Peak Oil Might Be Just Three Years Away

The energy transition continues to gain steam, with oil demand projected to peak in this decade – perhaps as soon as 2025, according to new research by leading global consultancy McKinsey & Company.

McKinsey’s Global Energy Perspective research was launched at a time when global energy markets are facing an unprecedented array of uncertainties, including the conflict in Ukraine. Nonetheless, the long-term transition to low-carbon energy systems continues to see strong momentum and, in several respects, acceleration.

Leading up to COP26, a total of 64 countries, covering more than 89 percent of global emissions, have pledged or legislated to achieve net-zero in the coming decades.

To keep up with these net-zero ambitions, the global energy system may need to significantly accelerate its transformation. The report projects a rapid shift in the global energy mix, with the share of renewables in global power generation expected to double in the next 15 years while total fossil fuel demand is projected to peak before 2030, depending on the scenario.

However, even with current government commitments and forecasted technology trends, global warming is projected to exceed 1.7 degrees Celsius by 2100, and reaching a 1.5 degrees Celsius pathway is increasingly challenging.

“In the past few years, we have certainly seen the energy transition pick up the pace. Every year we’ve published this report, peak oil demand has moved closer. Under our middle scenario assumptions, oil demand could even peak in the next three to five years, primarily driven by electric-vehicle adoption,” Christer Tryggestad, a Senior Partner at McKinsey, said

“However, even if all countries with net-zero commitments deliver on their aspirations, global warming is still expected to reach 1.7°C. To keep the 1.5°C pathway in sight, even more ambitious acceleration is needed,” Tryggestad added.

The report presents specific outlooks per fuel type such as natural gas, oil, coal, hydrogen, and sustainable fuels, as well as a view on the role of CCUS in decarbonizing the energy sector.

Going forward, the global energy mix is projected to shift towards low-carbon solutions, with a particularly strong role for power, hydrogen, and synfuels. Renewables are projected to grow three times by 2050, accounting for 50 percent of power generation globally already by 2030 and 80-90 percent by 2050.

Hydrogen demand is expected to grow 4-6 times by 2050, driven primarily by road transport, maritime, and aviation. Hydrogen and hydrogen-derived synfuels are expected to account for 10 percent of global final energy consumption by 2050.

McKinsey added that rapid technological developments and supply chain optimization have collectively halved the cost of solar, while wind costs have also fallen by almost one-third. As a result, 61 percent of new renewable capacity installation is already priced lower than fossil fuel alternatives. Battery costs have also fallen by nearly half in the past four years.

According to the consultancy, global oil demand is projected to peak in the next three to five years, primarily driven by EV uptake while CCUS could grow more than 100-fold by 2050 from an almost non-existent footprint today, with investment opportunities exceeding LNG markets today.

Also, future growth in energy investments will almost entirely be driven by renewables and decarbonization technologies. Despite net-zero commitments from governments and corporations, an 85 percent renewable power system by 2050, and the rapid update of EVs and decarbonization technologies, global warming is projected to exceed 1.7 degrees.

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