London — Policymakers still tend to talk about the global energy transition in the future tense, as something that might or will happen in the next few decades, but the transition is already well underway and shows signs of accelerating.
Global energy consumption has already been shifting from a mid-20th century system dominated by coal and oil to one that will be dominated by gas and renewables by the mid-21st century.
Global energy consumption from natural gas and renewables (mostly wind, solar and biofuels) grew much faster than energy consumption as a whole over the five years between 2014 and 2019.
Renewables increased at a compound annual rate of more than 12.5% while gas increased at a rate of 2.9%, both much faster than total energy consumption growth of 1.6%.
By contrast, oil consumption grew more slowly than consumption as a whole (+1.4%) and coal consumption fell (-0.5%) over the same period.
The result is that gas and renewables have been seizing energy market share, especially from coal but to a lesser extent from oil as well.
Those processes are likely to continue over the next few decades, but the transition will not necessarily result in lower CO2 emissions because production capacity of gas and renewables will be too low to meet all the increase in energy demand.
Gas accounted for 43% of all the extra energy consumed in 2019 compared with 2014, while renewables and oil each accounted for an extra 29%.
In recent years, the shift has accelerated, with renewables accounting for 41% of extra energy consumed in 2019, gas accounting for 36%, while oil accounted for just 21%.
Oil and coal remain the largest primary sources of energy, ahead of gas, hydro, renewables and nuclear power, according to estimates prepared by BP.
But oil’s share of the global energy mix has been falling since the 1970s and coal’s share now also appears to be in decline (“Statistical review of world energy”, BP, 2020).
Gas is likely to surpass coal to become the second largest source of energy in the next five years, based on the recent trend. Renewables have already passed nuclear and are set to overtake hydro by the mid-2020s.
Gas has already increased its share of global consumption to 24%, from less than 22% in 1999, while renewables have grown to 5%, from less than 1%.
The next phase of the energy transition is already underway. But it is critical to understand what the transition means, and more importantly what it doesn’t, for consumption of different sources of energy and CO2 emissions.
Oil and coal consumption will not necessarily decline in absolute terms, even if their relative importance in terms of market share falls, as illustrated by the experience of coal and then oil during the 20th century.
Oil’s share of the global energy mix fell to just 33% in 2019 from a peak of 50% in 1973, largely as a result of efforts by the Organization of the Petroleum Exporting Countries (OPEC) to keep prices high.
But in absolute terms, oil consumption continued to increase, reaching 101 million barrels per day in 2019, up from 56 million bpd in 1973.
Total energy consumption has risen so strongly it has lifted consumption from all sources, even those in relative decline.
That means the energy transition could see emissions rise as consumption of gas, oil and possibly even coal increase, even as renewables’ output increases faster.
For renewables to entirely replace coal, their current energy output would need to be scaled up by five times, while to replace oil, their output would have to be scaled up almost seven times.
To replace all fossil fuel combustion, wind and solar output would need to be scaled up by a total of almost 17 times from current levels.
And if global energy consumption continues to increase in the next few decades, particularly in low and middle-income countries, the growth in renewables to replace fossil fuels would need to be even greater.
Global consumption of gas (certainly), oil (probably) and coal (possibly) will continue to grow in absolute terms in the next two decades, even as renewables increase their share of the energy market.
Given that reality, there is probably no way to meet global targets for CO2 emissions and global temperature increases that does not involve a significant scaling up of electricity generation from nuclear and hydro power.
And the continued combustion of large amounts of fossil fuels will have to be paired with extensive deployment of carbon capture and storage technology to offset the implied rise in emissions.
But as renewables and other energy sources expand, oil and gas are set to follow coal and increasingly be forced to compete on price against other sources to maintain their roles in the energy mix.
Coal retained a large role in the energy system during the second half of the 20th century and the early years of the 21st by remaining cheaper than alternatives.
Oil and gas are likely to follow the same trajectory. With the growth of alternatives such as renewables, oil and gas will have to remain relatively cheap to maintain their markets.
Future price spikes will accelerate the shift to competing energy sources, and result in the loss of absolute as well as relative consumption.
Oil consumption in particular will become increasingly vulnerable to inter-source competition, given its higher price and CO2 emissions.
OPEC’s role will have to evolve from trying to maximise revenues by restricting output and pushing prices higher to defending oil’s remaining energy market share.
In the second half of the 2020s and into the 2030s, the organisation will become increasingly preoccupied with allocating production and investment in a fully mature industry likely to be plagued by chronic overcapacity.
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