Dark Prosperity – BP’s 2019 Energy Outlook: Increasing emissions, OPEC’s retreat and (yet) the remarkable rise of Renewables.

BP’s latest Energy Outlook shows us our fossil-fuel-dominated energy future – unless we intervene with technology and policy

“…when oil firms make predictions, they shape rather than reflect reality”.

BP’s 2019 Energy Outlook, released this month, is a tale of dark prosperity.

In the Outlook they use the p-word on 20 occasions to indicate the fact that as nations progress they need more energy – and hence more oil and gas.

In fact, by the end of the Outlook period, 2040, in their central scenario (Evolving Transition, ET) BP see us consuming more oil gas and coal in absolute terms than today, with 75% of primary energy still serviced by fossil fuels.

As a consequence, CO2 emissions are still growing at just under 40 billion tonnes of CO2 emitted per year.

In terms of how this will impact the planet’s climate, as calculated by the Intergovernmental Panel of Climate Change (IPCC) last year, this is, frankly, not good.

It puts us, at best, on the high end of a 2-3 degree global warming, or medium to high emissions,  pathway by 2100, double the 1.5 dec C target that would likely mitigate harsh environmental impact.

And it is not just BP who have this vision.

if we jump to page 129 in the 140-page brochure they helpfully summarise the Outlooks of ten other oil firms and analysts.

source: BP Energy Outlook 2019

Same story.

Every single fossil fuel increases in absolute and percentage terms (even coal) across that span of 22 prosperous years, and so does CO2 emissions.

What price this prosperity ?

For oil and gas alone, at today’s spend rate which BP insist will still be required, the final cheque will be around 15 trillion dollars in today’s money – or over a trillion dollars per year by 2040 in money of the day.

Reality Intrudes

Of course one would be naive to go to an oil and gas company’s Outlook and expect a gloomy assessment of future fossil fuel demand.

And to be fair to BP they caveat the Outlook by saying the ET scenario is just one of several.

In addition they share all their data and assumptions in various tables at the back. Whilst one can disagree with their outlooks, they are being transparent and open in how they calculate them.

And the numbers make clear that BP has an external reality bearing down on their previous forecasts.

On page 127 they note the two largest areas of error from previous Outlooks: over-aggressive forecasts of oil demand, and consistently underplayed estimates of the growth of renewables.

As a result their central scenario for oil fluids demand has been pared back – only 2million barrels/day of new demand for transport fuels is assumed out to 2040 with most growth at the front-end.

A peak though is avoided with aviation fuels and petrochemicals coming to the rescue. Slower emissions growth, but lots more plastics to make up for it!

Yet with the main growth fraction of the barrel – transport fuels – now under assault from lower consumer demand and electrical substitution BP itself is recognising the long-term demand increase game may be up.

It is now playing defense in the numbers, and left hoping that smaller parts of the barrel outperform.

2016 – Peak OPEC Production?

A curious outcome of demand’s decline is how BP game out the supply  battle for the decreasing consumption.

BP’s view is that with non-OPEC (and especially US shale) expansion now built in after a decade’s worth of multi-trillion dollar investment, OPEC volumes will have to retreat to accommodate the non-OPEC production and so preserve oil price.

By BP’s calculations OPEC will need to reduce its production by at least 2-3 million barrels / day  over the next ten years – and if world demand does not meet the BP central target, OPEC production will need to decline on a structural basis.

Put another way – and who knew – 2016 is now a very good bet for the year of peak OPEC production, as both 2017 and 2018 have seen decreases in output already.

source: BP Energy Outlook 2019 

To justify this BP suggest that OPEC have not built enough of an alternative economy to withstand a market share war – hence for all their seeming production strength and low-cost reserves, they will have to be reactive and defensive via capacity restraint rather than output expansion to protect oil prices.

This is yet another acknowledgement of the growing impact of alternative energies eating up marginal demand growth.

And BP are probably right – OPEC cannot now force a market-share gambit, so their strategy is likely to be one of requesting supply constraints from even more of non-OPEC producers, but accepting the reality of oil’s structural demand decline.

Thus the world oil market continues its delicate and fragile dance of grudging OPEC restraint paired with high-cost non-OPEC growth, to maintain oil above $50/bbl.

And yet – The Remarkable Rise of Renewables

There is another scenario that BP discuss – Rapid Transition (RT), wherein oil demand and falls 20% over the Outlook, and CO2 emissions fall to within Paris 2deg C limits.

For this to happen BP suggest the power sector needs to decarbonize quickly, and transport too.

What is eye-catching about these assumptions is just how modest and unremarkable they are given latest moves.

Posited as an outlier scenario, the RT looks far closer to a centrist outcome than BP probably wants to admit.

For example, in the various oil and gas industry Outlooks renewables are set to grow at 5% pa on average – but this is three times below current trend of 15-20% pa.

BP’s tables in their Annex point to a 9.6% pa renewables average growth over the period in the RT scenario – entirely reasonable with today’s actual rates.

The Rapid Transition scenario looks therefore more and more plausible – and shows how close we may be to actually achieving an energy turn-around if we keep pace with current wind, solar and battery developments.

To reinforce this view, BP produce a startling chart – below – that shows how the renewable energy transition (wind, solar EVs and batteries) is unlike any of the energy transitions of the past two centuries (which were mainly fossil fuel reshufflings and nuclear finding a niche).

source: BP Energy Outlook 2019

Under the RT scenario wind, solar and EVs would provide 30% of global energy by 2030 – a rate that is “literally off-the-charts” in historical energy terms; BP’s words.

Even in the central scenario it’s clear renewables are growing into the energy world at three to four times faster than fossil fuels ever managed.

As we have stated on multiple occasions, see here for example , this is because renewables are an energy source that is different in kind: not degree, to fossil fuels they are manufactured, scalable, and capable of sliding down various learning curves, making them rapidly cost-competitive over a range of energy applications such as electricity and transport.

BP admits this alternative reality into the Outlook like a shard of sunlight piercing the dark halls of the fossil fuel future they have built.

And it is important.

BP’s analysis indicates that with today’s renewable technologies (not some future technologies as yet undiscovered) we can transform the current energy landscape dramatically just by disciplined implementation.

That is quite some admission, and quite some insight, from an experienced incumbent.

An Outside Reality Gathers

BP have attempted to shape a reality yet again in this Outlook.

So their central scenario is a Pottersvillian energy world in which they (and the industry) can function without much adaptation required. But it is a darker world, full of more and more emissions and more and more pieces of immortal plastic.

It is of course an Inside View, and illustrates what the oil and gas industry will do to deliver energy prosperity, at a tolerable price, if the external world does not intervene with alternative technologies and policies.

To state the obvious: it is not their job to force the shift in energy transformation, but the world around them, to which they must then adapt.

Expecting oil companies to spearhead solar innovation, for example, is frankly bizarre. And misguided, as others can do it much faster and much better.

Still, to their credit, in the RT scenario BP offer a glimpse of what can happen if today’s (proven) alternative energies continue to grow as fast, or faster, than now, and CO2 restrictions continue to advance.

An outside reality of new energies and policies is now gathering with its chaotic weaponry of S-curve growth, marginal change, tipping points and disruptive technologies to confront the relentless growth of fossil fuels.

And to create, perhaps soon, a brighter path to prosperity.


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