In brief

In brief

  • Accenture estimates that global demand for energy will grow by ~16% over the next 15 years.
  • While oil and gas will remain the dominant fuel source, the homogenous energy system we’ve known will become much more heterogeneous.
  • The role for oil and gas will be defined on a region-by-region and sector-by-sector basis, which requires understanding the joule consumption in each.
  • We identified five portfolio plays oil and gas companies should consider to meet demand, while also boosting their profitability and relevance.

"Energy transitions" are not new phenomena. In fact, the world has witnessed multiple transitions in the past century. But the one we’re currently experiencing is different. This one is not driven by changes in supply, but by new demand dynamics that are setting the stage for a more diverse, localized and multi-fuel energy system.

The current energy transition is also different because it is fueled by an urgency to act on climate change and by demands for a shift to fuels with lower carbon intensity (once the very near-term supply chain disruptions and inflationary environment have stabilized). Activist investors and environmentalists are urging companies to take drastic action. We agree that they should.

However, what’s lost in much of the dialogue today is the fact that oil and gas will (and must) constitute a large share of the energy mix in the decades ahead. Of course, these energy sources should be produced, developed, refined and transported as cleanly as possible. But suggesting that they be eliminated from the energy portfolio completely is just not realistic.

The predicted Energy demand by sector (2022 vs 2035)

1Net primary energy demand of power generation after deducting output electricity/heat.

2Including feedstock use of hydrogen for refining and ammonia production.

3Others include pulp and paper, non-ferrous metals, agriculture, forestry, fishing, rail transport, mining, light industries and other non-energy use.

Source: Accenture analysis.

The drivers of change

Three factors are driving today’s energy transition—or, more accurately, its evolution:

  1. Urgency around climate action from all stakeholders, evidenced by consumer pressures, investor activism and governmental regulations, incentives and commitments (e.g., COP26 methane reduction pledges from 100+ countries, the commitment of $130 trillion of private capital towards a net-zero economy and others).
  2. The increasing pace of technology advancements, particularly in renewable generation and energy storage.
  3. The need for energy security in a transitioning energy system that allows developing economies to assume more local/regional control with the emergence of renewable fuels.

The emergence of a heterogeneous energy system

As global demand for energy continues to grow—by approximately 16% over the next 15 years in Accenture’s base scenario—oil and gas will remain the dominant fuel source, accounting for nearly half of the global energy mix. But alternatives are now becoming more economical and viable, chipping away at oil’s leading position.

Even within the hydrocarbon portfolio, changes are afoot. The transition away from coal in the power generation and heavy industrial sectors—particularly in Asia—is creating new demand for natural gas. In fact, we project that demand for natural gas will grow by 14% by 2035. That’s despite energy efficiency increases across sectors (typically between 0.5 - 5% per year) and demand for renewable fuels (notably, wind/solar) tripling over the next 15 years.

The reality is that the homogenous energy system we’ve grown accustomed to is becoming much more heterogeneous. The new system will enable consumers to tap different sources of energy to meet the needs of different industries and geographies.

The role for oil and gas will be determined on a region-by-region and sector-by-sector basis. Companies will need to base their asset allocation decisions on a standardized measure (e.g., per-joule basis) of how, where and when energy is consumed.

Beyond differences in regional and sector demand profiles, oil and gas companies need to accommodate varying country regulations, technology advancements and investor pressures. Each of these factors contributes to even greater heterogeneity—and complexity—in the energy market.

Five portfolio plays

Accenture recently carried out an extensive analysis to gain a better understanding of how near-term and mid-term demand-driven change will affect the energy system and, notably, the oil and gas industry over the coming 15 years. Specifically, we looked at annual changes in energy demand across eight regions, nine sectors and eight fuel sources.

Our analysis modeled two scenarios:

  • A best case scenario assumes relatively stable oil prices and moderate carbon taxes.
  • An optimistic transaction scenario assumes a more challenging price environment and higher carbon taxes globally.

From this analysis, we identified five portfolio plays oil and gas companies should consider, along with opportunities for various players in the value chain and recommended actions. Our findings suggest that these plays are most likely to help companies meet energy demands while also boosting their profitability and relevance in the new energy system, regardless of the energy scenario that unfolds.

Demand for natural gas is poised to grow by at least 14% by 2035. This is largely due to coal-to-gas conversions in industrial sectors and the increasing commissioning of new LNG/natural gas-powered plants in Asia.

Until 2025, natural gas will be an important source of energy as economies recover from the pandemic and dependence on Russian gas is re-evaluated. There is an opportunity to boost demand for gas in emerging markets by creating the needed infrastructure that developing economies need to fuel their transition.

We expect demand for oil to peak in the late 2020s and decline back to 2021 levels by 2035. However, while oil demand will plateau by 2035 the world will require approximately 14-18 billion barrels of “new oil” in 2035 to replace production from depleted assets. That is approximately equivalent to half of the current worldwide oil production.

Operators should continue to focus on break-even costs to fund the incremental production required to meet the demand for oil.

Our analysis estimates that reaching a net-zero world by 2050 will require between three and 10 billion tons of CCS capacity per year, up to 200 times the current capacity. By 2035, that number will be 70 to 90 times the current capacity.

We also predict that the demand for industrial efficiency and end-to-end carbon management technologies will surge, with players of all types fiercely competing in what will be a $150+ billion market by the middle of the decade.

Across both CCS and end-to-end carbon management and efficiency solutions, oil and gas companies are uniquely positioned to lead.

While there are plenty of clean hydrogen options, blue hydrogen and green hydrogen have advantages in terms of their availability and long-term competitiveness in a high carbon tax environment. The choice between blue or green hydrogen depends primarily on carbon and natural gas prices—and on the cost of generating each type of hydrogen.

In both the base and the optimistic transition scenarios, blue hydrogen is expected to reach market dominance by the early to mid-2030s, mainly due to the availability of low-cost natural gas.

While electric vehicles (EVs) will win the race in light-duty vehicles (LDV) over the long run, biofuel consumption (especially ethanol) will continue to grow at a compound annual growth rate (CAGR) of 7% until 2035 and will only be surpassed by electricity in terms of total joules consumed in 2035. In the heavy-duty vehicles (HDV), aviation and marine sectors, biofuels are the main viable option for decarbonized fuels in the foreseeable future. In the HDV sector, the demand for renewable diesel and conventional biodiesel will at least double by 2035.

Relevance matters

There are five opportunities for oil and gas companies to re-imagine who they are, what they do, where they operate and whom they serve in the next 15 years.

Some involve refocusing their portfolios on oil and gas, albeit in cleaner and more sustainable ways. Others involve heading into new frontiers. All, however, call on oil and gas companies to develop new capabilities and new business models to meet energy demands, while also boosting their profitability and relevance in the new energy system, regardless of the energy scenario that unfolds.

About the Authors

Vivek Chidambaram

Managing Director – Strategy & Consulting, Energy

Aleek Datta

Managing Director – Strategy & Consulting, Energy

Rami ElDebs

Managing Director – Strategy & Consulting, Energy

Sylvain Vaquer

Senior Manager – Strategy & Consulting, Energy

Lasse Kari

Senior Principal – Accenture Research, Energy


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