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Gas capital expenditure boost to fuel the energy transition

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  • DNV GL’s Energy Transition Outlook predicts upstream gas capital expenditure will grow to a peak of USD1.13 trillion in 2025 

  • It will enable gas to overtake oil as the world’s primary energy source in 2026

  • LNG capacity is forecast to double by the late 2040s, connecting shifting sources of gas with changing demand centres

  • Focus on decarbonization intensifies as greener gases enter transmission and distribution systems in the lead-up to 2050

The world will need less energy from the 2030s onwards, but it will still require a significant amount of oil and gas in the lead-up to mid-century according to DNV GL’s 2018 Energy Transition Outlook.  

The independent model of the world’s energy system forecasts that rapid gains in energy efficiency will lead to a peak in humanity’s energy demand in 2035 at a level some 15% higher than in 2017. Global demand for energy is then set to decline, thanks to increasing and rapid electrification of the world energy mix, in addition to slowing of population and world economic growth over the long term. 

DNV GL’s Outlook forecasts global electricity demand to rise by some 160% by 2050, thereby increasing its share of total final energy demand from 19% in 2017 to 45%. Renewable energy sources will increasingly dominate world electricity generation, primarily driven by solar photovoltaic and wind (Figure 1).  

Despite the rise of electricity generation from renewables, oil and gas will still account for a significant 40% of world energy demand in 2050. The Outlook expects natural gas to overtake oil to become the world’s largest source of energy in 2026. In a ‘golden age’ for gas, it will retain this position through to mid-century when it will account for a quarter of the world’s energy supply.   

Investment on the horizon 

DNV GL’s model predicts global oil demand to peak in 2023, while demand for gas, the least carbon-intensive of the fossil fuels, will continue to rise until 2034. New resources will be required long after these dates to continue replacing depleting reserves, and significant levels of investment will be needed to support this shift from an oil-led to a gas-led energy mix. 

Figure 1: World primary energy supply by source
Figure 1: DNV GL’s 2018 Energy Transition Outlook forecasts that oil and gas will meet 40% of the world’s demand for energy in mid-century despite the rise of renewable energy (Graphic: ©2018 DNV GL)
Liv A. Hovem, CEO, DNV GL - Oil & Gas

The energy transition will be made up of many sub-transitions. Our Outlook affirms that the switch in demand from oil to gas has already begun”

Liv A. Hovem CEO, DNV GL - Oil & Gas

“Gas will fuel the energy transition in the lead-up to mid-century,” said Liv Hovem, CEO, DNV GL - Oil & Gas.“ It sets a pathway for the increasing uptake of renewable energy, while safeguarding the secure supply of affordable energy that the world will need during the energy transition.”  

Increasing investment supports gas to fuel the energy transition  

DNV GL’s Energy Transition Outlook predicts global upstream gas capital expenditure will grow from USD960 billion (bn) in 2015 to a peak of USD1.13 trillion in 2025 to support the transition to the golden age of gas. Upstream gas operating expenditure is also set to rise from USD448bn in 2015 to USD582bn in 2035, when operational spending will be at its highest. 

This cash injection will enable the 46% increase in the annual rate of additions to gas production capacity that the Outlook forecasts between 2018 and 2030. Conventional onshore and offshore gas production is forecast to decline from about 2030, while unconventional onshore gas is expected to rise to a peak in 2040.   

Among its forecasts for 10 global regions, DNV GL’s Outlook sees North East Eurasia (including Russia) and the Middle East and North Africa (MEA) accounting for most onshore conventional gas production in the lead-up to 2050, while North America will continue to dominate unconventional gas production. In the offshore sector, the MEA region sees the highest annual rate of new gas production capacity from now until at least 2050. 

Tomorrow’s oil and gas industry will not look or behave like it does today, however. 

'The oil and gas industry of the future will be leaner..... -- animation
 

More exploration and production expected 

DNV GL’s Outlook forecasts new oil fields will be needed until at least the 2040s, while new gas developments will be required beyond mid-century. Production will likely come from smaller reservoirs instead of vast fields, however.

“Most easy-to-produce, ‘elephant’ fields have been found and are in production. The remainder that we know about tend to be in Arctic and ultra-deepwater environments,” said Graham Bennett, vice president, DNV GL - Oil & Gas. “As oil and gas demand declines, it is unlikely that reserves in such sensitive regions will be developed, due to their high breakeven costs and social impact.” 

Instead, new resources may be increasingly developed from a greater number of smaller more technically-challenging reservoirs, where leaner, more agile approaches to production will be required, he suggested: “These are more economically viable for emerging, smaller operators looking to develop fields close to existing infrastructure.”  

Graham Bennett, vice president, DNV GL – Oil & Gas

Seismic and drilling activities may increase as the oil and gas sector works harder and in a more agile way to find the hydrocarbons the world needs”

Graham Bennett vice president, DNV GL - Oil & Gas

To maximize these opportunities in the energy transition, the oil and gas industry needs to continue and step up efforts to become faster, leaner and cleaner, he added. 

“Greater use of enhanced, digitally-enabled technologies will be needed to boost production from these smaller reservoirs. It is time for our sector to enhance its focus on developing the digital technologies that will enable quicker and more agile exploration and production.”

Investing in lower-carbon gas transmission and distribution 

Rising global demand for gas will impact activity across the oil and gas value chain, according to DNV GL’s Energy Transition Outlook. 

The forecasted investment in upstream gas will support the doubling of liquefied natural gas (LNG) capacity that the Outlook predicts between 2018 and the late 2040s. This growth will reflect the industry connecting new sources of gas supply with changing centres of demand (Figure 2). Seaborne gas trade is forecast to treble from North America to China by 2050. An increase in trade from Sub-Saharan Africa to India and South East Asia is also expected.  

“We also see the nature of gas beginning to change dramatically, as greener gases – including biogas, hydrogen and syngas – enter gas transmission and distribution networks,” Bennett said.  

The industry’s digital transformation will play a significant role in achieving this, he added. “Data analytics will facilitate more sophisticated midstream and downstream network models to ensure consistent gas quality using mixed gas sources.” 

Energy Transition Outlook guides  strategy and policies for the transition 

Despite DNV GL’s predictions for a rapid decarbonization of the world energy system, the Energy Transition Outlook forecasts that global warming will likely reach 2.6 degrees Celsius (°C) above pre-industrial levels in 2050. This is well above the 2°C target set out by the COP 21 Paris Agreement on climate change. 

“I see it as our sector’s responsibility to maintain sharp focus on decarbonization,” said Hovem. “For example, DNV GL is supporting operators to validate the technical feasibility of hydrogen-powered gas networks. It will help our sector take a big step forward in significantly reducing its carbon footprint.

She pointed out that the increased uptake of carbon capture and storage (CCS) will also play a role: “The economics of large-scale CCS will improve for energy-intensive activities such as gas-fuelled power generation. But our Energy Transition Outlook model currently forecasts that CCS will capture only 1.5% of emissions related to energy and industrial processes in 2050. At DNV GL we have a role to play in supporting the policy changes that will be needed to support the large-scale roll-out of CCS in our industry.”   

The company’s suite of 2018 Energy Transition Outlook reports can assist strategy and policy makers to maximize opportunities and minimize risks as the world energy system evolves. The main Outlook report covers the transition of the entire energy mix to 2050. It is accompanied by three supplements forecasting implications for the oil and gas, power supply, and maritime industries. All are available free of charge.   

Download the 2018 Energy Transition Outlook reports from: eto.dnvgl.com

Figure 2: Natural gas imports by region
Figure 2: DNV GL’s Energy Transition Outlook model predicts strongly increased gas demand in countries that have less well-established gas infrastructure, such as China and India. This leads to a need for imports in these regions as shown in the graph, alongside the creation of a substantial internal gas infrastructure. (Graphic: ©2018 DNV GL)

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DNV GL prides itself on providing accurate information but makes no claims or guarantees about the accuracy, completeness or adequacy of contents in this publication, and disclaims liability for any errors or omissions. The authors’ views here do not necessarily reflect DNV GL’s views.