Pandemic, electrification bring hydrocarbon demand peak forward to 2027
New research by McKinsey & Company has shown that aggregate fossil fuel demand would peak in 2027 with oil peaking in 2029 and gas in 2037, partially due to the impacts of Covid-19.
A report published by global consultancy McKinsey & Company named “The Global Energy Perspective 2021” found that, while coal demand peaked already, peaks in demand for oil and gas were not far behind – falling in 2029 and 2037, respectively.
According to McKinsey, the pandemic has resulted in a profound reduction in energy demand. The company stated that it would take between one to four years to recover – with electricity and gas demand expected to bounce back more quickly than oil demand.
However, demand for fossil fuels will never return to its pre-pandemic growth curve. Over the long-term, McKinsey claims, the impacts of behavioural shifts due to Covid-19 are minor compared to “known” long-term shifts such as decreasing car ownership, growing fuel efficiencies and a trend towards electric vehicles, whose impact is estimated to be three-to-nine times higher than the pandemic’s by 2050.
Christer Tryggestad, senior partner at McKinsey, said: “While the pandemic has certainly provided a substantial shock for the energy sector across all fuel sources, the story of the century is still a rapid and continuous shift to lower-carbon energy systems.
“The share of electricity in the energy mix is set to grow by around 50 per cent by 2050 and it’s set to capture all global energy growth as hydrocarbon consumption plateaus. However, in our reference case, fossil fuels continue to play a significant role in the foreseeable future”.
While the earlier peak of hydrocarbon demand means a substantial reduction in forecasted carbon emissions, the world remains significantly off of the 1.5 degrees Celsius pathway and will run out of its carbon budget for 2100 in the early 2030s.
“There is still a long way to go to avert substantial global climate change. According to our estimates, annual emissions would need to be around 50 per cent lower in 2030 and about 85 per cent lower by 2050 than current trends predict to limit the global temperature increase to 1.5 degrees Celsius.
“Despite the increased momentum towards decarbonization, many governments still need to translate ambitious targets into specific actions. Additionally, given the unparalleled size of many economic recovery packages post Covid-19, the focus of the stimulus measures will play a key role in shaping energy systems in the decades to come”, Tryggestad added.
It is worth noting that the findings are taken from four scenario outlooks conceived by McKinsey:
- 1.5ºC Pathway: a top-down view of how a pathway that limits global warming to 1.5ºC could look across sectors and energy products, taking economic and technical feasibility into consideration
- Accelerated transition: A progressive view, driven by a governmental response to Covid-19 and “next to normal” behavioural changes. This scenario assesses the impact of 10 conceivable shifts happening at an accelerated pace (uptake of EVs, recycling, renewables, hydrogen, etc.)
- Reference case: McKinsey’s outlook on the continuation of existing trends. This scenario reflects expectations of how current technologies can evolve and incorporates current policies and extrapolation of key policy trends
- Delayed transition: Post-pandemic, the societal focus is on economic recovery; energy transition continues at a lower speed; lower incentives to invest in decarbonization technologies, and low fossil fuel prices delay cost parity