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Biggest loser of energy transition: oil, coal, or gas?

Oil&Gas Materials 15 November 2018 10:36 (UTC +04:00)

Baku, Azerbaijan, Nov.15

By Leman Zeynalova – Trend:

The world will depend on coal, oil and gas for quite some time despite the rapid energy transition, Wood Mackenzie consulting company believes.

David Brown, senior cross commodities analyst with Wood Mackenzie noted that coal is the first casualty of decarbonization.

“Coal demand halves by 2040 even with no international CO2 pricing regime as the power sector switches to gas and renewables. That’s wildly different to our base case where coal demand stays broadly flat. India is the only major consumer in the Scenario where we see demand for coal increase through 2040. We don’t see carbon capture and storage playing a big role,” he said.

As for oil, Brown predicts that a faster energy transition takes a chunk out of oil demand by 2040.

“We forecast demand peaks at 110 million b/d in 2036 in our base case, with 5.5 million barrels a day lost to EVs. But demand from petrochemicals continues to grow leaving total demand still at that level in 2040. The Carbon Constrained Scenario has two main effects. First, higher EV sales penetration would wipe another 5.5 million b/d off demand. Second, mounting environmental concerns prompt higher biofuel mandates and a challenge to the widespread use of plastics,” said the analyst.

He believes that more biofuels, less single use plastics, and more plastics recycling takes out another 5 million b/d. “So oil demand falls to 100 million b/d by 2040, back to today’s level, and on the slide.”

Further, Brown noted that gas demand grows through 2040, but at a slower rate.

“Power is the big market, gas benefiting from the switch out of coal because of its lower carbon intensity; and provides the flexibility to balance intermittent solar and wind power,” he said.

The analyst noted that gas has a lot of running room in markets with high power demand growth like China, India and SE Asia – 60 percent of incremental demand 2018-40 is from Asia-Pacific economies.

But in slower-growing power markets like the EU and USA with high penetration of renewables, gas demand growth will be more limited, according to Brown.

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Follow the author on Twitter: @Lyaman_Zeyn

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