLOOK
Giovanni Serio, global head of research
Our research approach, like much of our business, is bottom up. We look at demand by product in each market and combine these to reach our regional and global figures.
We have always supplemented this approach by overlaying macro trends. This is becoming more important as we take into account the impact of the energy transition.
However, by combining expert opinion on transitional trends with our detailed understanding of local energy markets, we hope to be able to monitor the on-the-ground impact of the transition on demand.
For a number of years we have held the view that oil demand will peak between 2030 and 2035. Notwithstanding the stated ambitions of many, and as recent price volatility illustrates, we do not believe the global economy can be transitioned from crude oil and products, let alone natural gas, for some time and for a variety of reasons.
Wealthier countries consume more energy per capita. As individuals become wealthier they replicate the lifestyle of the OECD. They build larger houses which need to be heated and cooled. They drive cars and take flights. Economic growth across the developing world is expected to continue, underpinning energy and, hence, oil demand growth. Renewables are being deployed at scale, but their growth is not expected to keep pace with the anticipated growth in overall energy demand. Nor is the energy infrastructure in all countries sufficiently resilient to deal with either the intermittency of renewables or the growth in power demand that a shift to electric mobility would entail.
Economic Development & Energy Use
Limited penetration of EVs
The transport sector accounts for 58% of global oil consumption, with road transport consuming 46.5 million barrels a day.
We anticipate EV sales globally to accelerate sharply over the coming years to almost 25 million units a year by 2030, with China maintaining its position as the largest market for EVs. By 2030 we expect the global fleet of EVs to be almost 120 million and a slightly smaller fleet of 80 million plug in hybrid electric vehicles (PHEV) or hybrids. As a proportion of the global car fleet, however, this will only equate to 6.9% and 5.1% respectively.
That said, certain segments of the road transportation market are particularly well suited to a swift adoption of electrification, notably fleet vehicles, including municipal transport, such as urban buses and local delivery vans.
Heavier goods vehicles and those that travel longer distances are likely to reduce emissions through the use of gas as a fuel. Initially this may be LNG and, longer term, renewable natural gas (RNG) and hydrogen.
EV Annual car sales
Global Electric Car Fleet
Million units | % car fleet
Income & Passenger Air Travel
Resurgence in air travel
Today aviation accounts for 5.2% of oil demand, down from 7.2% in 2019. We see this rising sharply in the short term as travel rebounds after Covid, and in the medium term as incomes rise and people travel more in developing markets.
Key to decarbonising air travel will be the deployment of sustainable aviation fuel, which is likely to be challenging. It will compete for feedstock with hydrogenated vegetable oil (HVO), used in road fuels and heavily subsidised in many markets.
Air Passenger Take-offs
A power-driven future
Power demand is set to accelerate as transportation moves away from hydrocarbons and towards electrons. As highly populated developing economies increase energy consumption per capita, power demand will surge. To capture the environmental benefits of EVs it will be necessary for power to be generated with lower emissions. OECD economies are already wrestling with the challenges of renewable generation, and many developing economies will also have to turn to complementary fuels, such as natural gas.
Utility generation per capita
KWh / annum
Big Sky Wind, Illinois, United States
Big Sky Wind
“Vitol is committed to building its portfolio of renewable assets. Our strategy is to invest where we can add value, hence a focus on development opportunities. Repowering Big Sky Wind will make it a significant renewable asset for the future.”
R. Andrew de Pass, head of renewables,
Big Sky Wind is a 240 MW wind farm in central Illinois in the US. Vitol acquired the wind farm in 2021 and is investing over $270 million to repower it. The existing turbines will be replaced with the latest technology. This will increase the lifespan of the project and improve the efficiency of the wind farm. Upgrading the turbines will increase the project’s annual production by more than 60% by year end 2022. This is enough energy to power 112,000 homes.
The project will provide up to 200 construction-related jobs during the repowering. Once completed and in operation, Big Sky Wind will displace 621,000 tons of CO2 emissions and avoid carbon emissions equivalent to 135,000 passenger cars each year.
Natural gas as a transition fuel
We believe natural gas and LPG have a necessary role to play in the near and medium term. LNG use will increase 4.4% per annum (p.a.) over the next decade.
Alternative generation is set to grow 15-20%. At present, battery capacity across the grid in developed economies is insufficient to manage the intermittent nature of renewable generation so supplementary forms of generation are necessary. This dependency on gas has been highlighted by the extraordinary price volatility seen in European gas markets in the winter of 21/22, where prices responded to supply and weather concerns increasing at times by 600%.
In emerging markets, gas is often displacing more polluting fuels. In power generation the trend has been to replace coal and fuel oil with gas. However, the high prices seen last winter have reversed this process with some generators switching away from gas as prices spiked to unaffordable levels for developing nations.
LPG is also displacing more polluting fuels in developing economies, most notably for domestic cooking. Around 2.6 billion people globally cook using polluting open fires or simple stoves fuelled primarily by biomass and coal. This leads to 3.8 million deaths worldwide and widespread deforestation. International institutions, such as the World Health Organisation (WHO) and the World Bank, are focused on improving household air quality and we expect a short to medium-term focus on LPG as a low-carbon cooking solution for much of the world. In this context we expect LPG demand to grow by a third to 16 million barrels a day over the next decade.
Renewable gas solutions
Alongside the continued use of natural gas and LPG we anticipate a sharp increase in renewable natural gas or biogas, hydrogen and ethanol. For biogas, in addition to established methods of production from agricultural feedstock, we are seeing the deployment of innovative technologies, for example the capture of methane from landfill emissions. Given the focus on sustainable energy solutions and the strong regulatory support in both the US and Europe, we expect this market to grow from 175 TWh p.a. today to 400+ TWh p.a. by 2030 in Europe and over 293 TWh by 2030 in the US.
Hydrogen is increasingly a focus of energy policy. For countries with a high reliance on natural gas for domestic use it is seen as a logical transition fuel. Globally, its potential as a fuel for generation is considerable in the medium to long-term, but as many projects remain at the proof-of-concept stage, at present it is difficult to form a view as to how quickly the technology and consequently the fuel will be adopted.
Circular economy solutions
At the margin we expect circular economy solutions such as the recycling of hydrocarbons from waste plastic or tyres to grow as nascent technologies move from proof-of-concept to industrial scale.
By 2030 it is estimated that the market for carbon credits could be worth around $50 billion. Carbon credits have a key role to play in shaping behaviour and allocating resources through the energy transition. In addition to traditional offsetting projects, carbon markets have the potential to direct investment into CO2 abatement, reduction, avoidance and sequestration.