Energy Transition Report 2018

TR & NSITION ENERGY

ENERGY TRANSITION OUTLOOK 2018

Energy Transition – the future to 2035 and beyond Vision 2035 is consistent with potential pathways for the transition to a low-carbon economy, including those projections with the most rapid change. By 2035, the maximum forecast impact of alternative technologies will only reduce UK oil and gas demand to around 100 mtoe per annum from the current level of 140–150 mtoe. This is significantly above the Vision 2035 target production level of around 60 mtoe (or 1.1 million boepd). In the longer term, the UK cannot decarbonise to the extent required without large scale development of CCUS and increased use of hydrogen. New objectives for emissions reduction For the UK, the Climate Change Act established legally binding longer term 2050 targets for emission reduction of 80% below 1990 baseline levels. Other countries have gone further. For example, Sweden has committed itself to being carbon neutral by 2045. 3 New intermediate objectives have also been set at European level following the 2016 Paris agreement. The EU has now adopted a 40% reduction target for GHG emissions for 2030 as well as a 27% target for renewable penetration and a 32% energy efficiency improvement. 4 Success in delivering these objectives and the impact on the oil and gas sector depends on current and medium-term technological development. Renewable energy and storage Renewable and storage technologies have fallen in cost significantly. These trends are likely to continue as a result of the advances being made in reducing the cost of generation from both solar and wind technologies. These cost reductions are, to some extent, driven by the increased scale of investment. The largest wind turbines being installed are now 8 megawatts (MW) compared to 2-3MW ten years ago, with the prospect of a 12-MW turbine in the next few years. Likewise, the average size of a solar farm is now 120MW. 5 These technological developments raise the prospect of a largely renewable electricity system that only requires minimal back-up generation from fossil fuels. Further advances in smart metering, digital control and, to some extent the internet-based service economy could also give more scope for automated response for ensuring supply and demand are in balance. How quickly this transformation takes place is, as yet, unclear. However, at current levels of electricity demand, it is a reasonable scenario that gas will only play a residual role in electricity generation compared to its share of around 40% today. This could reduce gas demand by up to one-third and remove roughly 25 mtoe from the total level of oil and gas consumption in the UK. 6 Technological drivers

3 https://unfccc.int/news/sweden-plans-to-be-carbon-neutral-by-2045 4 https://ec.europa.eu/clima/policies/strategies/2030_en 5 IEA — World Energy Outlook 2017 6 BEIS — Updated energy and emissions projections: 2017 – Annex J: Total electricity generation by source

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