Pandemic hastens crude’s demise but hydrocarbons to play a role for decades – BP
LONDON (ICIS)–The world will aim to move away from fossil fuels at speed post the pandemic, aiming to lessen the impact of climate change via decarbonisation, although hydrocarbons will continue to play a role in materials production, UK energy major BP said on Monday.
In its annual Energy Outlook, the crude oil major said carbon pricing, where polluters pay for the carbon dioxide (CO2) emissions they generate, will play a key role in reducing emissions.
However, the production of materials through petrochemicals will continue to be made mostly with fossil fuels as alternative materials are not yet available.
“The non-combusted use of fuels – predominantly as feedstocks for petrochemicals, bitumen and fertilizers – is an important source of incremental demand for fossil fuels, although less than in the past 20 years as environmental pressures increase,” said BP.
The Energy Outlook forecasts three potential scenarios to 2050; in the Rapid scenario, policy measures will lead to a significant increase in carbon prices, prompting the energy sector to reduce emissions by 70% by the mid-point of this century.
This scenario is the only one that meets the Paris Accord pledge on climate change, which aims to limit the rise in global temperatures by less than 2 degrees Celsius by 2100, compared with pre-industrial levels.
The Net Zero scenario would be the most ambitious to meet the Accord, in which policies are “reinforced by significant shifts in societal and consumer behaviour and preferences”, with the circular economy concept widely put in place; emissions would fall by 95% by 2050 in this scenario.
Business-as-usual (BAU) contemplates that policy action is limited, and energy production would evolve as in past decades; however, as renewable energy gains traction, emissions could peak in the mid-2020s under this scenario, although they would have fallen only by 10% in 2050, compared with 2018 levels.
“The non-combusted use of liquid fuels, largely as a feedstock in the petrochemicals sector, provides some degree of support to overall liquids demand, increasing in both Rapid and BAU [scenarios], and declining below 2018 levels only in the final 10 years of the Outlook in Net Zero,” said BP.
BP added that the degree of “market rationalisation” required in the Rapid scenario would be more pronounced than in the other two scenarios, forecasting that in this stance around 50m bbl/day of crude oil – current or planned capacity – would surpass demand.
“The refining capacity that is most resilient to these pressures in Rapid is aided by: resilient domestic demand, access to advantaged feedstock, high levels of upgrading, integration with petrochemicals and, in some regions, government support.”
How carbon is priced will be key to any reduction in emissions; BP assumes rapidly rising prices in the Rapid and Net Zero scenarios, reaching $250/tonne of CO2 in the developed world by 2050, and $175/tonne in emerging economies.
In the BAU scenario, carbon prices would reach $65/tonne in developed economies and $35/tonne in emerging economies.
ENERGY USE UP, CRUDE
Under BP’s three scenarios, energy demand rises rapidly as emerging economies urbanise, and it will be key countries changing their energy mix to include clean energies as well as accelerating energy efficiencies.
But crude oil is set to be, together with coal, the big loser of the new trends; the three scenarios contemplate demand for crude falling – 10% down in the BAU scenario, 55% lower in Rapid and 80% down in Net Zero.
“In BAU, demand plateaus in the early 2020s and in both Rapid and Net Zero oil demand never fully recovers from the fall caused by Covid-19. The decline in oil demand is driven by the increasing efficiency and electrification of road transportation,” it said.
Finally, the rapid development of hydrogen as a source of energy would put at 10% of the energy mix by 2050 under the Rapid and Net Zero scenarios; hydrogen would also help lessen the burden on energy-intensive petrochemicals producers.
“Hydrogen has a particular advantage in industry as a source of energy for high-temperature processes, such as those used in steel, cement, refining and petrochemicals sectors,” it said.
BP’s CEO said the world “remains in an unsustainable path”, only interrupted by pandemic-induced lockdowns that brought nearly everywhere industrial activity to low levels of activity, adding that only decisive policy measures could limit the rise in global temperatures as pledged by the Paris Accord signatories.
“With decisive policy measures and more low carbon choices from both companies and consumers, the energy transition still can be delivered,” said Bernard Looney.
“It is one of the reasons I remain optimistic about the future and I hope readers will find the report helpful as we all try to make a difference.”