Transition meets reality as demand holds firm

Oil and gas are likely to remain the mainstays of global energy supply for decades to come, according to Humayan Tai, coleader of McKinsey & Co Energy And Materials Practice and senior New York partner. In the foreword to the company’s ‘Global Energy Perspective 2025’, Tai writes that two overarching themes have emerged from this year’s outlook. “First, cost competitiveness and an economically pragmatic energy transition remain paramount. “Energy affordability, reliability (including energy security at the national or regional level), and emission reduction continue to form a trio of priorities that drive energy decision-making. “The world is falling short of meeting the Paris Agreement’s targets for emission reduction. “Without affordability – and bankability – widespread adoption of new low-carbon technologies will not happen,” he said. “Second, there is no silver bullet for decarbonisation. “Countries and regions will follow distinct trajectories based on their local economic conditions, resource endowment, and the realities facing particular industries. “While some sectors seem to be making irreversible progress toward decarbonisation, others won’t move forward without government mandates or substantial cost reductions.” The report predicts that fossil fuels will retain a large share of the energy mix beyond 2050. Demand will likely plateau between 2030 and 2035. Natural gas could see the strongest growth in use, displacing higher-emission fuels in many cases. “Coal use may also persist at higher levels than seen in previous McKinsey outlooks,” it predicts. Global energy demand is being driven by increasing consumption in emerging markets (such as Africa, Association of Southeast Asian Nations (Asean) countries and India), and the increased use of energy-hungry data centres in the European Union and United States. In home use, Africa and India are expected to see a transition from bioenergy to liquefied petroleum gas before ultimately electrifying. The chemical sector is projected to continue to rely on liquid fuels for plastics through 2050. The demand for oil to produce plastics is expected to grow at approximately 2% a year, driven by rising global GDP. “Even after oil demand hits a maximum in the next decade, oil supply will require continued development through 2040,” the report predicts. Large upstream investments are needed to offset ageing legacy production and provide spare capacity against potential shocks, it says. In a warning about South Africa and Namibia’s ambitions to be hydrogen production hubs, the report states: “The current emphasis on affordability means that some alternative sources, such as green hydrogen and some other sustainable fuels, may not be competitive with traditional fuels in the near term (until 2040).” ER