Aggregate fossil fuel demand is set to peak in 2027, as electrification increases and the role of renewables in power systems grows rapidly, according to a new study from McKinsey.
The Global Energy Perspective 2021 report finds that while coal demand has peaked already, peaks in demand for oil and gas are not far behind, with oil peaking in 2029 and gas in 2037.
The pandemic has resulted in a “profound reduction” in energy demand, from which McKinsey expects it will take between one to four years to recover – with electricity and gas demand expected to bounce back more quickly than demand for oil.
The report found that demand for fossil fuels will “never return” to its pre-pandemic growth curve.
Over the long-term, the impacts of behavioural shifts due to COVID-19 are minor compared to “known” long-term shifts such as decreasing car ownership, growing fuel efficiencies and a trend towards electric vehicles, whose impact is estimated to be three-to-nine times higher than the pandemic’s by 2050.
McKinsey senior partner Christer Tryggestad said: “While the pandemic has certainly provided a substantial shock for the energy sector across all fuel sources, the story of the century is still a rapid and continuous shift to lower-carbon energy systems”.
“The share of electricity in the energy mix is set to grow by around 50% and it’s set to capture all global energy growth as hydrocarbon consumption plateaus.
“However, in our reference case, fossil fuels continue to play a significant role for the foreseeable future.”
While energy systems around the world will shift to renewables, which are able to compete with the marginal cost of fossil power already today in most places, by 2050 more than half of all global energy demand continues to be met by fossil fuels in McKinsey’s reference case scenario.
As a result, while the earlier peak of hydrocarbon demand means a substantial reduction in forecasted carbon emissions, the world remains significantly off of the 1.5°C pathway and will run out of its carbon budget for 2100 in the early 2030s.
Tryggestad said: “There is still a long way to go to avert substantial global climate change. According to our estimates, annual emissions would need to be around 50% lower in 2030 and about 85% lower by 2050 than current trends predict to limit the global temperature increase to 1.5°C.”