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BP Energy Outlook 2035 February 2015

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© BP p.l.c. 2015

Disclaimer

This presentation contains forward-looking statements, particularly those regarding global economic growth, population growth, energy consumption, policy support for renewable energies and sources of energy supply. Forward-looking statements involve risks and uncertainties because they relate to events, and depend on circumstances, that will or may occur in the future. Actual outcomes may differ depending on a variety of factors, including product supply, demand and pricing; political stability; general economic conditions; legal and regulatory developments; availability of new technologies; natural disasters and adverse weather conditions; wars and acts of terrorism or sabotage; and other factors discussed elsewhere in this presentation. BP disclaims any obligation to update this presentation. Neither BP p.l.c. nor any of its subsidiaries accept liability for any inaccuracies or omissions or for any direct, indirect, special, consequential or other losses or damages of whatsoever kind in connection to this presentation or any information contained in it. Energy Outlook 2035

2

© BP p.l.c. 2015

Contents Page

Introduction

4

Global energy trends

7

Liquid fuels

29

Natural gas

49

Coal and non-fossil fuels

63

Key uncertainties

77

Appendix

93

Energy Outlook 2035

3

© BP p.l.c. 2015

Welcome to the 2015 edition of BP’s Energy Outlook. At a time when our industry is focused on the rapid response to a dramatic fall in oil prices, it is instructive to look at events from a longer term perspective. Today’s turbulence is a return to business-as-usual. Continuous change is the norm in our industry. The energy mix changes. The balance of demand shifts. New sources of energy emerge, such as shale gas, tight oil, ultra-deepwater oil or renewables. Economies expand and contract. Energy production and consumption are affected by disruptions, from wars to extreme weather. New policies are created to address climate change or bolster energy security. Energy companies need to adapt – as BP is doing as I write; and to build strategically for the longer term we not only need to control capital and costs, but to set a clear direction. This Outlook is therefore valuable in giving us an insight into the most likely shape of the future energy landscape and some of the most important changes expected over the next 20 years. Three key features are particularly worth noting. First, trade patterns are shifting. The strong growth of US tight oil in recent years has had a dramatic impact, with oil increasingly flowing from West to East rather than East to West. This is likely to continue, with strong growth in China and India driving energy demand. We also expect to see the market in gas become more global as liquefied natural gas (LNG) integrates regional markets and leads to greater congruence in global price movements. Energy Outlook 2035

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© BP p.l.c. 2015

Second, the energy mix continues to shift. Fossil fuels are projected to provide the majority of the world’s energy needs, meeting two-thirds of the increase in energy demand out to 2035. However, the mix will shift. Renewables and unconventional fossil fuels will take a larger share, along with gas, which is set to be the fastest growing fossil fuel, as well as the cleanest, meeting as much of the increase in demand as coal and oil combined. Meanwhile, coal is now expected to be the slowest growing fuel, as industrialization in emerging Asian economies slows and environmental policies around the globe tighten. That brings us to the environmental challenge. The most likely path for carbon emissions, despite current government policies and intentions, does not appear sustainable. The projections highlight the scale of the challenge facing policy makers at this year’s UN-led discussions in Paris. No single change or policy is likely to be sufficient on its own. And identifying in advance which changes are likely to be most effective is fraught with difficulty. This underpins the importance of policy-makers taking steps that lead to a global price for carbon, which provides the right incentives for everyone to play their part. It will be a year of debate, not only on the environment, but the economy and energy in general. We hope that this year’s BP Energy Outlook 2035 can make a useful contribution to informing the discussion and shaping a future where energy is sustainable, secure and affordable. Bob Dudley Group chief executive Energy Outlook 2035

5

© BP p.l.c. 2015

Notes on method and assumptions This edition updates our view of the likely path of global energy markets to 2035. The underlying methodology remains unchanged – we build a single “most likely” view based on assumptions about changes in policy, technology and the economy. We focus on the “most likely” base case as a basis for discussion. But there are many uncertainties surrounding the base case and in the process of building the Outlook we explore the impact of alternative assumptions. Some of those uncertainties are considered in the “Key uncertainties” section, although this discussion is by no means exhaustive. Unless noted otherwise, data definitions are based on the BP Statistical Review of World Energy, and historical energy data up to 2013 are consistent with the 2014 edition of the Review. Gross Domestic Product (GDP) is expressed in terms of real Purchasing Power Parity (PPP) at 2011 prices. All data sources are listed on page 98.

Energy Outlook 2035

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© BP p.l.c. 2015

Page

Introduction

4

Global energy trends

7

Liquid fuels

29

Natural gas

49

Coal and non-fossil fuels

63

Key uncertainties

77

Appendix

93

Energy Outlook 2035

7

© BP p.l.c. 2015

Global population and increases in income per person… Population

GDP

Billion

Trillion, $2011 PPP

9

240

Contribution to GDP growth 2013-35 Trillion, $2011 PPP 90

8

7

Income growth per person

180 60

6 Other

5

120

4 3

2

Population growth

30

Non-OECD Asia

1 0 1975

60

OECD 1995

2015

Energy Outlook 2035

2035

0 1975 1995 2015 2035 8

0 OECD Non-OECD Other Asia © BP p.l.c. 2015

… underpin growing energy demand Population growth and increases in income per person are the key drivers behind growing demand for energy. By 2035, the world’s population is projected to reach 8.7 billion, which means an additional 1.6 billion people will need energy. Over the same period, GDP is expected to more than double, with nonOECD Asia contributing nearly 60% of that growth. Globally, GDP per person in 2035 is expected to be 75% higher than today, an increase in productivity which accounts for three-quarters of global GDP growth. China and India are key drivers of non-OECD growth and are projected to grow by 5.5% per annum (p.a.) between 2013 and 2035. By 2035, they will be the world’s largest and 3rd largest economies respectively, jointly accounting for about one-third of global population and GDP. As China’s level of productivity catches up with the OECD, its rate of growth is expected to slow from 7% p.a. in this decade to 4% p.a. in the decade to 2035. India’s growth moderation is more gradual: slowing from 6% p.a. in this decade to 5% p.a. in the final decade. Energy Outlook 2035

9

© BP p.l.c. 2015

Primary energy consumption growth slows... Non-OECD Asia energy growth

Consumption by region

Thousands

Billion toe

% per annum 8%

18 15

Other

Slower GDP growth

6%

12 9

4%

Non-OECD Asia

6

Faster decline in energy intensity

2%

3

0 1965 Energy Outlook 2035

OECD

2000

0%

2035 10

2000-13

2013-35 © BP p.l.c. 2015

…as the impact of non-OECD industrialization weakens Primary energy consumption increases by 37% between 2013 and 2035, with growth averaging 1.4% p.a.. Virtually all (96%) of the projected growth is in the non-OECD, with energy consumption growing at 2.2% p.a.. OECD energy consumption, by contrast, grows at just 0.1% p.a. over the whole period and is actually falling from 2030. The projected growth rate of global energy consumption is significantly slower than the recent trend (2.4% p.a. for 2000-13). This slowdown is most marked in non-OECD Asia, where growth has averaged 7% p.a. since 2000 and is projected to slow to 2.5% p.a. between 2013 and 2035. This reflects the end of the phase of rapid growth in energy demand in developing Asia, centred on China, driven by industrialization and electrification. Slower economic growth and an accelerated reduction in energy intensity* (as economic growth becomes less dependent on heavy industry) play roughly equal parts in explaining the slowing of energy growth. * The

amount of energy used per unit of GDP

Energy Outlook 2035

11

© BP p.l.c. 2015

The slowdown in demand growth from industry... Consumption by final sector1

Consumption by fuel Billion toe

18 15 Other

12

Thousands

Billion toe

18 15 12

9

9

6

6

3 0 1965 1Primary

Industry

Gas

Oil

3 Coal

Transport

2000

Renew.2 Hydro Nuclear

0 1965

2035

2000

fuels in power allocated according to final sector electricity consumption

Energy Outlook 2035

12

2035 2Includes

biofuels

© BP p.l.c. 2015

…is reflected in the slower growth of coal The fading impact of industrialization is apparent in the split of primary energy consumption by sector. Industry has been the fastest growing sector since 2000, averaging 2.7% p.a., but projected growth slows to 1.4% p.a. The ‘other’ sector (residential, services and agriculture) becomes the fastest growing sector, averaging 1.6% p.a. 2013-35. Transport continues to play a relatively small role in primary energy growth, growing steadily (1.2% p.a.) but accounting for just 15% of total growth during 2013-35. Coal suffers a sharp change in fortunes, from being the fastest growing fossil fuel since 2000 (3.8% p.a.), to the slowest growing fuel from 2013 to 2035 (0.8% p.a.). This reflects the slowing of coal-based industrialization in Asia, compounded by the effects of environmental regulations and low gas prices in key markets. Natural gas is the fastest growing fossil fuel (1.9% p.a.), with oil (0.8% p.a.) marginally ahead of coal. The fastest fuel growth is seen in renewables (6.3% p.a.). Nuclear (1.8% p.a.) and hydro-electric power (1.7% p.a.) grow faster than total energy. Energy Outlook 2035

13

© BP p.l.c. 2015

Fossil fuels continue to provide most of the world’s energy... 2013-35 increments by fuel

Shares of primary energy

Billion toe 5

50%

Renew.*

Oil

4

40%

20%

10%

3

Coal

30%

Hydro Nuclear

2

Gas

1

Oil

0

Coal

Gas

Hydro

0% 1965

Nuclear

*Includes biofuels

Energy Outlook 2035

2000

Renewables*

-1 World

2035 14

OECD Non-OECD © BP p.l.c. 2015

…even as the mix shifts towards lower carbon fuels Gas gains share steadily, while the shares of both oil and coal fall. By 2035 all the fossil fuel shares are clustered around 26-28% with no single dominant fuel – a first since the Industrial Revolution. Fossil fuels in aggregate lose share but remain the dominant form of energy in 2035 with a share of 81%, down from 86% in 2013. Among non-fossil fuels, renewables (including biofuels) gain share rapidly, from around 3% today to 8% by 2035, overtaking nuclear in the early 2020s and hydro in the early 2030s. Roughly one-third of the increase in energy demand is provided by gas, another third by oil and coal together, and the final third by non-fossil fuels. In the OECD, declines in oil and coal are offset by increases in gas and renewables, in roughly equal parts. Growth in non-OECD energy is evenly spread, with roughly a quarter each for oil, gas, coal and nonfossil fuels. Energy Outlook 2035

15

© BP p.l.c. 2015

The power sector takes an increasing share of energy… Primary inputs to power

Inputs to power as a share of total primary energy 100%

50%

Oil

75% 40%

Coal 50% Gas

30%

Renew.

25%

Nuclear Hydro

20% 1965 Energy Outlook 2035

2000

2035 16

0% 1965

2000

2035 © BP p.l.c. 2015

…and plays a key role in changing the energy mix Power generation is expected to account for an ever-increasing share of primary energy consumption as the world continues on a long-term trend of electrification: the share rises from 42% today to 47% by 2035. Power generation is the one sector where all fuels compete and so will play a major role in how the global fuel mix evolves.

There have been some rapid shifts in fuel shares in power generation in the past: oil gaining in the 1960s and losing in the 1970s; nuclear picking up in the 1970s/80s and falling in the 2000s; gas rising through the 1990s and 2000s. In the Outlook, the largest shifts are the increase in the renewables share and the decline in the coal share. The outcome by 2035 is a more balanced and diversified portfolio of fuels for power generation. Coal remains the dominant fuel, accounting for more than a third of the inputs to power generation, but that share is down from 44% today and the gap between the shares of coal and of other fuels narrows significantly.

Energy Outlook 2035

17

© BP p.l.c. 2015

Energy efficiency restrains the growth of emissions… GDP, energy and emissions

Emissions growth 2013 to 2035

Index: 1990 = 100

Billion tonnes CO2

500

35 30 GDP

400

25

Energy intensity

20 300

15

Energy

10

CO2

5

200

100 1990

0 2005

Energy Outlook 2035

2020

2035 18

Fuel mix

GDP growth effect

Projected growth © BP p.l.c. 2015

… but the changing fuel mix has only a modest impact Total carbon emissions from energy consumption increase by 25% between 2013 and 2035 (1% p.a.), with the rate of growth declining from 2.5% over the past decade to 0.7% in the final decade of the Outlook. Even so, the profile for emissions is well above that recommended by the scientific community (see pages 84-85). Continuing declines in energy intensity – the broadest indicator of improving energy efficiency across the economy – lead to a marked widening in the gap between GDP and energy consumption. Changes in the fuel mix – with the shares of gas and renewables increasing – also lead to a divergence between energy consumption and emissions, but this gap increases only gradually. Put differently, relative to a “no change” case: gains in energy efficiency lead to a far greater reduction in projected emissions than improvements in the fuel mix.

Energy Outlook 2035

19

© BP p.l.c. 2015

Energy supply is boosted by unconventional oil and gas ... Primary energy production

New energy forms

Billion toe

Billion toe

18

3

Renewables in power

Europe

FSU 12

N America

Shale gas

2

Africa

1

S & C America 0 1990

Asia Pacific

2005

Energy Outlook 2035

2020

2035 20

12%

Tight oil, oil sands, biofuels

Middle East 6

18%

6%

% of total (RHS)

0 1990

2005

2020

0% 2035 © BP p.l.c. 2015

…and renewable power, all enabled by technology World primary energy production grows at 1.4% p.a. from 2013 to 2035, matching the growth of consumption. Growth is spread across all regions with the exception of Europe. South and Central America shows the fastest rate of growth (2.1% p.a.), while the largest increment comes from Asia Pacific, providing 45% of the increase in global energy production. North America is the second largest source of growth, and remains the second largest regional energy producer. New sources of energy, aided by improved technology and productivity, make a significant contribution to supply growth. Renewables, shale gas, tight oil and other new fuel sources in aggregate grow at 6% p.a. and contribute 45% of the increment in energy production to 2035. The growth of new energy forms has been enabled by the development of technology and underpinned by large-scale investments, and these conditions are assumed to continue over the Outlook.

Energy Outlook 2035

21

© BP p.l.c. 2015

Shale gas and tight oil resources are thought to be abundant… Remaining technically recoverable resources

Billion toe

Billion toe 0

20

Cumulative production 2013-35

40

60

0

20

40

60

Asia Pacific North America S & C America Africa Tight oil Europe & Eurasia

Shale gas

Middle East Source: Resources data © OECD/IEA 2014

Energy Outlook 2035

22

© BP p.l.c. 2015

…but production remains concentrated in North America Technological innovation and high oil prices have unlocked vast unconventional resources in North America, significantly increasing US oil and gas production and altering global energy balances. Technically recoverable resources are estimated to be around 340 billion barrels for tight oil and 7500 trillion cubic feet for shale gas globally. Asia has the largest resources, followed by North America.

Although unconventional resources are spread across the globe, production is likely to remain concentrated in North America. Cumulative North American production of tight oil and shale gas between 2013-35 is roughly equivalent to 50% of tight oil and 30% of shale gas technically recoverable resources. The comparable numbers for the rest of the world are expected to be just 3% and 1% respectively. While production increases outside North America, the factors that have enabled the dramatic growth of North American production are unlikely to be quickly replicated elsewhere.

Energy Outlook 2035

23

© BP p.l.c. 2015

Drivers of tight oil and shale gas supply in the US… Largest oil production increases

US new-well production per rig Boe/d per rig

Mb/d 0.0

0.5

1.0

1.5

2.0

350

Saudi 1991

250

Saudi 1986 US 2014

200

Saudi 1976

150

Saudi 1990

Saudi 1972 Saudi 2003

100 Tight oil

50

NGLs Other

0 2007

US 2013 Energy Outlook 2035

Oil

300

Saudi 1973

Saudi 1979

Gas

24

2009

2011

2013

2015

© BP p.l.c. 2015

…include rapid growth of investment and significant innovation US oil production growth in 2014 (roughly 1.5 Mb/d) was the largest in US history, driven by tight oil and NGLs (natural gas liquids). The increases in US production in recent years have been among the largest ever seen, with only Saudi Arabia recording larger annual production growth. Growth of US tight oil and shale gas has been supported by increasing investment and rapid technological innovation. Productivity, as measured by new-well production per rig, increased by 34% p.a. for oil and 10% p.a. for gas between 2007 and 2014. Growth in US tight oil is expected to flatten out in coming years, reflecting high well decline rates and less extensive resources than gas. In contrast, US shale gas production is expected to grow rapidly over the Outlook (4.5% p.a.), although growth rates moderate gradually.

Energy Outlook 2035

25

© BP p.l.c. 2015

The shifting geography of supply and demand… Primary energy net balances

Asia’s net imports of energy

Billion toe

Billion toe

4

2.0 FSU Africa

2

S&C America 0

Middle East N America

-2

-4 1990

Asia

2005

Energy Outlook 2035

2020

1.6

24%

1.2

20% Oil

0.8

Coal

0.4

-0.4 1990

2035 26

16%

Gas

0.0

Europe

28%

Total as % of primary energy (right axis)

12% 8%

2005

2020

4% 2035 © BP p.l.c. 2015

…has big implications for energy trade Regional energy imbalances – production minus consumption for each region – are set to increase markedly over the next 20 years, with consequent implications for energy trade. North America switches from being a net importer of energy to a net exporter this year (2015). Asia’s imports of energy continue to expand, accounting for around 70% of inter-regional net imports by 2035. Among exporting regions, the Middle East remains the largest net energy exporter, but its share falls from 46% in 2013 to 36% in 2035. Russia remains the world’s largest energy exporting country. Asia’s import dependency rises from 23% in 2013 to 27% by 2035. Oil accounts for 60% of that rise, with imports accounting for over 80% of Asian oil consumption by 2035. Asia’s oil imports in 2035 are almost as large as OPEC’s current entire oil production.

Energy Outlook 2035

27

© BP p.l.c. 2015

Energy Outlook 2035

28

© BP p.l.c. 2015

Page

Introduction

4

Global energy trends

7

Liquid fuels

29

Natural gas

49

Coal and non-fossil fuels

63

Key uncertainties

77

Appendix

93

Energy Outlook 2035

29

© BP p.l.c. 2015

The global liquids balance reflects shifts… Supply

Demand Mb/d 115 2035 level

110

Crude

Other

105

NGLs*

Mid East

100 95 90

Other Asia

North America

India

Other

China

85 80 2013

OECD Non-OECD decline growth

2013

Non-OPEC growth

OPEC growth

*Natural gas liquids including condensate

Energy Outlook 2035

30

© BP p.l.c. 2015

…in non-OECD demand and non-OPEC supply growth Global liquids demand (oil, biofuels, and other liquids) is projected to rise by around 19 Mb/d, to reach 111 Mb/d by 2035. Growth slows over the period: from 1.2% p.a. in 2013-20 to 0.7% p.a. for 2020-35. Demand growth comes exclusively from rapidly growing non-OECD economies. Non-OECD consumption reaches around 70 Mb/d by 2035 – 56% higher than in 2013. OECD demand peaked in 2005 and is expected to fall further (-6 Mb/d) to around 40 Mb/d in 2035, the lowest since 1986. The increased demand is met initially by supply from non-OPEC unconventional sources and, later in the Outlook, from OPEC. By 2035, non-OPEC supply is expected to have increased by 13 Mb/d, while OPEC production expands by 7 Mb/d.

The largest increments of non-OPEC supply come from the US (6 Mb/d), Brazil (3 Mb/d), and Canada (3 Mb/d), which offset declines in mature provinces such as the North Sea. OPEC supply growth comes primarily from NGLs (3 Mb/d) and crude oil in Iraq (2 Mb/d).

Energy Outlook 2035

31

© BP p.l.c. 2015

Asia and the Middle East drive liquids demand growth… Demand by region

Demand by sector

Mb/d

Mb/d 120

120 Other

100

Middle East

80

Non-OECD transport

100 80

OECD transport

60

Non-OECD ind. & other OECD ind. & other

India

60

China

40

US

40

20

Other OECD

20

0 1965

2000

Energy Outlook 2035

0 1965

2035 32

Power 2000

2035 © BP p.l.c. 2015

…with largest growth in transport followed by industry China is the largest contributor to world demand growth: growing by 7 Mb/d to 18 Mb/d in 2035, surpassing US demand (which falls by 2 Mb/d to 17 Mb/d). Even so, US consumption per capita is about 3.5 times greater than China in 2035. India is the second largest contributor, growing by more than 4 Mb/d, followed by the Middle East with 4 Mb/d. India overtakes China as the largest source of demand growth towards the end of the Outlook. Non-OECD demand growth stems primarily from transport (16 Mb/d) – reflecting a rapid increase in vehicle ownership – and industry (8 Mb/d) largely for petrochemicals. OECD consumption in both sectors declines. By sector, transport accounts for about 55% of total liquids demand. It contributes 64% of the total demand increment to 2035, but growth slows post 2020, due to efficiency improvements and a modest displacement by natural gas and electricity. Industry has the fastest growth rate (1.2% p.a.) driven by petrochemicals.

Energy Outlook 2035

33

© BP p.l.c. 2015

Vehicle numbers are likely to grow rapidly… Fuel economy of new cars

Vehicle fleet

Transport demand

Billions of vehicles

Litres per 100 km*

Billion toe

3

20

4

Non-OECD OECD

US light vehicles EU China

15

3

10

2

5

1

0 1975

0 1975

2

Electricity Coal Gas Biofuels Oil non-OECD Oil OECD

1

0 1975

1995

2015

2035

1995

2015

2035

1995

2015

2035

*New European Driving Cycle Energy Outlook 2035

34

© BP p.l.c. 2015

…but efficiency improvements limit growth in fuel demand The global vehicle fleet (commercial vehicles and passenger cars) more than doubles from around 1.2 billion today to 2.4 billion by 2035. Most of that growth is in the developing world (88%), while some OECD markets are already at saturation levels. Fuel economy has improved in recent years, driven by consumer choice, tightening policy (e.g. CO2 emissions limits in Europe and CAFE standards in the US), and improved technology. Efficiency gains are likely to accelerate over the Outlook, with vehicle fleet fuel economy forecast to improve by 2.1% p.a. between 2013 and 2035, having improved by about 1.5% p.a. over the past decade. Efficiency gains limit growth in transport fuel demand. Transport demand rises by only around 30%, despite a more than doubling of the vehicle fleet. Transport fuel demand continues to be dominated by oil (89% in 2035), but the share of non-oil alternatives increases from 5% in 2013 to 11% in 2035, with natural gas the fastest growing transport fuel (6.3% p.a.). Energy Outlook 2035

35

© BP p.l.c. 2015

Petrochemicals are the other key driver of oil demand… Oil demand outside of transport

NGLs production by region

Mb/d

24 20

Mb/d 16

Other

Power

Petrochemicals

Other industry

Other Middle East

12

US

16

12

8

8 4

4 0 1965 Energy Outlook 2035

2000

0 1990

2035 36

2005

2020

2035 © BP p.l.c. 2015

... aided by strong growth in NGLs supplies Since the oil price shocks of the 1970s, the use of oil outside of transport has been concentrating in petrochemicals, where there is limited scope for substitution by cheaper fuels. Oil demand in petrochemicals increases by 2.5% p.a. (7 Mb/d) between 2013 and 2035. This continued strong growth reflects the use of oil as a feedstock, for which there are limited alternatives and little scope for efficiency gains. This is reinforced by strong growth in supplies of NGLs which are particularly well suited as a feedstock. By 2035, petrochemicals account for more than half of industrial oil demand. Growth in the supply of NGLs stems primarily from the US (3 Mb/d) and the Middle East (2 Mb/d). This growth is strongest in the next decade, prompting a surge in petrochemicals demand in the US as well as continued growth in the Middle East and non-OECD Asia. Outside of petrochemicals and transport, oil demand is expected to be broadly stagnant, as the effects of GDP growth are offset by efficiency gains and displacement by relatively cheaper gas and coal. Energy Outlook 2035

37

© BP p.l.c. 2015

North American supply drives growth initially… Liquids supply by region

Liquids supply by type

Mb/d

Mb/d

120

120

Europe 100

Asia Pacific

80

100

Africa

60

40

S&C America

40

20

Middle East

20

N America 2005

Energy Outlook 2035

2020

Biofuels Condensate

80

FSU

60

0 1990

Other

0 1990

2035 38

Oil sands Tight oil NGLs Conventional

2005

2020

2035 © BP p.l.c. 2015

…before Middle East supply growth increases Liquids supply expands by almost 20 Mb/d by 2035, led by growth in North America during the early part of the Outlook, before the Middle East gains ground during the latter part. North American production expands by 9 Mb/d by 2035, with growth concentrated in the first half of the Outlook. North American growth comes from tight oil, NGLs, and oil sands. Outside of North America, South and Central American production expands by 4 Mb/d by 2035, largely due to Brazil. Middle East production expands after 2020, as North American growth slows. Middle East output increases by a little over 5 Mb/d by 2035. Conventional crude production is broadly flat and nearly all of the growth comes from other sources (tight oil, NGLs, biofuels and oil sands). By 2035, NGLs and tight oil provide 13% and 7% of global supply, respectively.

Energy Outlook 2035

39

© BP p.l.c. 2015

Significant supply disruptions… Projected disruptions

Recent supply disruptions Mb/d

Mb/d

4

5 Iran

Libya

2015 Energy Outlook 2014 Energy Outlook

Other 4

3

3 2

2 1

Historical average

1 0 1965

0 1Q11

1Q12

Energy Outlook 2035

1Q13

1Q14 40

2000

2035 © BP p.l.c. 2015

… are likely to be a durable factor Since the advent of the Arab Spring in 2011, supply disruptions have once again become a key feature in oil markets, reaching 3 Mb/d in 2014. Libyan production fluctuated throughout the year, civil war limited output from Syria, unrest continued in Nigeria, the Sudans and Yemen, and international sanctions on Iran limited output. Total supply disruptions in 2014 were well above the historical average of roughly 400 Kb/d. The historical high for supply disruptions of a little over 4 Mb/d was reached in 1991, as a result of the Iraq-Kuwait war and the collapse of the Soviet Union. Heightened levels of geopolitical risk and uncertainty suggest that supply disruptions may well remain elevated through the medium-term. Accordingly, we have increased the size and duration of our provision for supply disruptions compared with our previous Outlook (see also the discussion of geopolitical risks on pages 88-89).

Energy Outlook 2035

41

© BP p.l.c. 2015

Tight oil remains a disruptive force in the near term… Tight oil supply growth

Share of global liquids growth

Mb/d

120%

6 5

Other

4

100%

S&C America

Other

China

80%

NGLs

Canada & Mexico

60%

Tight oil

US

3

2

Russia

40%

US

OPEC crude

20%

1

0%

0

-20% 2005-20

Energy Outlook 2035

2020-35

2005-20 42

2020-35 © BP p.l.c. 2015

…but the market rebalances in later years Tight oil supply, notably in the US, continues to grow in the first part of the Outlook. US tight oil output grows by about 3 Mb/d between 2013-35 and accounts for around two-thirds of global tight oil production in 2035. The strength of tight oil and the relative weakness of demand have reduced the market requirement for OPEC crude in recent years. This pressure on OPEC is likely to persist in the early years of the Outlook and the response of OPEC to this reduction is a key uncertainty. Further out, as tight oil supply growth slows and demand strengthens, the call on OPEC crude begins to increase, exceeding the historical high (32 Mb/d in 2007) by 2030. OPEC’s market share by the end of the Outlook is around 40%, similar to its average of the past 20 years.

Energy Outlook 2035

43

© BP p.l.c. 2015

Oil trade patterns change… Regional net imbalances

Net exports

Mb/d 75 50

Mb/d Middle East Europe Africa N America

2

FSU Asia Pacific S&C America

China

US

India

0 -2 -4

25

-6 0

-8 -10

-25

-12 -14 1985 1995 2005 2015 2025 2035

-50 1985 1995 2005 2015 2025 2035 Energy Outlook 2035

44

© BP p.l.c. 2015

… as Asia’s imports grow and the US becomes self-sufficient Regional trade imbalances increase and become more concentrated. In particular, Asia’s imports account for nearly 80% of inter-regional net imports of oil by 2035, up from around 60% today. The Middle East’s share of inter-regional net exports falls from 55% in 2013 to a touch below 50% by 2035. North America becomes a net oil exporter over the next few years. In the US, the increase in tight oil production coupled with declining demand transform its reliance on oil imports. Having imported well over 12 Mb/d – 60% of its total demand – in 2005, US is set to become selfsufficient by the 2030s. China’s import requirement more than doubles to around 13 Mb/d, accounting for around three-quarters of its total oil consumption. China surpasses the US as the largest consumer of liquid fuels by the end of the Outlook. India’s import requirements also grow rapidly, with imports accounting for almost 90% of its total oil demand by 2035. Energy Outlook 2035

45

© BP p.l.c. 2015

Refiners are challenged by alternative supplies… Global liquids supply growth

Growth in refining spare capacity

Mb/d, cumulative from 2013

Mb/d, cumulative from 2005

20

8

Other NGLs

15

6

Biofuels Crude oil

10

4

5

2

0

0 2015

2020

Energy Outlook 2035

2025

2030

2006

2035 46

2008

2010

2012

2014

© BP p.l.c. 2015

... and already ample spare capacity Of the 20 Mb/d increase in the supply of liquids to 2035, about 8 Mb/d comes from NGLs, biofuels and other liquids that do not require refining. China’s demand for liquids grows by 7 Mb/d to 2035. If they follow the pattern of the past two decades, Chinese crude runs will grow by a similar amount, leaving crude run growth outside China of only 4 Mb/d over more than 20 years. Global spare refining capacity is already 7 Mb/d above its recent low (2005) and, in recent years, a net 1 Mb/d additional capacity has been added each year. This Outlook therefore suggests a long period of volatile margins, with large capacity reductions required in disadvantaged refining centres.

Energy Outlook 2035

47

© BP p.l.c. 2015

Energy Outlook 2035

48

© BP p.l.c. 2015

Page

Introduction

4

Global energy trends

7

Liquid fuels

29

Natural gas

49

Coal and non-fossil fuels

63

Key uncertainties

77

Appendix

93

Energy Outlook 2035

49

© BP p.l.c. 2015

Non-OECD leads the growth in natural gas demand… Demand by region

Demand by sector

Bcf/d

500 400

Bcf/d 500

Other non-OECD China

400

Middle East

300

300

OECD

200

200

100

100

0 1965 Energy Outlook 2035

2000

0 1965

2035 50

Transport Other Power Industry Power

2000

2035 © BP p.l.c. 2015

…with increasing usage in power and industrial sectors Global natural gas demand is expected to grow by 1.9% p.a. over the Outlook, reaching around 490 Bcf/d by 2035. Growth is driven by non-OECD demand, which grows 2.5% p.a., adding 123 Bcf/d. OECD grows more modestly (1.1% p.a.), adding 42 Bcf/d. Increased usage by the power and industrial sectors account for over 80% of total demand growth, with power showing the largest gain of 75 Bcf/d (2.3% p.a.), followed by industry (61 Bcf/d, 1.8% p.a.). In the non-OECD, power and industry add almost 50 Bcf/d each to demand. In the OECD, growth in power sector demand (25 Bcf/d) is more than twice that of industry (12 Bcf/d). Transport is the fastest growing sector, albeit from a very small base, with its share of total natural gas consumption rising to 3% by 2035.

Energy Outlook 2035

51

© BP p.l.c. 2015

Non-OECD also provides the largest supply increment… Gas production by type and region

Shale gas production

Bcf/d

500 400

Bcf/d 120

Non-OECD other Non-OECD shale OECD shale OECD other

80

300

200

40

100 0 1990

Rest of world China Europe & Eurasia Canada & Mexico US

2005

Energy Outlook 2035

2020

% of total gas production (right axis)

0 1990

2035 52

2005

24%

16%

8%

2020

0% 2035 © BP p.l.c. 2015

…while OECD shale gas has the fastest growth Around half of the increase in global gas supply comes from non-OECD conventional gas (82 Bcf/d or 1.5% p.a.), driven in particular by the Middle East and Russia. Almost 80% of non-OECD growth is from nonshale sources.

OECD shale gas grows much faster at 5% p.a., adding 52 Bcf/d and accounting for around a third of the increase in global gas supply to 2035. Shale gas production is dominated by North America, which currently accounts for nearly all of shale gas supply and continues to account for around three-quarters in 2035. However, growth in shale gas outside North America accelerates and by the 2030s overtakes North American growth (in volume terms). China is the most promising country outside North America, accounting for 13% of the increase in global shale gas. By the end of the Outlook, China and North America account for around 85% of global shale gas production.

Energy Outlook 2035

53

© BP p.l.c. 2015

Regional imbalances increase significantly… Regional net imbalances

Production and trade growth Bcf/d

Bcf/d 120

80 40

FSU Middle East N America Asia Pacific

500

Africa S & C America Europe

450

400

0

LNG

Pipeline

-40

350 -80 -120 1975

300 1990

Energy Outlook 2035

2005

2020

2013 Consumed Exported 2035 production locally production

2035 54

© BP p.l.c. 2015

…with Asia overtaking Europe as the key importing region Net inter-regional imbalances more than double by 2035. Growth in gas traded across regions accounts for around a third of the increase in total gas consumption. The expansion of trade is driven by Asia Pacific, where net imports nearly triple and account for almost 50% of global gas net imports by 2035. Asia Pacific overtakes Europe as the largest net importing region in early 2020s. The growth of shale gas means North America will switch from being a net importer to a net exporter in the next few years. A vast majority (87%) of the increase in gas traded across regions reflects increased supplies of LNG (liquefied natural gas). Pipeline supplies grow much more slowly with new pipelines being commissioned from Russia and Central Asia.

Energy Outlook 2035

55

© BP p.l.c. 2015

LNG supply is poised for a growth spurt… Global LNG supply

Global LNG demand Bcf/d

Bcf/d 80

80

Other

Other

Africa 60

Australia

60

US

Europe

Russia 40

40

Qatar

20

0 1990

S & C America Asia Pacific

20

2005

Energy Outlook 2035

2020

0 1990

2035 56

2005

2020

2035 © BP p.l.c. 2015

…supporting the expansion of Asian imports The LNG market is poised for a growth spurt with a slew of new projects adding 22 Bcf/d by 2020. LNG supply grows 7.8% p.a. between 2013-20. Overall, LNG supply grows by 48 Bcf/d by 2035, with Australia (16 Bcf/d) and the US (14 Bcf/d) each contributing around a third of that increase. African LNG supply, led by East Africa, increases by 12 Bcf/d. As a result, Qatar, which has the largest market share today, is overtaken by Australia (24% share of the market by 2035), Africa (21%), and the US (18%). Asia is the largest destination for LNG, with its share in global LNG demand remaining above 70%. By 2035, China becomes the second largest LNG importer (12 Bcf/d), just behind Japan (13 Bcf/d). Europe’s share of global LNG imports rises from 16% to 19% between 2013 and 2035, with an additional 10 Bcf/d of LNG demand.

Energy Outlook 2035

57

© BP p.l.c. 2015

LNG becomes the dominant form of traded gas… Asian LNG imports and price differential

Shares of global gas consumption

$/mmBtu

40% Total trade

30% Pipeline

20%

10%

0% 1990

LNG

2005

Energy Outlook 2035

2020

2035 58

80%

Asia Pacific as % of total LNG imports

8

75%

Asia-Europe price spread (right axis)

6

70%

4

65%

2

60%

0

55%

-2 2004

2007

2010

2013 © BP p.l.c. 2015

…with supplies pivoting towards large Asian markets Global trade grows by 2% p.a. over the Outlook, causing the share of gas consumption supplied via traded gas to increase marginally. Traded gas supplied via pipelines declines as a share of consumption, reflecting the pivoting of import demand away from the US and Europe and towards Asia. In contrast, gas supplied via LNG grows by 4.3% p.a., more than twice as fast as total trade. As a result, LNG becomes the dominant form of traded gas by the end of the Outlook.

The greater ability of LNG supplies to respond to varying movements in demand and supply across the world means that gas deficit regions such as Asia Pacific are able to attract larger LNG supplies by paying a premium over other markets. In the long run, increased LNG supplies lead to more integrated markets, with gas prices moving in greater unison across regions.

Energy Outlook 2035

59

© BP p.l.c. 2015

Growth in LNG leads to more diversified gas supplies … Sources of gas supply Europe

Bcf/d

China

Bcf/d

60

60

Net pipeline imports

Net LNG imports Production 40

40

20

20

0

0 1995

2005

Energy Outlook 2035

2015

2025

2035

1995 60

2005

2015

2025

2035

© BP p.l.c. 2015

…for both Europe and China Europe’s gas imports currently account for around 50% of its total gas consumption. Over 80% of these imports are via pipeline, the vast majority of which are from Russia. European domestic production declines by 2% p.a. over the Outlook, so that, even with only modest demand growth (0.8% p.a.), almost threequarters of Europe’s gas needs are met by imports by 2035. Growth of LNG means these imports are more diversified, with pipelines accounting for around two-thirds of imports and LNG the remainder. China, by contrast, enjoys strong growth in gas production (5.1% p.a.) across all types of supply. Shale gas makes a significant contribution to growth (10 Bcf/d, 33% p.a.), with most of that increase coming in the last decade of the Outlook. Nonetheless, Chinese demand growth requires a rapid expansion of imports (7.6% p.a.) via both LNG and pipelines. LNG overtakes pipeline supplies as the dominant form of Chinese gas imports by the 2030s.

Energy Outlook 2035

61

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Energy Outlook 2035

62

© BP p.l.c. 2015

Page

Introduction

4

Global energy trends

7

Liquid fuels

29

Natural gas

49

Coal and non-fossil fuels

63

Key uncertainties

77

Appendix

93

Energy Outlook 2035

63

© BP p.l.c. 2015

Growth in coal consumption slows in the non-OECD… Ten year increments by region

Consumption by region Billion toe

Billion toe

5

1.2 Other

4

India 3 2

LNG

Other

1.0

India

0.8

China OECD

0.6

Russian pipeline

0.4

China

FSU pipeline

0.2 1

Conventional

0 1965 Energy Outlook 2035

0.0 OECD

2000

-0.2 1975

2035 64

1995

2015

2035 © BP p.l.c. 2015

…whilst OECD consumption declines Global coal demand grows by 0.8% p.a. between 2013 and 2035, making it the slowest growing fuel. Non-OECD consumption increases (1.1 Btoe), partially offset by declines in OECD consumption (-0.4 Btoe). China continues to lead the growth in consumption (390 Mtoe) even though its growth rate declines from 8.3% p.a. during 2000-13 to 0.8% in 2013-35. Chinese coal consumption peaks in 2025 and then declines slightly in the final decade of the Outlook. India increases coal consumption by 360 Mtoe by 2035, making it the second largest growth market. Increases in power sector demand account for almost 70% of India’s consumption growth. The decline in OECD consumption is led by the US (-220 Mtoe) and the European Union (-150 Mtoe). This reduction is concentrated in the power sector, where environmental policies and ample supplies of gas encourage gas to displace coal.

Energy Outlook 2035

65

© BP p.l.c. 2015

Coal loses market share in China… Coal share by sector in China

Inputs to power in China

100%

100%

Oil

75%

75%

Power

Coal 50%

50% Transport

25%

0% 1965 Energy Outlook 2035

Industry

Gas

2000

Renew. Nuclear

25%

Other

2035 66

0% 1965

Hydro

2000

2035 © BP p.l.c. 2015

…as the country transitions to cleaner fuels Growth in Chinese coal consumption is led by demand in the power sector (1.4% p.a.) followed by industry (0.4% p.a.). These two sectors account for 97% of China’s coal consumption by 2035. Growth slows considerably in all sectors, from the highs during 2000-13 when power sector consumption grew by 10% p.a. and industrial consumption by 7% p.a..

The share of coal as a source of energy declines across all sectors in China. In power generation, the largest coal consuming sector, coal’s share declines from 77% in 2013 to 58% by 2035, as renewables and nuclear gain share. The loss of market share in industry is more modest, falling from 59% to 46%. As a result, China records the steepest decline in the share of coal in primary energy between 2013 and 2035. Nevertheless, in 2035, China still has the highest coal share in primary energy at 51%.

Energy Outlook 2035

67

© BP p.l.c. 2015

The share of power generated by non-fossil fuels increases… Share of world power generation

Growth of non-fossil power Thousand TWh

6

40%

5

Total non-fossil

30%

Nuclear

2

Nuclear

1 0

Renewables 0% 1990

Hydro

3 Hydro

2005

Energy Outlook 2035

Non-OECD Renewables

4

20%

10%

OECD

2020

2035 68

-1

19912013

20132035

19912013

20132035

© BP p.l.c. 2015

…driven by the rapid growth of renewables Until recently, the share of non-fossil fuels in global power generation was declining as nuclear and hydro struggled to keep pace with the growth of global power generation, and renewables were too small to make a material difference. Looking ahead, the shares of nuclear and hydro continue to decline, but the scaling up of renewables is sufficient to lift the aggregate non-fossil share from 32% in 2013 to 38% by 2035. Within the OECD, renewables dominate the growth of non-fossil power, and contribute 90% of the net growth in power generation from all sources. The growth of non-fossil fuels in the non-OECD is broader based. The increase in renewable power is roughly the same in volume terms as in the OECD. But there are also significant increases in nuclear and hydro. Renewables account for 16% of the growth in power generation in the non-OECD.

Energy Outlook 2035

69

© BP p.l.c. 2015

The falling cost of renewables… Cost* of new grid-scale power generation, North America example $2014/MWh

300

Solar PV

Onshore wind

Gas CCGT

2015 2035

2015 2035

Coal

250 200 150 100 50

0 2015 2035

2015 2035

* Levelized cost per MWh of building and operating a plant over it’s lifetime. Solar and wind costs exclude the cost of grid integration, and exclude any subsidies or tax incentives. Gas and coal costs in 2035 include the cost of carbon at an assumed price of $40/tonne.

Energy Outlook 2035

70

© BP p.l.c. 2015

…keeps a lid on the growth of the subsidy burden The rapid growth of renewables currently depends on policy support in most markets, as renewables tend to be more expensive than coal or gas-fired power. As renewables grow in volume, the burden of this policy support can become a constraint on growth. To maintain rapid growth, the costs of renewable power need to keep falling, reducing the subsidy required per unit of power. The cost of renewables are expected to fall significantly over the Outlook, due to technological advances, learning-by-doing, and economies of scale. Both solar PV and wind appear to be following well-established learning curves, with costs falling rapidly as production increases. Onshore wind power in the best locations is increasingly able to compete with new conventional fossil power plants, even without subsidy and allowing for grid integration costs. Solar PV is also likely to become competitive across an increasing number of market niches. But even by 2035, grid-scale PV still requires a material carbon price to compete with efficient gas combined cycle generation. Energy Outlook 2035

71

© BP p.l.c. 2015

Europe leads the way in terms of renewables share… Renewables share of power

Renewables growth 2013 to 2035 Thousand TWh 1.2

40%

EU 30%

US

0.9

China 20%

0.6

10%

0.3

0% 1990

0.0 2005

Energy Outlook 2035

2020

China

2035

72

EU

US

OECD Asia

India

© BP p.l.c. 2015

…but China is the largest source of growth Falling costs enable renewables to continue to gain share in Europe and encourage the spread of renewables to other regions. The European Union (EU) has led the way in promoting renewable power, but the size of the subsidy burden has become a constraint on growth in some markets. Falling costs will relax this constraint. By 2035, the share of renewables is likely to be stretching the ability of grid systems to handle intermittent sources of power in a number of EU markets, adding a technical constraint to the growth rate of renewables. Outside the EU, renewables are still scaling up – the US does not reach the current EU level of renewables penetration until 2030, and it takes even longer for China. However in terms of volume growth between 2013 and 2035, the EU is surpassed by China, and almost matched by the US.

Energy Outlook 2035

73

© BP p.l.c. 2015

Nuclear and hydro generation grow steadily … Nuclear generation by region

Hydro generation by region

Thousand TWh

Thousand TWh

6

6

5 4 3

Other China

5

Other Asia Europe

4

Brazil Europe

3

2

2

1

1

0 1965

0 1965

Energy Outlook 2035

China

North America

North America

2000

Other

2035 74

2000

2035 © BP p.l.c. 2015

…led by the non-OECD, particularly China Despite losing share in the global power sector, nuclear and hydro are still expected to grow by 1.8% p.a. and 1.7% p.a. over the Outlook. Global nuclear growth is driven by China with an estimated growth rate of 11% p.a. – adding over 1000 TWh by 2035. This is an ambitious target, roughly equivalent to completing a new 1 GW reactor every 3 months for the next two decades. Nuclear capacity in Europe and North America declines as ageing plants are gradually decommissioned, and the difficult economics and politics of nuclear energy stunts new growth. Japan is assumed to restart its reactors gradually from 2015 but is not expected to recover to preFukushima level of nuclear power generation by 2035. Global hydro growth is also driven by the non-OECD, with China and Brazil projected to grow by 450 TWh (1.4% p.a.) and 250 TWh (1.9% p.a.) respectively. Africa is the fastest growing region at 3.8% p.a., adding 150 TWh over the period.

Energy Outlook 2035

75

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Energy Outlook 2035

76

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Page

Introduction

4

Global energy trends

7

Liquid fuels

29

Natural gas

49

Coal and non-fossil fuels

63

Key uncertainties

77

Appendix

93

Energy Outlook 2035

77

© BP p.l.c. 2015

Exploring the impact of alternative assumptions…

Low GDP growth

Climate policies

- what if growth in China and India

- what if policymakers take more

slows more rapidly than assumed?

actions to reduce emissions?

pages 80 to 83

pages 84 to 87

Geopolitics

China’s electrification

- what are the implications of

- what if China’s electricity use

pages 88 to 89

pages 90 to 91

heightened geopolitical risks?

follows a different path?

© BP p.l.c. 2015

…illustrates the uncertainties around the Outlook This Outlook presents a single “most likely” view, constructed to highlight the main trends which are likely to shape energy markets over the next two decades. We believe this provides a robust basis for discussion. Building that single point projection necessarily requires making choices about assumptions which are inherently uncertain. By exploring the impact of alternative assumptions we can illustrate some of the uncertainties around the Outlook, adding to the richness of the debate. We have chosen four key uncertainties to explore here, which are described in more detail in the following pages. This is not an exhaustive list by any means – there are many other uncertainties surrounding the Outlook.

Energy Outlook 2035

79

© BP p.l.c. 2015

Low GDP growth

The future path of growth in non-OECD Asia… GDP and energy demand in base and low case

Differences from base case in 2035 %

Index: 1990 = 100

500

0% Low case

400

-5% GDP -10%

300

-15%

Energy

200

100 1990

-20%

GDP Energy demand

-25% 2005

Energy Outlook 2035

2020

World

2035 80

OECD

Non-OECD Other Asia © BP p.l.c. 2015

Low GDP growth

…is a major source of uncertainty for energy demand The future growth paths of China and India represent a major source of uncertainty. Our low GDP case assumes China and India grow at an average rate of 4% p.a. over the projection period, compared with 5.5% p.a. in the base case. It also includes the trade and other spill-over effects of lower growth in these two countries on the rest of the world.

It is based on the recognition that prolonged periods of growth above the global average are rare, and it is possible that the high growth rates seen in these countries in recent years may slow more rapidly than anticipated. In the low growth case, GDP in non-OECD Asia is 25% lower than in the base case by 2035, and world GDP is 13% lower. World GDP grows at a little below 3% p.a., compared with 3.5% p.a. in the base case. World energy consumption grows at 1% p.a. rather than 1.4% p.a. By 2035, global energy demand is 8.5% (1.5 billion toe) lower than in the base case. This is roughly equivalent to the total energy demand of the entire European Union in 2035. Energy Outlook 2035

81

© BP p.l.c. 2015

Low GDP growth

Demand growth is slower for all fuels... Global CO2 emissions from energy use

Energy demand by fuel in 2035 % difference from base

Billion tonnes CO2

0%

42

-2%

36

Base Low GDP

30

-4%

24

-6%

18 -8%

12

-10%

6

-12%

0 1965

Oil

Gas

Energy Outlook 2035

Coal

Nuclear Renew. & hydro 82

2000

2035 © BP p.l.c. 2015

Low GDP growth

…resulting in lower carbon emissions Within the fossil fuels, coal demand shows the largest decline versus the base case (-11%), followed by oil (-9%) and gas (-6%). These differential impacts reflect the fuel mix in China and India (the focus of the slower grow), and assumptions about how quickly supplies would adjust. The lower price of fossil fuels and increased financial pressures (particularly in non-OECD Asia) that come with slower economic growth mean that the growth of renewables, nuclear and hydro also decline.

In the low growth case, carbon emissions in 2035 are 9% lower than in the base case; equivalent to 4 billion tonnes of CO2. This would still leave the path of emissions above the IEA’s 450 Scenario (see following page). Indeed, the increase in financial pressures in nonOECD Asia may complicate the process of reaching a political consensus on carbon reduction policies.

Energy Outlook 2035

83

© BP p.l.c. 2015

Climate policies

Carbon emissions are rising too fast for comfort… Emissions by sector

Options that achieve equal CO2 emissions reductions*

Billion tonnes CO2

42

Abatement option

Change required

Replace coal with gas in power (% of total power)

1%

Add CCS to coal power plants (% of total power)

0.7%

Increase renewables power generation

11%

Increase nuclear power generation

6%

Improve vehicle efficiency

12

2%

Improve ‘other sector’ energy efficiency

1%

6

Improve efficiency of electricity production

1%

36 30

Other Transport Industry Power

24

IEA 450 Scenario

18

0 1965

2000

Energy Outlook 2035

* Normalized for a 1% swing in the coal/gas mix in power generation, equivalent to 110 Mt CO2. Estimates are based on energy shares in 2013.

2035 84

© BP p.l.c. 2015

Climate policies

...which could trigger additional abatement policies Global CO2 emissions from energy use grow by 25% (1% p.a.) over the Outlook. Emissions remain well above the path recommended by scientists, illustrated by the IEA’s “450 Scenario”. In 2035, CO2 emissions are 18 billion tonnes above the IEA’s 450 Scenario. The projections are based on our view of the most likely evolution of carbon related policies, but future climate policies are a key uncertainty in the Outlook. There are a number of options open to policy makers if they decide to further abate carbon emissions. The table considers a list of potential options, with a comparison of the extent of change required to achieve the same emissions savings as a 1% shift in the coal/gas mix of the power sector. The list is not exhaustive. The options include those that: limit emissions from coal in the power sector; increase non-fossil fuel use; and improve energy efficiency.

Energy Outlook 2035

85

© BP p.l.c. 2015

Climate policies

There are many ways to further mitigate carbon emissions… Options to save 2 billion tonne CO2 emissions in 2035 versus base case Reducing carbon intensity in power % share of power generation 40%

Energy efficiency gains % p.a. 4

2000-13

2013

2013-35 base case

2035 base case

30%

3

2035 lower CO₂

20%

2

10%

1

0%

0

Gas

Energy Outlook 2035

Coal with Renewables CCS

Nuclear

86

2013-35 lower CO₂

Road transport

'Other' sector

Power plants © BP p.l.c. 2015

Climate policies

… all of which involve significant challenges The charts show the change required for each option to achieve a 2 billion tonne CO2 saving in 2035 relative to the base case – roughly 10% of the gap between projected emissions and the IEA 450 Scenario in that year. No single change or improvement is likely to be sufficient, and none of these options are easy. The required improvement in vehicle efficiency by 2035, for example, is almost 50% more than the efficiency gain which is already in the base case. That is a considerable challenge.

Each option has its own challenges: cost, technological limits, slow turnover of existing capital stock, the ability to implement policy globally and inertia in behavioural change. A comparison of the required change relative to recent history and to the “most likely” outcome may provide some guidance. But given the complexities, it is difficult to pick ‘winners’. A meaningful global carbon price would provide the right incentives for the most cost-effective decisions and investments to be made. Energy Outlook 2035

87

© BP p.l.c. 2015

Geopolitics

Heightened risk perceptions can have important implications… Geopolitical risk

Alaska - oil production

Eurasia Group Risk Index 46

Mb/d 3 2

44

1 0

42 2005

2008

2011

1975 1980 1985 1990 1995 2000

2014

France - nuclear power

China - oil imports

Share of energy consumption 40%

Mb/d 8 6 4 2 0 -2 1973

20% 0% 1965 Energy Outlook 2035

1980

1995 88

1983

1993

2003

2013

© BP p.l.c. 2015

Geopolitics

…for both energy supply and demand Geopolitical risks – which on some measures have increased in recent years – have potentially important implications for energy markets. On the supply side, the level of disruptions to oil in recent years has been well above the historical average. We have marked up the likely incidence of supply disruptions over the medium term (see pages 40-41). Changing perceptions of geopolitical risks may also spur policy choices that lead to lasting changes to energy demand as well as supply. Historical examples include: the French decision to increase its dependence on nuclear energy, and the approval of the Trans-Alaska pipeline in the US (both following the early 1970s oil shocks); and China’s acceptance of growing oil imports to fuel economic development (after an extended period of policy focused on maintaining self-sufficiency). We have built substantial evolution of both energy markets and policy into this Outlook, but heightened geopolitical risk perceptions could drive additional policy interventions beyond those anticipated.

Energy Outlook 2035

89

© BP p.l.c. 2015

China electrification

The path of electrification in China… Electricity consumption per capita

Impact on global fuel demand Effect of +/-20% change in China power relative to base case

MWh 10

+20%

Total

8

Renew.

6

Hydro

-20%

Nuclear

4

Coal

2

Gas 0 China China 2013 2035 Energy Outlook 2035

0%

EU Japan 2013 2006 90

2% 4% % change, +/-

6%

© BP p.l.c. 2015

China electrification

…has significant implications for global energy The future path of electrification in China is a key uncertainty. China’s power sector accounted for nearly 30% of global energy growth over the past decade. In our base case, China’s per capita electricity consumption grows by 3.2% p.a. reaching 7.7 MWh by 2035. A sensitivity band around that base case can be constructed by looking at the per capita electricity consumption of the EU and Japan at the point where their GDP per capita broadly matched that projected for China in 2035 (2006 for Japan, 2013 for the EU). A +/-20% change in China’s power generation (assuming no change in the shares of fuels in Chinese power) would change global energy demand in 2035 by +/-2.7%. That is roughly equivalent to two years of global energy growth, or an energy market the size of Japan. There is no impact on global oil demand and little impact on gas from this sensitivity. There is a significant impact on global coal use (+/-5.8%), and similar magnitude impacts on nuclear, hydro and renewables. The impact on carbon emissions is +/-1.6% (+/-0.7 billion tonnes of CO2). Energy Outlook 2035

91

© BP p.l.c. 2015

Conclusion Continuous change is the norm for energy markets Changing energy mix - gas fastest growing fossil fuel, coal the slowest - continued rapid growth in renewables

Changing energy trade patterns - increasingly flowing from West to East

Changing the carbon emissions path? - no silver bullet, need action on many fronts - let the market pick the winners

Energy Outlook 2035

92

© BP p.l.c. 2015

Page

Introduction

4

Global energy trends

7

Liquid fuels

29

Natural gas

49

Coal and non-fossil fuels

63

Key uncertainties

77

Appendix

93

Energy Outlook 2035

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Key changes versus last year’s Outlook… Changes in 2035 levels versus the January 2014 Outlook Revised down

Revised up

Coal

N America fossil fuel supply

Oil

Gas

Asia Pacific fossil fuel supply Transport consumption Inputs into power generation

Biofuels Other

Renewables

Non-OECD industrial demand N America industrial demand -250 -200 -150 -100 -50

0

50 100 150 200 250 300

Mtoe Energy Outlook 2035

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…result in little net change in total energy Our aggregate projection for world energy demand and supply is little changed since our previous Outlook – down by about 0.6% in 2035. North America’s oil and natural gas supply outlook has been revised higher yet again (14%) due to the continued evolving expectations for shale gas and tight oil. Increased oil supplies enable higher oil consumption, particularly in the transport sector.

Asia Pacific fossil fuel supply is down in 2035 largely as result of slower growth of coal production in China. Coal consumption in the power sector has been revised down, roughly balanced by upwards revisions to gas and renewables. Fuel switching in the US and China explains the majority of the changes. Non-OECD industrial consumption is lower, as a result of slower economic growth and faster efficiency gains. North American industrial demand is higher in 2035 supported by increased availability of domestic oil and gas supplies. Energy Outlook 2035

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Comparison with other outlooks: the key difference… Growth of energy consumption, 2010-2035 Billion toe

Billion toe

7

Non OECD

7

6

OECD

6

5

5

4

4

3

3

2

2

1

1

0

0 BP

IEA NP

Energy Outlook 2035

IEA CP

EIA

Other Coal Liquids

BP 96

IEA NP

Nuclear Gas

IEA CP

EIA

© BP p.l.c. 2015

…lies in different views on non-OECD prospects Our Outlook is based on a “most likely” assessment of future policy trends. In that respect it differs from the energy projections published by the IEA and the EIA, which are based on specific policy scenarios and which make no judgements about the likelihood of those scenarios. Our policy assumptions are closest to those in the IEA’s “New Policies Scenario” (NP), which assumes that announced national policy objectives are implemented. Yet our outcomes are closest to the IEA’s “Current Policies Scenario” (CP) and the EIA’s reference case, both of which assume no change in policy settings. Our Outlook shows more growth in non-OECD energy demand than the IEA NP; it also shows more growth for fossil fuels, especially for coal. This probably reflects differing views on the outlook for rapidly industrializing economies, in particular on the speed with which they can move to a less energy-intensive growth path.

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Data sources BP p.l.c., BP Statistical Review of World Energy, London, United Kingdom, June 2014 Energy Information Administration, Drilling Productivity Report, Washington, D.C., United States, 2014 Energy Information Administration, International Energy Outlook, Washington, D.C., United States, 2013 Energy Information Administration, Short-Term Energy Outlook, Washington, D.C., United States, 2014 Energy Security Analysis, Inc., Wakefield, MA, United States Eurasia Group, New York, United States European Environment Agency, Monitoring CO2 from new passenger cars in the EU, Copenhagen, Denmark, April 2014 ICIS ATEC 4th Update , Vergiate, Italy, 2014 IHS Automotive, International Database World Car and Truck Data 1970-2023, Englewood, CO , United States, Dec 2014 International Council for Clean Transportation, Global passenger vehicle standards, Washington D.C., United States, 2014 International Energy Agency, CO2 Emissions from Fuel Combustion, Paris, France, 2014 International Energy Agency, Energy Balances of Non-OECD Countries, Paris, France, 2014 International Energy Agency, Energy Balances of OECD Countries, Paris, France, 2014 International Energy Agency, World Energy Outlook 2014, Paris, France, 2014 Mitchell, B.R., International Historical Statistics 1750-2005, Palgrave Macmillan, New York, United States, 2007 Oxford Economics Ltd, Oxford, United Kingdom UN Population Division, World Population Prospects: The 2012 Revision, New York, United States, 2013 US Environmental Protection Agency, Light-Duty Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy Trends: 1975 through 2012, Washington D.C., United States, March 2013 World Bank, Global Purchasing Power Parities and Real Expenditures, Washington D.C., United States, 2014

Energy Outlook 2035

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