Key Insights into the Growth of the Energy Sector

Key Insights into the Growth of the Energy Sector

Key Insights into the Growth of the Energy Sector


Here is the latest overview view on economic-growth fundamentals in the global energy sector

The Key points are listed below, as follows:

  1. Growth in global energy demand will decelerate to 0.7% per year through Y 2050, a rate 30% slower than had been previously forecast by analysts
  2. Emerging and developing countries will drive all growth in energy demand, while European and North American demand will decline.
  3. Chemicals will grow at more than 2X the rate of total energy demand, while light-vehicle demand will peak around Y 2023.
  4. Demand for electricity will outpace demand for other energy sources by more than 2 to 1. Solar and Wind will represent almost 80% of net added capacity and 34% of generation by Y 2050.
  5. Fossil fuels will dominate the total energy mix through Y 2050, but their share of total energy will decline to 74% from 82%. While Nat Gas is a winner growing at almost 2X the rate of total energy demand, coal will peak by Y 2025, and Crude Oil demand growth will flatten to 0.4%.
  6. Energy-related CO2 (carbon dioxide) emissions will flatten and start to decline around Y 2035 as a result of the transformation of light vehicles to more-efficient combustion engines and more EV (electric vehicles) on the roads and the strong shift to Wind and Solar in power generation.

The report states, “The total demand for liquid hydrocarbons will play out as a “tug of war” between growth in the petrochemical sector and declining demand from passenger cars. Petrochemical feedstock will drive 70% of the growth in demand for liquid hydrocarbons through Y 2035. Demand for liquids, excluding chemicals, will peak and flatten by Y 2025 because of a decline in demand from light vehicles. The petrochemicals demand will drive the growth of light end products, a large share of which are not made from Crude Oil.

The industry’s traditional rule of thumb is that chemicals demand grows at 1.3 to 1.4X the rate of GDP. Globally, we see this relationship changing, especially as mature markets reach a saturation point for plastics. Markets such as Germany and Japan are clearly declining in per capita plastics demand. As a result, we see chemicals demand growing at only 1.2X GDP in the short term, from a global perspective. In the long term, that growth will decline to match the GDP growth rate. 2 elements could transform chemicals demand further: plastics recycling and plastic-packaging efficiency. If we imagine that global plastic recycling improves from today’s 8% rate to 20% in Y 2035 and that plastic packaging use declines by 5%, demand for liquid hydrocarbons driven by chemicals could be approximately 2.5-M BPD below our business-as-usual case.”

Underlying these outcomes, the McKinsey Global Institute (MGI) sees reduced macroeconomic growth for the coming decades, including changes to the structure of growth.

MGI states, “The global population is aging. By Y 2050, about 25% of the population of developed economies, including China, will be 65 or older—this means a lower proportion of workers in the total population. This relatively shrinking labor force will lead to a global macroeconomic downshift. Assuming current trends continue, with no unexpected uptick in productivity, MGI expects growth in GDP to be 40% lower during the next 50 years compared with the previous 50 years.

Additionally, the structure of GDP growth is shifting toward services.

The research suggests that China, today’s 2nd-largest energy consumer, is shifting its economy from heavy industry to services to keep growing. At the same time, the surge of energy-intensive industrialization that we have seen in China during the past decades will likely not be replicated elsewhere. That means a greater share of global GDP will be driven by services, which are less energy intensive.

The energy intensity of GDP growth is declining further as a result of structural shifts at the individual-sector level.

For example, during the past 35 years, internal combustion engines in passenger cars have become approximately 20% more efficient. The industry expects another 40% improvement in efficiency through Y 2035. Accounting for all sectors of the economy, the energy intensity of global growth will fall by 50% through Y 2050.

The downgrading of energy-demand outlook has material implications for investments.

The outlook suggests that resource holders and incumbents in the energy sector need to quickly develop a position on the following questions:

  1. What are the pockets of growth and investment?
  2. Where are the value pools across the system?
  3. What are the shaping moves and new business models required to capture value?

For more information, visit Energy Insights.

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Stay tuned…


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