New study suggests fossil fuel demand is beginning a nosedive

Source: Benjamin Hulac, E&E reporter • Posted: Friday, October 23, 2015

Successful companies make and sell products that consumers demand, and fossil energy companies have long said demand for their products — particularly from emerging markets — will be strong decades from now.

A group of U.K. researchers trying to debunk that notion issued its latest salvo last night.

In a point-by-point analysis of population, economic, labor, energy and development trends, the authors of a report from Carbon Tracker Initiative, a London think tank that studies climate change and economic impacts, outline a host of reasons why fossil fuel demand may diminish sharply in 25 years.

Swift advancement in technology (such as electric vehicles and battery storage), flagging economic growth regionally and worldwide, inexpensive renewable energy options, swift renewable deployment, and a lower-than-expected rise in population could all blunt “fossil fuel demand significantly by 2040,” CTI said in a statement last night.

Industry projections typically foresee coal, gas and oil demand climbing 30 to 50 percent and making up three-quarters of global energy supply in 2040.

Betting against decarbonization?

“These scenarios do not reflect the huge potential for reducing fossil fuel demand in accordance with decarbonization pathways,” CTI said.

The report presents a litany of counterarguments to the energy industry’s estimates of future demand for its products.

Market analysts and top government forecasting groups, namely the International Energy Agency and the U.S. Energy Information Administration, have long underestimated the growth of renewable energy sources, the authors contend.

Reductions in energy intensity — the ratio of energy used compared against economic output — could fall faster than many expect, CTI said. (The IEA said this year carbon dioxide emissions didn’t grow in 2014 even though the world’s economy did.)

If investors don’t prepare for a sharp decline in demand, “they will be on the wrong side of the energy revolution,” said James Leaton, head of research at CTI.

Statoil ASA, the Norwegian oil and gas company, and the OECD have each forecast significantly lower growth rates than IEA, which many energy companies look to as a signpost.

U.N. experts may have overshot the number of people living on the planet by 2040, reads the report. It cites a quote from John Wilmoth: “It’s a much more plausible analysis of uncertainty,” he told National Geographic last year, referencing a new population forecast he worked on, “but we may still be off by 2 billion.”

Factoring in slower birth rates and electric cars

Fewer people on the planet, and particularly slower birth rates in developing countries, where many fossil energy companies maintain their products will be most vital to meet rising demands, would also nip energy demand.

Also China, for decades the furnace of developing-market expansion and capital investment, is slowing, as the CTI analysts note. And thanks to the notoriously questionable accuracy of China’s gross domestic product figures, the world’s second-largest economy may be decelerating faster than expected.

Five years ago, the International Monetary Fund said China’s economy would grow 9.5, 9.0, and 9.5 percent in 2011, 2012 and 2015, respectively. The actual rates for 2011 and 2012 were 9.3 and 7.8 percent, while China recently reported its third quarter experienced a 6.9 percent growth rate.

“The incumbents are taking the easy way out by exclusively looking at incremental changes to the energy mix, which they can adapt to slowly,” Luke Sussams, a CTI analyst and report co-author, said in a statement.

“The real threat lies in the potential for low-carbon technologies to combine and transform society’s relationship with energy,” Sussams said. That possibility, he said, has been “overlooked by Big oil, coal and gas.”

The authors also question the oil industry’s stranglehold within the transportation sector, noting that electric vehicles may be cost-competitive by 2025.

On Monday, another British group, U.K. Sustainable Investment and Finance Association, published the results of a new poll, which found about 40 percent of respondents believe large pension funds “should be required to measure, and if necessary, reduce the carbon footprint of their investments.”