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Hydrocarbon Energy: A Vestige of the Past or the Basis for Development?

May 26, 16:50 UTC+3
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Now that the nuclear and renewable power industries are taking the centre stage, the traditional energy sources are being forced to the fringes. Yet, it is all too early to talk about the decline of oil and gas.

Hydrocarbons still prevail in the global energy market accounting for 86% of total primary energy consumption:

  • 32.9% – oil,
  • 29.2% – coal,
  • 23.8% – natural gas (BP data for 2015).

So far coal is the only one to be losing its market share, with coal consumption decreasing by 1.8% in 2015. The demand for oil and gas, on the other hand, keeps growing (up 1.9% and 1.7%, respectively) outpacing other sources of energy. For example, the consumption of nuclear power increased by 1.3% (mainly driven by demand from China), whereas hydropower saw an uptick of only 1%.

The only segment growing much faster than hydrocarbons is the renewable energy, with consumption rising by 15.2%. However, despite multiple projects of major powers and leading energy corporations to ramp up non-hydrocarbon sources of energy, their share in the global energy mix remains fairly low: hydropower provides for only 6.8% of energy demand, while nuclear power and renewables account for 4.4% and 2.8%, respectively.

  • BP expects the annual consumption of renewables to grow by an average of 7.1%, with a more than threefold increase in the global energy market share by 2035 (BP Energy Outlook 2017).
  • The US Energy Information Administration forecasts the renewables consumption growth at 2.6% through to 2040, while calling them the fastest-expanding market segment (EIA International Energy Outlook 2016).
  • Nuclear energy and hydropower are expected to advance steadily, if not rapidly. The EIA predicts annual nuclear power consumption growth at some 2.3% all the way through to 2040.

Hence, even though the share of traditional energy resources is set to gradually decline, they will still dominate the market over the next 20 years.

  • BP estimates that oil, gas and coal will be accounting for over 75% of global energy sales by 2035, while the EIA puts that figure even higher at 78% by 2040.

Among the traditional energy sources, gas has the best growth prospects.

  • The IEA forecasts a 50% increase in demand for gas by 2040. According to the IEA and BP, the annual natural gas consumption growth will average 1.6–1.9% in 2035–2040, while the demand for oil and coal will advance by 0.7–1.1% and 0.2–0.6%, respectively.

In the oil segment, a new major international player is about to emerge. Darren Woods, ExxonMobil CEO, spoke at CERAWeek 2017 oil and gas conference stressing that the US is currently going through another shale revolution, which might turn the world's largest crude oil importing nation into an energy exporter.

The US opening of oil export tap will increase the global supply, which is already in excess of demand (different experts project the market to reach its balanced state in the second half of 2017 or the first half of 2018). The rising supply will, in its turn, put pressure on prices making oil more attractive than renewables in the near term, as the latter require significant investments and to a great extent rely on natural conditions.

Despite the current oil oversupply, it is time for Russia to start gearing up for tougher competition in the global market, including by developing off-shore fields in the Arctic and tapping into the hard-to-recover oil reserves (shale oil). For example, Rosneft, which holds 28 licence blocks on the Arctic shelf (estimated resources of 34 billion tonnes of oil equivalent), intends to invest in their development up to RUB 250 billion until 2021 (a 2.5-fold increase vs the past five years).

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