Exxon plans for carbon-constrained future – In 2040, oil and natural gas continue to supply 55 percent of world energy needs

Desdemona Despair

By Ed Crooks
3 February 2018

NEW YORK (Financial Times) –  ExxonMobil, the largest US energy group, has said it believes there is little risk that it will not be able to produce all of its proved oil and gas reserves, even in a world where government policies are set to limit the threat of catastrophic climate change, but it has acknowledged that some higher-cost assets may not be developed.

Exxon said that even if countries agreed to curb greenhouse gas emissions to limit the rise in global temperatures since pre-industrial times to 2C, there would still be a need for trillions of dollars of investment in new oil and gas production.

It added that demand for some of its assets, including its gas and US shale oil, would be particularly resilient even if fossil fuel consumption overall were to be constrained.

Exxon was pushed into publishing the analysis by a vote by shareholders at its annual meeting last year. Investors controlling about 62 per cent of the shares backed a proposal proposed by the New York state employees’ retirement fund calling for a yearly assessment of the impact of technological change and climate policy on the company’s operations.

Other international oil companies including BP and Royal Dutch Shell have also started producing similar reports.

The issue has been particularly sensitive for Exxon. Last year it was forced to cut 3.5bn barrels at its Kearl oil sands project in Canada from its reported proved reserves, because of the fall in crude prices.

Exxon had proved reserves of 20bn barrels of oil equivalent at the end of 2016, 53 per cent in oil and related liquids and 47 per cent in gas. It argued in the paper published on Friday afternoon, that it expected to extract 90 per cent of those reserves by 2040, and as there would be “significant use of oil and natural gas through the middle of the century,” even in a world limiting the temperature rise to 2C, it believed “these reserves face little risk”. […]

In its new report, titled 2018 Energy & Carbon Summary: Positioning for a Low-Carbon Future, the company explores possible routes to keeping within that 2C limit, and the implications for fossil fuel use.

Those scenarios vary widely. In one, oil demand in 2040 is slightly higher than the 95m barrels a day consumed in 2016; in other, it drops to just 53m b/d. But the average of the scenarios shows a decline in oil consumption averaging about 0.4 per cent a year, from 95m barrels a day in 2016 to 78m b/d in 2040.

That is very different from the projection in the company’s regular Outlook for Energy report, which shows a 19 per cent rise in oil demand by 2040 to about 113m b/d. [more]

Exxon plans for carbon-constrained future

IRVING, Texas, 2 February 2018 (ExxonMobil) – ExxonMobil today released its Energy & Carbon Summary: Positioning for a Lower-Carbon Future and its Outlook for Energy: A View to 2040. The reports highlight ExxonMobil’s analysis of 2 degree Celsius (2^oC) scenarios and include sensitivity analyses on electric vehicle penetration and renewables deployment. They are in response to a 2017 shareholder resolution seeking additional climate disclosures about the impacts of technology advances and global climate change policies on the company.

The Energy & Carbon Summary and a new special section in the annual Outlook for Energy include consideration of the impact on future energy demand from an analysis of multiple lower-carbon scenarios published by the Stanford University Energy Modeling Forum. The forum’s scenarios are publicly available and are used for analytical purposes, including by the UN’s Intergovernmental Panel on Climate Change.

The global scenarios assessed by ExxonMobil, which include a full range of energy technologies, contemplate limiting global greenhouse gas (GHG) emissions to have a likely chance of holding atmospheric concentrations to the equivalent of 450 parts per million CO2 in 2100; these scenarios are generally considered to be consistent with pathways that would limit global average temperature rise in 2100 to 2^oC above pre-industrial levels.

The company’s analysis of these 2^oC scenarios examined the mean of the annual average demand growth rates of the various model outputs between 2010 and 2040 for multiple sources of energy. This analysis of these 2^oC scenarios indicates: total energy demand increases about 0.5 percent per year; oil demand decreases about 0.4 percent per year; natural gas demand increases about 0.9 percent per year; coal demand decreases about 2.4 percent per year; and renewables demand increases about 4.5 percent per year.

All energy sources remain important across the assessed 2^oC scenarios to 2040. As a result of ongoing demand coupled with natural hydrocarbon field decline, trillions of dollars of additional investment in oil and gas production will be required, including to meet a 2^oC pathway. Based on the average growth rates of assessed 2^oC scenarios, natural gas demand is estimated to increase to 445 billion cubic feet per day by 2040; oil demand is estimated to decline to 78 million barrels per day by 2040.

“Our job is to supply the energy the world needs in an environmentally responsible way,” said Darren W. Woods, chairman and chief executive of Exxon Mobil Corporation (NYSE:XOM). “It’s a dual challenge – we need to meet society’s growing need for energy while addressing the risks of climate change. We are committed to being part of the solution by investing in new technologies that can provide economic solutions on a globally scalable basis. ”

Many experts agree that advancements will be needed to reach and maintain a 2^oC pathway through 2100. ExxonMobil has invested billions of dollars in research and development, including multiple university and business partnerships around the globe, aimed at achieving the technical breakthroughs required.

“Since 2000, our investments to develop lower-emission energy solutions have totaled about $8 billion,” Woods said. “We are deploying technologies such as cogeneration and carbon capture and storage, while researching next-generation solutions such as algae biofuels and advanced carbon capture using fuel cells. Continued research will be critical.”

With growing global populations and economies, key levers to address the risks of climate change include further energy efficiency improvements and reducing the GHG intensity of the world’s energy system. “For our part, we continue to take action to mitigate our emissions and help consumers lessen their GHG impact,” Woods said.

ExxonMobil’s Outlook for Energy: A View to 2040 describes a rapidly growing global population and rise in living standards in developing countries that will drive a growth in worldwide energy demand of about 25 percent from 2016 to 2040. At the same time, energy efficiency gains and gradual reductions in the GHG intensity of the energy system, will help to moderate energy use and reduce by nearly 45 percent the carbon intensity of the global economy, according to the report.

Emerging economies in countries that are not part of the Organisation for Economic Co-operation and Development (OECD) will account for essentially all energy demand growth, led by an expanding Asia-Pacific region.

As prosperity rises, electrification continues as a significant global trend. Energy demand for power generation accounts for about 50 percent of global demand growth, with much of that coming from non-OECD countries.

“Natural gas use is likely to increase more than any other energy source, around 40 percent, with about half its growth for electricity generation,” said T.J. Wojnar, vice president for Corporate Strategic Planning. “The abundance and versatility of natural gas, in addition to its significant air quality benefits, make it a valuable energy source to meet a wide variety of needs, while also helping the world to shift to a less carbon-intensive source of energy.”

Among the most rapidly expanding energy supplies will be electricity from solar and wind, together growing about 400 percent.

While energy demand will grow, global carbon dioxide emissions are likely to peak by 2040, at about 10 percent above 2016 levels, as energy sources shift toward lower-emission fuels such as natural gas, renewables, and nuclear.

The Outlook predicts a rise in electric vehicles as well as efficiency improvements in conventional engines. This will likely lead to a peak in liquid fuels use by the world’s light-duty vehicle fleet by 2030. However, oil will continue to play a leading role in the world’s energy mix.

“Our in-depth analysis shows that even if every light-duty vehicle in the world was fully electric by 2040, the demand for liquids could still be similar to levels seen in 2013,” said Wojnar. “This is because of growing demand from commercial transportation and the chemical sector.”

The Outlook for Energy is ExxonMobil’s long-range forecast developed through data-driven analysis, reflecting broad knowledge of energy markets and the expertise of economists, engineers, and scientists. It examines energy supply and demand trends for approximately 100 regional/country areas, 15 demand sectors and 20 different energy types. ExxonMobil uses the forecast as a foundation for its business strategies and to help guide multi-billion dollar investment decisions.

Key findings from this year’s Outlook:

• In 2040, oil and natural gas continue to supply about 55 percent of the world’s energy needs; oil continues to provide the largest share of the energy mix with demand rising about 20 percent driven by commercial transportation and chemicals.
• Nuclear and renewable energy sources are likely to account for nearly 40 percent of the growth in global energy demand to 2040.
• The share of the world’s electricity generated by coal is expected to fall to less than 30 percent in 2040 from approximately 40 percent in 2016. [Oddly, this conflicts with the chart at the top of this post, which shows coal at about 20 percent in 2040. –Des]
• Increasing electrification of light-duty vehicles is anticipated to grow strongly. In total, full hybrid, plug-in hybrid, and electric-only vehicles will be approaching 40 percent of global light-duty vehicle sales in 2040, compared to about 3 percent in 2016.

For more information on the Energy & Carbon Summary and Outlook for Energy, visit www.exxonmobil.com/energyoutlook.

ExxonMobil Releases Energy & Carbon Summary and Outlook for Energy