Released November 07, 2022 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Oil companies and some oil-producing nations are flush with cash right now, as strong demand growth and constrained supply have plumped cash coffers. If asked where the surplus cash should go, the International Energy Agency (IEA) (Paris, France) likely would say, split it between investments in traditional oil exploration, production and refining, on the one hand, and next-generation transportation fuels. That would mean sending less to shareholders.
That's the recommendation that emerges from the agency's signature analytic work, World Energy Outlook 2022 (WEO 22), released October 27. For more coverage of this report, see October 28, 2022, article - IEA Sees Potential Shift Toward Lower-Carbon World Amid Energy Crisis and October 31, 2022, article - IEA Details Investments in Electric Sector Needed to Fight Climate Change.
The IEA has long devoted a significant amount of analytic horsepower to modeling energy use, greenhouse gas emissions, and how both of those affect global temperatures. In an effort to provide national governments, energy companies and non-governmental organizations a roadmap for how to achieve the 2015 Paris Agreement's commitment to limit carbon dioxide (CO2) emissions, the IEA last year built three scenarios to assess how changes in governmental policies could affect CO2 emissions and the overall energy ecosystem. The scenarios are:
Worldwide demand for oil has risen about 33% since 2020, to a current level of about 100 million barrels per day (BBL/d). Going forward in the "business as usual" scenario (STEPS), that demand would remain close to 100 million BBL/d to 2050. But more aggressive government policies could cut global demand in 2050 to about 60 million BBL/d in the APS case and about 25 million BBL/d in the NZE scenario. Significantly lowering demand also would push prices down sharply, the agency projected.
Click on the image at right to see the IEA's oil demand and price projections under three scenarios to 2050.
All told, the global transportation sector--passenger cars, trucks, aviation and shipping--- accounted for roughly half of global oil use in 2021. The key to lowering that sector's future reliance on refined hydrocarbons is to aggressively drive adoption of electric transportation, chiefly through policy mandates.
The IEA report estimated that roughly 10% of cars sold in 2021 were electric. By 2030, electric vehicles (EVs) could account for 25% of all new vehicles in the stated policies scenario and 60% in the net-zero emissions scenario. It would be a more difficult challenge to increase adoption of electric and fuel cell heavy trucks in the stated policies scenario, but aggressive government intervention could cause 35% of new trucks to be powered by electricity or fuel cells in 2030 under the net-zero scenario.
Click on the image at right to see how demand for refined hydrocarbons by the transportation and other sectors to 2030 could be reduced by more aggressive governmental action.
Somewhat paradoxically, two of the three scenarios in the WEO 22 report envision an increase in capital spending for oil exploration and production (E&P) for the balance of the current decade, mostly to offset years of under-investment. In the third scenario, NZE, the agency would continue current capital outlays for E&P for the rest of the 2020s before sharply lowering annual outlays in the 2031-2050 period.
Click on the image at right to see the IEA's projection of necessary capital outlays for oil exploration & production under three scenarios, to 2050.
Even in the STEPS case, where global demand for oil is expected to remain largely flat until 2050, investment in new supply is needed chiefly to compensate for underlying declines in existing sources of production, the report said. In this scenario, annual investment needs to 2030 rise 30% above the average annual spend since 2018, to about $580 billion per year.
In the APS case, aggregate average annual oil investment to 2030 is about $470 billion, which is broadly similar to levels over the past five years.
Despite the rapid decline in oil demand contemplated in the NZE Scenario, the WEO 2022 report said there is a need for continued investment in existing oil production, but the declines in that scenario are sufficiently steep to avoid the need to develop any new long-lead-time conventional fields.
As investments are made for extraction of conventional liquid hydrocarbons, the IEA also urges increased investment in a wide range of biofuels, including ethanol, biodiesel and sustainable aviation fuel (SAF), or bio-jet fuels.
Click on the image at right to see the IEA's projection of demand for, and supply of, liquid biofuels under three scenarios to 2050.
Around the world, the refining sector has closed nearly 4 BBL/d of processing capacity in recent years, and that shortfall of capacity contributed more than crude oil's price increases to the high retail price of transportation fuels, the agency said. Under the STEPS and APS cases, it called for a rough continuation of recent years' annual worldwide spending on refining for the balance of this decade. The NZE case, on the other hand, envisions a cutback in annual spend on refining.
The petrochemical industry has been a large consumer of refined oil products, roughly 14 million BBL/d in 2021, the IEA estimated. It is expected to continue being a large consumer of oil in all three of the IEA's scenarios.
"Petrochemicals are integral to modern societies," the IEA report notes. "They are used for plastics, fertilizers, packaging, clothing, digital devices, medical equipment, detergents and tires, among many other things. They also feature in many parts of the modern energy system, including solar PV panels, wind turbine blades, batteries, thermal insulation for buildings and electric vehicle parts."
The report noted "there is growing momentum behind policies and initiatives that aim to reduce plastic use. Particular attention is being paid to single‐use plastics, which are commonly used for packaging and food utensils, and more than 60 countries so far have taken relevant action. This includes China, which has restricted the production, sale and use of plastic bags as well as some other disposable plastic products, and India, which has banned the production, sale and use of 19 types of single‐use plastic items."
The IEA would rely on government mandates to increase plastic recycling rates as a way to offset rising oil use by the petrochemical industry.
In the agency's STEPS case, moderately tougher government policies to scale up recycling, limit single‐use plastics and invest in waste management and recycling facilities result in an increase in recycling collection rates from 17% in 2021 to 27% in 2050. But this is not enough to counterbalance the strong growth in demand for primary plastics; oil use as a petrochemical feedstock for plastics rises by 3 million BBL/d between 2021 and 2050.
Even more stringent government mandates in the APS case could bring worldwide recycling collection rate increases to 25% in 2030 and 50% in 2050, the IEA projected. Despite these tougher regulations, demand for oil as a petrochemical feedstock to produce plastics nonetheless rises by around half-a-million BBL/d between 2021 and 2050, the report found.
In its most aggressive climate scenario, NZE, the global average recycling collection rate increases to 26% in 2030 and 54% in 2050, which would cut oil use as a petrochemical feedstock by 1 million BBL/d between 2021 and 2050. In this case, "total oil use in the chemical sector, including oil that is currently used for process energy, falls by just over 20% between 2021 and 2050. This is a much shallower decline than in all other sectors: oil use in passenger cars falls by 98% over this period, for example. As a result, the chemical sector ends up accounting for more than half of global oil demand in the NZE Scenario in 2050."
Click on the image at right to see the IEA's projected oil use in the plastics and petrochemical industry under three scenarios to 2050.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
That's the recommendation that emerges from the agency's signature analytic work, World Energy Outlook 2022 (WEO 22), released October 27. For more coverage of this report, see October 28, 2022, article - IEA Sees Potential Shift Toward Lower-Carbon World Amid Energy Crisis and October 31, 2022, article - IEA Details Investments in Electric Sector Needed to Fight Climate Change.
The IEA has long devoted a significant amount of analytic horsepower to modeling energy use, greenhouse gas emissions, and how both of those affect global temperatures. In an effort to provide national governments, energy companies and non-governmental organizations a roadmap for how to achieve the 2015 Paris Agreement's commitment to limit carbon dioxide (CO2) emissions, the IEA last year built three scenarios to assess how changes in governmental policies could affect CO2 emissions and the overall energy ecosystem. The scenarios are:
- Stated Policies Scenario (STEPS), which maps out a trajectory that reflects current policy settings, based on a detailed sector‐by‐sector assessment of what policies are actually in place or are under development by governments around the world. This amounts to a "business as usual" approach.
- Announced Pledges Scenario (APS), which assumes that all long‐term emissions and energy access targets, including net-zero commitments, will be met on time and in full, even where policies are not yet in place to deliver them.
- Net Zero Emissions by 2050 Scenario (NZE), which sets out a pathway for the global energy sector to achieve net-zero CO2 emissions by 2050, updating the landmark IEA analysis first published in 2021. While the first two scenarios are exploratory, the NZE Scenario is normative, as it is designed to achieve the stated objective and shows a pathway to that goal.
Worldwide demand for oil has risen about 33% since 2020, to a current level of about 100 million barrels per day (BBL/d). Going forward in the "business as usual" scenario (STEPS), that demand would remain close to 100 million BBL/d to 2050. But more aggressive government policies could cut global demand in 2050 to about 60 million BBL/d in the APS case and about 25 million BBL/d in the NZE scenario. Significantly lowering demand also would push prices down sharply, the agency projected.
All told, the global transportation sector--passenger cars, trucks, aviation and shipping--- accounted for roughly half of global oil use in 2021. The key to lowering that sector's future reliance on refined hydrocarbons is to aggressively drive adoption of electric transportation, chiefly through policy mandates.
The IEA report estimated that roughly 10% of cars sold in 2021 were electric. By 2030, electric vehicles (EVs) could account for 25% of all new vehicles in the stated policies scenario and 60% in the net-zero emissions scenario. It would be a more difficult challenge to increase adoption of electric and fuel cell heavy trucks in the stated policies scenario, but aggressive government intervention could cause 35% of new trucks to be powered by electricity or fuel cells in 2030 under the net-zero scenario.
Somewhat paradoxically, two of the three scenarios in the WEO 22 report envision an increase in capital spending for oil exploration and production (E&P) for the balance of the current decade, mostly to offset years of under-investment. In the third scenario, NZE, the agency would continue current capital outlays for E&P for the rest of the 2020s before sharply lowering annual outlays in the 2031-2050 period.
Even in the STEPS case, where global demand for oil is expected to remain largely flat until 2050, investment in new supply is needed chiefly to compensate for underlying declines in existing sources of production, the report said. In this scenario, annual investment needs to 2030 rise 30% above the average annual spend since 2018, to about $580 billion per year.
In the APS case, aggregate average annual oil investment to 2030 is about $470 billion, which is broadly similar to levels over the past five years.
Despite the rapid decline in oil demand contemplated in the NZE Scenario, the WEO 2022 report said there is a need for continued investment in existing oil production, but the declines in that scenario are sufficiently steep to avoid the need to develop any new long-lead-time conventional fields.
As investments are made for extraction of conventional liquid hydrocarbons, the IEA also urges increased investment in a wide range of biofuels, including ethanol, biodiesel and sustainable aviation fuel (SAF), or bio-jet fuels.
Around the world, the refining sector has closed nearly 4 BBL/d of processing capacity in recent years, and that shortfall of capacity contributed more than crude oil's price increases to the high retail price of transportation fuels, the agency said. Under the STEPS and APS cases, it called for a rough continuation of recent years' annual worldwide spending on refining for the balance of this decade. The NZE case, on the other hand, envisions a cutback in annual spend on refining.
The petrochemical industry has been a large consumer of refined oil products, roughly 14 million BBL/d in 2021, the IEA estimated. It is expected to continue being a large consumer of oil in all three of the IEA's scenarios.
"Petrochemicals are integral to modern societies," the IEA report notes. "They are used for plastics, fertilizers, packaging, clothing, digital devices, medical equipment, detergents and tires, among many other things. They also feature in many parts of the modern energy system, including solar PV panels, wind turbine blades, batteries, thermal insulation for buildings and electric vehicle parts."
The report noted "there is growing momentum behind policies and initiatives that aim to reduce plastic use. Particular attention is being paid to single‐use plastics, which are commonly used for packaging and food utensils, and more than 60 countries so far have taken relevant action. This includes China, which has restricted the production, sale and use of plastic bags as well as some other disposable plastic products, and India, which has banned the production, sale and use of 19 types of single‐use plastic items."
The IEA would rely on government mandates to increase plastic recycling rates as a way to offset rising oil use by the petrochemical industry.
In the agency's STEPS case, moderately tougher government policies to scale up recycling, limit single‐use plastics and invest in waste management and recycling facilities result in an increase in recycling collection rates from 17% in 2021 to 27% in 2050. But this is not enough to counterbalance the strong growth in demand for primary plastics; oil use as a petrochemical feedstock for plastics rises by 3 million BBL/d between 2021 and 2050.
Even more stringent government mandates in the APS case could bring worldwide recycling collection rate increases to 25% in 2030 and 50% in 2050, the IEA projected. Despite these tougher regulations, demand for oil as a petrochemical feedstock to produce plastics nonetheless rises by around half-a-million BBL/d between 2021 and 2050, the report found.
In its most aggressive climate scenario, NZE, the global average recycling collection rate increases to 26% in 2030 and 54% in 2050, which would cut oil use as a petrochemical feedstock by 1 million BBL/d between 2021 and 2050. In this case, "total oil use in the chemical sector, including oil that is currently used for process energy, falls by just over 20% between 2021 and 2050. This is a much shallower decline than in all other sectors: oil use in passenger cars falls by 98% over this period, for example. As a result, the chemical sector ends up accounting for more than half of global oil demand in the NZE Scenario in 2050."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
