A closer look at: World Energy Outlook 2016

What will global energy markets look like in 2040? What is the impact of the UN Climate Agreement, signed in Paris in 2015? And will we even need crude oil and natural gas in the future? The World Energy Outlook 2016 has the answers and also examines scenarios for global energy supply.

The world’s energy needs will continue to grow

“The World Energy Outlook 2016 is especially interesting, as the latest developments from the UN Climate Change Agreement and its implementation steps have been incorporated”, says Christoph Lewisch, OMV expert for Energy Economics. In its baseline scenario, the “New Policies Scenario”, the International Energy Agency (IEA) assumes the implementation of the national energy and climate targets promised prior to Paris. The “450 Scenario” goes even further and shows a sharply decarbonized energy market in which the main goal set by the states in the UN Climate Agreement is actually implemented: Limiting the global increase in temperature to two degrees Celsius. “At present this scenario is far less likely, but at least as interesting, as it shows the path we need to follow to achieve the goals of the Climate Change Agreement. This makes it an important decision-making tool for policymakers and the energy industry.”

Crude oil and natural gas will remain the backbone of global energy supply and together they will cover more than half of the energy demand. In any case, there will be a significant shift from oil towards gas.
Christoph Lewisch, Head of Energy Economics, OMV Aktiengesellschaft

But whichever scenario one takes, a single picture emerges, albeit one with different characteristics: “Global energy demand will continue to grow until 2040 by over 30% – and meeting this growth will require every source of energy”. Renewable energy will see the strongest growth of 78%. However, crude oil and natural gas will remain the backbone of global energy supply and together they will cover more than 50% of the energy demand. In any case, there will be a significant shift from oil towards gas. In contrast, coal consumption will fall sharply.

The winners are renewables and natural gas

In the World Energy Outlook 2016 the overall winners of the future energy mix are renewables, nuclear energy and natural gas. Christoph Lewisch explains the reasons for this: “Reducing CO2 is a major issue, not just since Paris. Here renewable energy – particularly wind and sun – play a huge role. However, these energy sources are not 100% reliable in terms of availability. When the sun doesn’t shine and the wind doesn’t blow we need energies that can compensate for these fluctuations. In the past this was often coal, but it has become less attractive in recent years. Nevertheless, natural gas in the cleanest of all the fossil fuels, making it an ideal partner for renewables”.

OMV’s strategy also works off the assumption that the energy mix of the future will be broader and more diverse. Today we are well positioned in market segments that are continuing to grow, such as the gas sector, petrochemicals and aviation, and we are steadily expanding these segments. Furthermore, we have a strong presence in Central and South-Eastern Europe with our filling station business. Stronger economic and transport growth is expected in this region, which will also benefit our business model.

However, we are certainly committed to working on energies of the future, such as hydrogen for example. “In the research sphere we are dedicated to producing hydrogen from biomass or by using artificial photosynthesis.” explains Wolfgang Ernst, from the strategy department. In Auersthal (Lower Austria) OMV is operating a wind2hydrogen project. The pilot plant converts wind power into hydrogen and feeds it into the natural gas network. There it can be stored or delivered as fuel to our hydrogen filling stations. Genuine future innovation is being written at the Christian Doppler Institute for Sustainable Syngas Chemistry in Cambridge, where OMV is supporting the team of Dr. Erwin Reisner, a team that is working on a method to produce hydrogen from sunlight.

That said, it is hard for us to imagine a world completely free of crude oil and natural gas, after all, that’s OMV’s core business. And the World Energy Outlook 2016 confirms that we will not be able to meet global energy demand in the medium term without crude oil and natural gas.

Investment also needed in oil production

Another interesting factor in this regard is a glance at the investments – a cumulative 44 trillion US dollars is needed by 2040 to secure global energy supply. There is another clear trend here: While investments in oil and gas exploration will decline, an increasing percentage will go on cleaner energy, even though the costs for technologies in the renewables sector will continue to decline in the coming years.

That’s the long-term forecast. The short-term picture is somewhat different: As the result of the difficult market environment, in the past two years investments in the oil industry fell to levels not seen since the 1950s. If investment decisions in 2017 remain low for the third year in a row, the available barrels of crude will hardly be able to meet demand in certain years. This could result in an increase in the oil price and the start of a new investment cycle.

COP21 is not enough

It is the nature of an “Outlook” to contain variables and uncertainties, to remain vague and not to pin itself down. But in one respect the World Energy Outlook 2016 is clear: The Paris Agreement will change the global energy system for decades to come and will accelerate the developments of recent years towards C02 reduction.

There are lots of ways of cutting greenhouse gases. This holds true equally for producing energy with natural gas, just as it does for biofuels or hydrogen, for applying new methods and for energy efficiency.
Wolfgang Ernst, OMV Expert Corporate Strategy Economics

According to the World Energy Outlook 2016, many countries are well on track to achieve many of the goals, some are even set to surpass them. That will reduce the growth of CO2 emissions from energy production to 0.5% per year, even though this still represents an increase. Even if every country sticks to its non-binding commitment, that will still not be enough to limit global warming to 2°C. For this we will need measures that are far more extensive in the future.

“There are lots of ways of cutting greenhouse gases. This holds true equally for producing energy with natural gas, just as it does for biofuels or hydrogen, for applying new methods and for energy efficiency. It will not be possible to switch over global energy demand to renewables immediately; it will have to be done step by step. This is why every sensible measure must be applied to achieve an optimal solution”, says Wolfang Ernst.

It is undisputed that limiting CO2 emissions in the long term will bring massive changes for our industry. But it’s also indisputable that joint efforts by policymakers and companies from different industries will be needed to implement the Climate Agreement – right through to the attitude of the end customer, i.e. every single one of us.

Background information on the World Energy Outlook

The World Energy Outlook is a definitive work for our industry and is eagerly anticipated every year not just by OMV, but by every renowned expert in the energy industry. It examines various scenarios that cover a good range of fundamental analyses of developments on the energy markets up to 2040.

The International Energy Agency publishes the World Energy Outlook in November; it was first issued in 1977, i.e. almost 40 years ago. Since then the speed at which our industry has developed has undergone tremendous growth – as have the expectations of the World Energy Outlook. Initially the report was published once every few years, but the world has changed in the meantime and the energy sector has become so dynamic that it is even somewhat challenging for a medium published once a year to be completely up to date.

This is why oil and gas companies consult analyses by various institutions in order to be able to react quickly to short-term developments and market changes; they then interpret them internally, discuss and evaluate them, and use them as part of the decision-making process.