Global demand for crude oil is projected to increase until at least 2032, according to a recent report from Wood Mackenzie. The consultancy warns that the world is significantly off track in meeting its targets under the Paris Agreement. Key drivers of this demand include transportation and petrochemical industries, as efforts to transition to a lower-carbon energy system have slowed despite substantial investments.
The report highlights a puzzling reality: despite spending trillions on the energy transition, fossil fuels—oil, coal, and natural gas—continue to fulfill approximately 80% of the world’s primary energy requirements. “Fossil fuels are widely available, cost-competitive, and deeply embedded in the energy system,” Wood Mackenzie stated.
The report also questions the widely held belief that renewable energy sources, like wind and solar, are inherently cheaper than fossil fuels. While metrics such as the levelized cost of energy (LCOE) suggest lower costs for renewables, this calculation often overlooks additional expenses, such as backup generation capacity needed when renewable sources are not producing energy. As a result, the costs associated with transitioning to renewables are higher than anticipated, contributing to the slow progress towards net-zero targets.
Wood Mackenzie outlines several future scenarios, with the most optimistic requiring a dramatic increase in global investments in decarbonization. The consultancy estimates that these investments must rise to $4.3 trillion annually through 2060. Such funding would be directed towards a variety of projects, including power generation, grid improvements, and new technologies. Yet, the report emphasizes that achieving this level of investment will necessitate global cooperation that is currently lacking.
Despite the urgency of the situation, many governments are prioritizing energy security over a clean energy transition. This shift in focus has contributed to rising demand for coal, which reached an all-time high last year and may break records again this year. The increase in coal demand occurs even as countries invest heavily in renewables, underscoring the complexities of the energy landscape.
In a base-case scenario outlined by Wood Mackenzie, hydrocarbons are expected to continue meeting the majority of global energy needs in the foreseeable future. While wind and solar are anticipated to fulfill some of the new demand, they are unlikely to replace hydrocarbons entirely. This situation has led some analysts to describe the current environment as one of energy addition rather than energy transition.
The challenges facing renewable energy sources, particularly their dependence on weather conditions, contribute to this ongoing reliance on fossil fuels. The costs of generating electricity from renewables, including the expenses associated with battery storage and backup systems, remain considerably high compared to traditional energy sources like coal and natural gas.
The reality is that the energy transition has not progressed as anticipated, primarily because countries have not sufficiently channeled their resources into transition-focused activities. The European Union has attempted to make significant strides in this area over the past three years, but results have been mixed, with rising energy costs and less reliable electricity supplies.
In contrast, China has successfully integrated wind and solar energy with substantial coal capacity, demonstrating a different approach to balancing energy needs. Overall, the report from Wood Mackenzie paints a complex picture of the global energy landscape, suggesting that demand for oil, gas, and coal may persist beyond 2032, challenging the narrative of a rapid transition to a low-carbon future.
