The U.S. shale revolution, combined with shifting energy demands across the globe, has shaken the energy industry. What does this mean for the future of energy production and consumption? Which forms of energy will rise and which will decline? Which countries will be the leaders in energy supply and demand? BP’s Chief Economist Spencer Dale addressed these questions and others during a presentation of the 2016 BP Energy Outlook at the Energy Policy Institute at the University of Chicago on February 19.

One important take-away from the Outlook, Dale noted, was the widening gap between GDP growth and energy demand. While GDP was expected to double over the next 20 years, energy demand was expected to increase by only around a third. The core driver of this trend: a secular decline in global energy intensity. Trends within developing countries—most notably China—play an important role, but so do developments within the Organization for Economic Cooperation and Development (OECD).

“The declines in energy intensity over the next 20 years are significantly greater than the declines over the past 15 or 20 years,” Dale said. “Part of that is the industrialization phase in China is finished. More generally, partly post-Paris, there is a worldwide trend toward improving energy efficiency.”

Still, even as the gap widens between GDP and energy demand, the world will continue to consume higher amounts of energy.

“Unless the world economy grows far, far less than projected, it seems to be almost certain that global energy demand will continue to rise,” Dale said. “Will it be 25 percent or 35percent? I’m not sure. But it’s a material amount and the vast majority of that will be in Asia.”

In addition to increased energy efficiency, the Outlook also anticipates the beginning of significant shifts in the global fuel mix. While fossil fuels will remain the predominant source of global energy over the next 20 years—they account for 80 percent of fuel supplies in 2035 compared to 86 percent today—they will account for just 60 percent of the growth in energy production over the same time period.

The sharpest decline in fossil fuel growth will come from coal. Over the last 20 years, coal has been growing at about 3 percent annually. It’s projected to grow by less than 1 percent annually by 2035, nearly all because of a massive shift away from coal in China. Global oil demand grows by roughly 1 percent annually through 2035, though its share of the world’s primary energy demand declines slightly.

Natural gas, on the other hand, will be the world’s fastest growing fossil fuel, Dale said. Annual growth of nearly 2 percent will be aided by environmental regulations favoring it over other fossil fuel sources. But the growth is mainly driven by a large amount of supply– including as a result of hydraulic fracturing—and low prices. According to the Outlook, global production of shale gas is expected to grow by around 4 percent to make up nearly 20 percent of global production. In the U.S., it is expected to account for around three-quarters of total gas production by 2035.

“We’ve been repeatedly surprised by the strength of the U.S. shale revolution,” Dale said. “And we’ve repeatedly seen technological and productivity gains, which mean prospects for shale gas have been rising.”

These changes in fossil fuel production will be accompanied by a significant rise in renewables. By 2035, BP is expecting renewables to compete across the world with almost all other industries even without subsidies, Dale said. Their share in the energy mix will go from 3 percent today to 9 percent, according the Outlook.

Dale noted that despite constant updates and model improvements within the Outlook over the years, sometimes it fails to capture the full impact certain industries have on energy as a whole. This has been the case with shale gas and oil as well as renewables.

“The pace at which costs in renewable energy have come down have been quicker than expected,” Dale said. “So we have been revising our Outlook consistently.”

The increase in renewables has helped drive a decrease in carbon emissions. But Dale says emissions aren’t falling as quickly as they should.

“The outlook for carbon emissions looks like it’s getting a lot better,” Dale said. “The growth rate will be just one percent annually over the next 20 years compared to more than 2 percent annually over the past 20 years.”

Dale continued, “The bad news is that 1 percent annual growth means emissions grow by 2 percent over the next 20 years. The IEA’s 450 scenario needs emissions to fall by 30 percent over that same period, so you’ve got a huge gap.”

Dale argued that additional policy intervention was needed to close the gap, suggesting “the right way to do that is to put a price on carbon.”

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