Fueling the World's Growth

Several articles led me to what is apparently BP's first-ever public long-term energy forecast, "BP Energy Outlook 2030", which was released earlier this week. It's a fascinating document on several levels, and it builds on the reputation established by the BP Statistical Review, an annual compendium of historical energy data and trends. The figure that I've already seen cited in a number of places is that BP expects fossil fuels to contribute just 64% of the growth in energy over the next twenty years, compared to 83% in the last twenty. A quick internet search revealed many other tidbits that reporters and bloggers have picked up on, including a very interesting comparison of future energy security trends among China, the EU and US. I could spend hours detailing the observations that intrigued me, but I'll focus on just a few.

The mere fact of BP's releasing such a forecast seems noteworthy. Perhaps it's aimed at increasing transparency under a new CEO, as Mr. Dudley suggests in his introduction, or maybe the folks who've been creating such documents internally finally convinced management that they had at least as much PR value as the venerable Statistical Review. Their approach to the report also reminds us just how different BP's culture is from that of its UK (and Dutch) arch-rival Shell, which has long preferred scenario planning to conventional forecasting. Both have their uses, though for deep insights I also prefer scenarios and use that technique with my clients. I suggest having a look at Shell's latest publicly-available pair of scenarios looking out to 2050 for another perspective on future energy. The current edition morphs a previous version's theme of "TINA" (There Is No Alternative) into "TANIA" (There Are No Ideal Answers). Amen. And now back to BP's point of view.

The report's projection concerning how energy growth is likely to be satisfied over the next two decades is a classic half-full/half-empty proposition. On the half-full side I consider it a remarkable indication of the success of renewables and the expansion of global interest in nuclear power--it's really only a "renaissance" in the US, never having waned in many other places. The idea that the combination of these sources could be viewed in a serious base-case projection as providing more than a third of incremental energy growth would have lacked credibility not very long ago, for reasons the charts on page 10 of the report should make clear. However, I have no doubt that many will find such a projection altogether too faint-hearted, believing that we surely ought to be able to dispense with these dirty fuels entirely within two decades or less. Well, the first step toward living without oil and coal (and maybe even gas) is being able to cover 100% of future energy growth from other sources. BP makes a coherent argument that we are not yet at that point, even in the more aggressive "policy case" results they present later in the report.

From the perspective of long-term emissions reductions and future energy transformation, two other sets of figures in the outlook look more promising. First is the lengthy discussion of energy efficiency and the accelerating reduction in the energy intensity of GDP that's woven all through the document. That is the main reason why, in a view that is distinctly not a low-growth scenario, total energy demand grows by just 39% and not some much higher value. The other key point is that BP sees 57% of that growth being focused on electricity, rather than transportation fuels. Since we have many more effective low-emission options for making electricity than transportation fuels, the opportunity to reduce emissions in the future will expand significantly, even if in the short run coal is merely losing market share, while its use still increases in absolute terms.

BP's detailed projections for oil and biofuels, along with the growth of China, deserve an entire posting of their own, and perhaps I'll come back to them in the next week or two. In the meantime the last item I wanted to highlight concerns energy security, which has been such a prevalent theme in US politics and public discussion for so long. As I read the chart on page 72--and to the extent I accept its assumptions--I would not trade (energy) places with the EU or China for all the tea in the world, despite all the recent talk of US decline and Chinese ascendancy.

With regard to Europe we see the inevitable consequences of the peaking and decline of the North Sea oil and gas resources. Already more dependent than the US for imports of both oil and gas at this point, Europe will need a generation for its massive focus on renewables to stem the steady rise of its energy import dependence. China's situation is entirely different, as its explosive growth outruns the steady increases in its oil and gas production. If you want to understand why China hasn't abandoned coal and suddenly seems so interested in nuclear and renewables, this picture is worth the proverbial thousand words. Of course the US trajectory is hardly a given. Skim through the report's other charts to see how much that pleasant outcome of greatly improved energy independence depends on shale gas (page 54), fuel economy gains (page 30) and biofuels (page 40). And note that BP suggests that most of the latter will come from "first generation" sources--corn and sugar cane--in this timeframe.