April 2016, Vol. 243, No. 4


Exxon Mobil Outlook Sees Oil and Gas Still Dominating in 2040

Despite upheavals in energy markets, the end of Iran’s sanctions, and the decline in oil prices, supermajor Exxon Mobil expects the global energy environment 25 years from now to remain largely as it is today. In other words, oil and natural gas will remain dominant.

In fact, the company’s Outlook for Energy: A View to 2040 concludes that global energy demand will rise by about 25% between now and 2040, with the bulk of the expansion coming from the developing nations of Latin America, Asia and Africa.

“This is a significant increase, but would have been far higher (exceeding 110%) if we did not foresee steep improvements in energy efficiency across all demand sectors,” the Outlook stated.

The Exxon Mobil projections indicate that wind, solar and other renewables will triple during the same period, but still only be responsible for production of 4% of global energy. In comparison, nuclear and biomass energy, which includes wood and agricultural products, will each account for 8% of all energy, while hydropower provides 3% of energy.

From 2014-40, Exxon Mobil predicts coal’s share will slide by 6% to 20% and be surpassed by natural gas as the second-largest source of energy. During that time, the share of the world’s electricity generated by coal will fall from 40% to 30%.

“The versatility and ease of use that natural gas provides are expected to help gas increase its share of heavy industry demand from 15% today to over 20% by 2040,” Exxon Mobil stated. The Outlook predicts North America, where liquids production is expected to increase 40%, could become a net oil exporter in 2020 and a net liquids exporter by 2025.

According to William Colton, Exxon Mobil’s chief strategist, this somewhat unexpectedly bright picture of the future, which includes a projection that by 2040 one-third of energy will be provided by oil, has nothing to do with wishful thinking.

 “Exxon Mobil uses the outlook to develop business strategies that underpin our billion-dollar investment decisions,” Colton told The Associated Press. “We have every incentive to get it right.”

Exxon Mobil’s long-range forecast was developed by economists, engineers and scientists to examine energy supply and demand trends for about 100 countries, 15 demand sectors and 20 types of energy.

Among key projections from the Outlook:

  • Oil and gas will combine to account for 57% of global energy, an increase of 1% from the 2014 level.
  • The use of natural gas through 2040 will increase a whopping 56% while use of oil will increase 25%.
  • Oil, natural gas and coal will continue to supply almost 80% of the world’s energy needs through 2040.
  • Natural gas will meet 40% of the growth in energy demand from 2014-40.
  • By 2040, Exxon Mobil expects unconventional supplies to comprise 90% of North American gas production.

Exxon Mobil also predicted commercial energy demand will increase by 40% during that time, including a surge in electricity demand exceeding 150%. Meanwhile, combined residential and commercial energy demand will rise by 25% from 2014-40.

Given the scale of global industry, which also includes companies that produce energy such as Exxon Mobil, it’s no surprise the sector already accounts for 30% of primary energy demand and 50% of electricity demand worldwide. Nonetheless, the Outlook expects industrial energy use to grow another 30% from 2014-40, with most of that attributed to heavy industry and chemicals. Globally, over 60% of the energy in the chemical sector is used as feedstock, such as oil-derivative naphtha.

Separately, global liquids output is expected to increase to 112 MMbpd in 2040, up from 93 MMbpd in 2014. This will keep pace with an expected 20% rise in demand. While conventional oil will continue to account for most worldwide production, Exxon Mobil foresees most of the growth through 2040 to result from technology-driven supplies including tight oil NGLs, oil sands and deepwater production. Those supplies are predicted to represent 40% of global liquid production by 2040, up from 25% in 2014. NGLs alone will account for nearly 15% of global liquids supply in 2040, up from 10% in 2014.

Deepwater production is expected to increase about 70% over the same period, with world output exceeding 10 MMbpd. Supply from oil sands is also expected to grow with production reaching almost 7 MMbpd by 2040 – 2.5 times greater than in 2014.

“Barely on the radar screen a decade ago, tight oil – oil dispersed in shale and other tight rock formations – is expected to account for 10% of the world liquids production by 2040,” the Outlook said.

The report has some detractors within the scientific community. Among them, energy research Jonathan Loomey of Stanford University.

“I don’t think they are saying things that are crazy – the Exxon Mobil people are very sharp,” he told AP, “but they are painting a picture of a world in which there is not significant climate action, and that’s not the world we’re going to live in the next 25 years.”

The Outlook, in fact, did predict that policies to address greenhouse gas (GHG) emissions will “increasingly influence the energy landscape, projecting that emissions will likely peak about 2030.” This is after rising over 50% from 1990-1994.

It expects member nations of the Organization for Economic Cooperation and Development (OECD), where CO2 emissions are falling, to lead this shift. China is also expected to contribute to the decline as its emissions also peak about 2030.

“For many years the Outlook has taken into account policies established to reduce energy-related carbon dioxide emissions,” Colton said. “The climate accord reached at the recent COP 21 conference in Paris set many new goals, and while many related policies are still emerging, the Outlook continues to anticipate that such policies will increase the cost of carbon dioxide emissions over time.”

Among other key emissions-related findings:

  • Globally, the average fuel economy for light-duty vehicles will improve by 80%. This at a time when total vehicles on the road are expected to increase to about 800 million.
  • The number of conventional hybrid vehicles will increase from about 2% of new car sales to over 40% by 2040.
  • Despite growing awareness and an increase in laws internationally to limit climate change, carbon emissions are expected to rise 11% from 2014-40. At a time when carbon emissions will fall 21% in industrialized nations, developing countries, such as India, will account for a total increase of 32%.

The Outlook predicted the CO2 intensity of the global economy to be cut in half by 2040, with energy-efficiency gains cited as a major contributor, supported by a gradual transition to less-carbon-intensive types of energy. Exxon Mobil also foresees energy efficiency playing a big role in slowing the growth of global demand, as energy per unit of economic output will likely fall 40%.

“Expect that new technologies will continue to create new energy options for our growing world,” the Outlook said. “We don’t know yet what all those technologies will be, but history tells us that the best ones will be affordable, available on a commercial scale and not overly reliant on government support.”

China and Africa: a Closer Look

Exxon Mobil’s Outlook for Energy: A View to 2040 frequently spotlights China and emerging nations, many of them in Africa, for good reason.

From 2014 through 2040, researchers foresee China and Africa leading the world in increased residential and commercial energy demand, accounting for 30% of all global gains in the sector. However, a closer look at the two indicates that the reasons for their projected growth are vastly different.

While Africa will be driven primarily by population growth, China, which will also be driven by increased population, will find its burgeoning gross domestic product (GDP and move to urbanization) playing equal roles in growing energy demand.

“In the residential subsector, urbanization and rising incomes encourage people to start new, less-crowded households with more amenities that require energy and electricity,” the report said.

While researchers see residential demand in China growing by 25% through 2040, even faster growth is expected in China’s commercial subsector, where energy use is foreseen to almost triple from the demands of “retail, medical, educational and other services tied to personal income levels.”

In Africa, on the other hand, the bulk of gains in residential and commercial energy demand through 2040 will come from the residential subsector, where the number of households is expected to nearly double to 500 million. During that time, Africa’s population is projected to grow by 75% as the continent surpasses both China and India, reaching a population of nearly 2 billion. Nearly 50% of Africa residents are expected to live in cities, about the same as the current rate in China.

However, at a projected $6,500 per year, Africa’s GDP per capita will be one-sixth China’s $40,000 level in 2040. This will be one reason Africa’s household size will remain relatively high at over four occupants per dwelling. In contrast, by 2040, China is expected to have just over two residents per household, with almost 75% of residents living in cities. As that occurs, China’s total number of households is expected to grow by 30%, even as its population grows by less than 5%.

Urbanization and income trends also help explain the difference between China and Africa in terms of the fuels used in homes and businesses, the report said.

China’s generally higher incomes allow its people to rely more on electricity in residences, which is essential in commercial buildings such as schools and hospitals. In all, the Outlook forecasts electricity will account for most of the growth in China’s residential and commercial demand, but only 30% of Africa’s growth through 2040.

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