BP Revises 2035 Energy Projections

Each year, our friends at BP release a new energy outlook for the coming years. This energy outlook, which was released on January 25, 2017, is very well respected. At the very least, it gives us insight into how one of the largest oil companies in the world is thinking, and therefore, what they are planning for in the near and long term.

This year, the Energy Outlook largely corresponds to the predictions by the EIA in its updated outlook that we wrote about in the last edition of The Five Star Standard. And while I wish I could tell you that I was planning for 2035 when little Ty takes over Five Star (or little Tiffany depending on God’s plan), I am not that astute of a businessman – but it is something I keep in the back of my mind (as an aside – we will know if my lovely fiancé Gabi reads this as I will get a pretty quick text telling me we are not naming our children, should we be lucky enough to have them Little Ty and Tiffany – LOL).

From the report and conference call, there were a few nuggets that I thought you all would find interesting:

1. Global energy demand will increase by 2035, but oil prices will remain low as production increases faster than demand.Global Energy demand is projected to increase around 30% by 2035. A substantial increase. However, this increase in demand is expected to partially offset by increasing energy efficiency. Oil, gas, and coal are expected to remain the top sources of energy, however, they are projected to decrease in terms of percentage. Right now they account for about 86% of total energy and they are expected to decline to about 75% of total energy by 2035.
2. Gas will overtake coal by 2035. Coal use is expected to peak by the mid-2020s, while demand for gas is expected to increase by 1.6% per annum and become the second most used fuel source.
3. Renewables will continue to grow the fastest. While remaining a relatively small portion. Renewables, as a portion of total energy consumption, are expected to quadruple by 2035 – in part a result of increasing environmental regulations around the world, but also as a result of changing fuel mixes.
4. Transportation will no longer by the top oil consumer. In what I find to be the most interesting part of the report, transportation will no longer be the top consumer of oil. Rather, products such as fabrics and petrochemicals will be. BP further predicts that the number of electric cars in use will grow from 1.2 million in 2015 to 100 million by 2035.
5. Current Reserves Are Enough. BP projects that current global oil reserves (around 2.7 trillion barrels) are sufficient to meet demand out to 2050. Twice over. BP does not project oil demand to peak before the 2040s, but does expect demand growth to slow from about 1 million barrels per day to 400,000 barrels per day by 2035, when world consumption reaches 110 million barrels per day.

Finally, and importantly for us, BP sees a long-term fight between low-cost producers and others as the world remains awash in oil supply (or at least recoverable reserves). They believe that low-cost producers (namely certain Mid-East members of OPEC, U.S. shale producers and Russia) will continue, through 2050, to leverage their low production costs of production against higher cost producers that rely on offshore such as Brazil, the North Sea and Asia. The predictions of a long-term price war add credence to our belief that we will continue to see shorter boom/bust cycles that remain a bit enigmatic.