BP Sees Strong Gas Growth to 2040...and Potential Dampeners

The BP Energy Outlook to 2040 – five years longer than previously – sees natural gas growing strongly, supported by broad-based demand and the continuing expansion of LNG supply globally.

The outlook features six scenarios, and providing a narrative from all these proved a challenge for BP chief economist Spencer Dale as even he wryly observed in his February 20, 2018 presentation.

Its main ‘Evolving transition’ (ET) outlook sees natural gas grows on average by 1.6%/yr out to 2040, so much faster than either oil or coal, with its share in primary energy overtaking coal and converging on oil by 2040; oil grows by only 0.5%/yr on average.

BP sees gas growth supported by increasing industrialisation and power demand (especially in emerging Asia and Africa), continued coal-to-gas switching (especially in China); and the increasing availability of low-cost especially US and Mideast supplies in the ET scenario. By 2040, the US accounts for almost one quarter of global gas production, ahead of both the Middle East and former Soviet Union (each accounting for around 20%).

LNG also supplies more than double over the outlook period, with around 40% of that expansion occurring over the next five years. Sustained growth in global LNG supplies greatly increases gas availability worldwide, with LNG volumes overtaking inter-regional piped gas in the early 2020s. LNG helps to develop new and expanding markets, led by China together with some smaller Asian states like Pakistan and Bangladesh. Europe remains a key market, both as a potential ‘market of last demand’ for surplus LNG, and as a key hub of gas-on-gas competition between LNG and pipeline gas.

But BP acknowledges that its other five scenarios see natural gas growth to 2040 could be dampened, particularly by its ‘renewables push’ and ‘faster transition’ (FT) scenarios, while its ‘even faster transition’ (EFT) sees gas actually decline slightly between now and 2040. Most of the potential dampening – in these scenarios – is seen in the power sector, said Dale.

In the 'FT' scenario, renewable energy provides one-third of world electricity production by 2040. But as Dale observed, that still leaves a large role for oil and gas.

CEO Bob Dudley began the presentation by saying that in BP’s view, in energy markets more widely: “Carbon pricing must be a key element as it provides incentives to both consumers and producers.”

Dudley added that in 2017, of the seven major projects that BP brought onstream, six were gas; of its six major projects due to start up this year, five are gas.

The outlook - under its more mainstream scenarios -- also foresees a strong rise in passenger miles travelled, but no resultant rise in oil use in transport, as efficiency standards for conventional cars improve and use of electric cars expands.

Its more radical ‘ICE ban' scenario considers a world by 2040 where a ban on sales of new internal combustion engine vehicles has been enacted by nearly all governments; in that scenario, the push to electric cars is that much more pronounced.