BP Energy (ticker: BP) released its latest edition of the 2035 Energy Outlook on February 17, 2015, complete with supporting materials, a press release and a webcast. The landing page of the report can be accessed by clicking here.
BP stopped short of calling its projections a “crystal ball,” but says we can expect the following events to occur by 2035 based on trends in the evolving oil and gas industry:
United States Becomes Self-Sufficient in Oil
The need for oil imports in the U.S. is expected to evaporate in the 2030s, thanks to the continued development of tight oil. The projection, if achieved, is remarkable considering the global innovator of shale imported 60% of its oil demand in 2005. The number dropped to 52% in 2013 – the same year net energy imports to the U.S. reached its lowest point in 20 years. The Energy Information Administration reported last week that imports of light grade crude have already been virtually eliminated.
LNG will Overtake Pipelines as Dominant Form of Traded Gas
Natural gas demand is projected to grow annually by 1.9%, outpacing demand of any other fossil fuel. The majority of demand will be sourced from Asia, the target consumer of several liquefied natural gas (LNG) projects. BP believes half of the growing natural gas demand will be met by conventional production in Russia and the Middle East, leaving the remainder up to other global gas producers.
Thus, the LNG market is forecasted to grow by nearly 8% per year through 2020, ultimately surpassing pipeline transportation volumes by 2035. The flows to China and India, in particular, will make Asia the world’s top gas importing region by the early 2020s, a title currently held by Europe.
North America Becomes Net Exporter of Natural Gas
The world’s rising need for natural gas will be met by North America’s rising production from shale, causing the continent to become a net exporter of the resource “within the next few years.” North America currently supplies almost all global shale gas supply and will still hold 75% of the market by 2035, despite increased development from Russia and the Middle East. The ramp-up of LNG activity will, in turn, create a more closely linked global market involving prices and diversity. The flows will tilt towards a west-to-east scenario as energy efficiencies in the U.S. and Europe will lead to reduced demand.
Energy Demand will Continue to Rise, but Coal will be Less of a Factor
Overall, BP expects energy demand in 2035 to be 37% higher than demand in 2013, translating to average annual growth of 1.4% for the next 20 years. Gas, as previously mentioned, is expected to grow at 1.9% and oil’s forecasted growth is 0.8%. Coal demand is expected to slow to 0.8% per year as a result of stricter environmental regulations and moderations.
Contributing to the shift away from coal is China, whom BP believes will become the world’s largest oil consumer by 2035 (overtaking the U.S.). Carbon emissions, however, will continue to rise by 1% annually. In short, BP does not believe the steps taken to dial back emissions are enough, from a global standpoint. “This underlines the importance of policymaking taking steps that lead to a meaningful global price for carbon which would provide incentives for everyone to play their role in meeting the world’s increasing energy needs in a sustainable manner,” the report says.
Although the report is more focused on long-term trends, some major turning points have already occurred, says BP. For example, oil consumption of OECD countries peaked in 2005 and is expected to fall to 1986 levels by 2035. Non-OECD countries will fuel almost all increased global oil demand from this point forward.
BP also acknowledged the current commodity environment, saying the weakness in the market will “likely take several years to work through.” Spencer Dale, BP’s Chief Economist, says, “After three years of high and deceptively steady oil prices, the fall of recent months is a stark reminder that the norm in energy markets is one of continuous change.”
The situation was driven largely by the booming production of the United States. Tight oil production caused U.S. output to increase by 1.5 MMBOPD in 2014 – the largest since year rise in its history. “Further out,” the report says, “the growth in tight oil is likely to slow and Middle East production will gain ground once more.”
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