Editor’s Insight: Peak oil demand now within sight – McKinsey

A new world energy outlook says generating more electricity in future will be critical as the use of fossil fuels starts declining within 10 years.

The McKinsey Global Institute research report, authored by Amsterdam partner Occo Roelofsen, looks at energy trends until 2050 and examines the implications for industries such as petrochemicals and motor vehicle manufacturing.

It says fossil fuels will still dominate the total energy mix through to 2050 but their share of total energy will decline to 74% from 82%.

While gas is a relative winner (growing at almost twice the rate of total energy demand), coal will peak by 2025 and oil demand growth will flatten to 0.4%.

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 to 2035.

Demand for liquids, excluding chemicals, will peak and flatten by 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.

Impact on motor vehicles
By 2030, electric vehicles (including hybrids and battery-powered plug-in vehicles) could represent close to 50% of new cars sold in China, the European Union, and the US, and about 30% globally.

If the market penetration of electric, autonomous, and shared vehicles accelerates, oil demand driven by light vehicles could be approximately three million barrels a day lower in 2035 than is assumed in a business-as-usual case.

Together, this accelerated adoption of light-vehicle technologies and the adjustment of plastics demand could double the reduction in 2035 oil demand to nearly six million barrels a day.

An important result is that oil demand will peak around 2030, at fewer than 100 million barrels a day in this scenario.

Peak oil's effect on plastics
The petrochemicals industry’s traditional rule of thumb is that chemicals demand grows at 1.3 to 1.4 times the rate of GDP. McKinsey sees mature markets reaching a saturation point for plastics.

Markets such as Germany and Japan are already declining in per capita plastics demand. As a result, chemicals demand will increase at only 1.2 times GDP in the short term, from a global perspective.

In the long term, that growth will decline to match the GDP growth rate. Two elements could transform chemicals demand further: plastics recycling and plastic-packaging efficiency.

If global plastic recycling improves from today’s 8% rate to 20% in 2035 and that plastic packaging use declines by 5%, demand for liquid hydrocarbons driven by chemicals could be approximately 2.5 million barrels per day below McKinsey’s business-as-usual case.

Two key points about energy use
The first is that growth in global energy demand will decelerate to 0.7% per year through 2050, a rate 30% slower than McKinsey had previously forecast.

All of this increased demand will come from emerging and developing countries while European and North American demand will decline.

The second is that demand for electricity will outpace demand for other energy sources by more than two to one. Solar and wind will represent almost 80% of net added capacity and 34% of generation by 2050.

The good news for environmentalists is that energy-related carbon dioxide emissions will flatten and start to decline around 2035 as a result of the transformation of light vehicles (more-efficient combustion engines and more electric vehicles on the roads) and the strong shift to wind and solar in power generation.

Other economic and demographic forecasts
The main assumptions underlying these forecasts is the global population is aging and economies are moving from goods to services.

By 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 labour 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 half century.

Additionally, the structure of GDP growth is shifting toward services. MGI’s latest research suggests that China, today’s second-largest energy consumer, is shifting its economy from heavy industry to services to keep growing.

At the same time, the surge of energy-intensive industrialisation 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.

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