DNV GL Energy Transition Outlook 2019 - Oil and Gas Single Lowres

ENERGY TRANSITION
OUTLOOK 2019
OIL AND GAS
A global and regional forecast to 2050
SAFER, SMARTER, GREENER

DNV GL ENERGY TRANSITION OUTLOOK 2019 — OIL AND GAS
FOREWORD
More than half of senior professionals surveyed

for our 2019 research on the outlook for the oil
and gas industry said their company is actively
adapting this year to a less carbon-intensive
energy mix. That number has steadily increased
over the past few years. Decarbonization once
brought companies in our sector a competitive
edge. It is now becoming an imperative to their
license to operate.
Our Energy Transition Outlook makes it clear

that there is no single pathway to a decarbonized
energy mix. A combination of energy sources will
be needed over the coming decades to provide
the world with a secure supply of affordable,
decarbonized energy for the long term.
LIV A. HOVEM
CEO
““ Our Energy Transition Outlook
makes it clear that that there
is no single pathway to
a decarbonized energy mix.
DNV GL – Oil & Gas
From the middle of the next decade, the world’s
largest source of energy will be gas. As oil demand
peaks — around the mid-2020s, according to our
ETO — demand for gas will increase to such an extent
that it will account for nearly a third of the world’s
energy supply by mid-century. Supply of energy
from renewable sources will also increase, from 14%
of the world energy mix today to 40% in 2050.
2
FOREWORD
While we forecast demand growth for both gas ahead. Public scrutiny of our sector is at an
and renewables during the next 30 years, neither all-time high, and will continue to grow.
of these alone will make for a successful energy
transition. We must maintain the highest safety and
environmental standards today, if we are to win
As gas increasingly complements variable the public support needed to bring a secure
renewables, its production and consumption must supply of sustainable and affordable energy
be decarbonized for countries to achieve the to tomorrow’s world.
net-zero emissions targets they are considering
or beginning to implement.
The successful and rapid decarbonization of the

gas mix will rely on hydrocarbon and renewable
energy technologies working together, not in Liv A. Hovem
competition with each other. In this report, we
provide several examples of how experts from
across the energy value chain are collaborating to
achieve this. Their efforts are quickly bearing fruit.
Just a decade ago, the concept of using wind

turbines to electrify an offshore platform would
have been considered unnecessary; the thought
of fuelling a city’s gas networks entirely with
hydrogen, unfeasible. Our industry is rapidly
innovating towards a common goal. It is inspiring,
and we need more of it.
As we work to decarbonize the oil and gas value

chain for the long-term future, it is important to
remember that our actions today will have a
significant bearing on our success in the decades
3
CONTENTS
EXECUTIVE SUMMARY 06
1 INTRODUCTION 14
2 OIL AND GAS DEMAND FORECAST 20
3 TRENDS AND IMPLICATIONS 28
3.1 Onshore and Offshore Oil Exploration and Production 30

3.2 Onshore and Offshore Gas Exploration and Production 36
3.3 Midstream and Downstream Technologies 42
3.4 Emerging and Enabling Technologies for Decarbonization 52
3.5 Digital Transformation in the Oil and Gas Industry 62
3.6 Regional Variations 68
4 THE NEXT FIVE YEARS 78
OUR OUTLOOK REGIONS 88

REFERENCES 89
4
CONTENTS
5
EXECUTIVE SUMMARY
The pace of the energy transition is accelerating. Pressure is growing

on the oil and gas industry to demonstrate it can continue to deliver a
secure and environmentally-sustainable supply of affordable energy.
From subsea to shore, and from shore to street, The energy transition is playing out against the
the sector is increasing its efforts to play a key role backdrop of historic changes in demand for
in decarbonizing the world’s energy system, and energy and society’s expectations for how
helping to achieve international and national energy is produced. Based on DNV GL’s model
targets for climate change mitigation. The of the world energy system, our key forecasts
production of oil and gas accounts for a relatively related to fossil fuels are as follows:
small proportion of greenhouse gas emissions
along the value chain.* It is during the consumption —— Global final energy demand: The total energy
of oil and gas products where most emissions occur. consumed by end users such as buildings,
manufacturing, and transport will peak in
Upstream, more effort is now being directed 2033 at about 462 exajoules per year (EJ/yr;
towards gas developments than oil. This lower- see page 22 for further information on units of
carbon shift is also evident in the midstream and measurement). This is 12% higher than in 2017.
downstream. New sources of gas (e.g. biogas, It will then decline slowly to 446 EJ/yr by 2050.
hydrogen and synthetic methane) are being This reflects the accelerating improvement in
introduced to domestic and commercial energy global energy efficiency, driven largely by
systems, helping to decarbonize gas consumption. electrification of the world’s energy system,
These gases are being used in transport as in which renewables will have a much greater
lower-carbon fuels for shipping, rail, and for heavy share than today.
and light road vehicles.
—— Oil and gas: These fuels will still meet a substantial
Refining and petrochemicals face the challenge 46% of world energy demand in 2050 compared
of reacting to changes in feedstocks. These are with 54% in 2017. We see global gas demand
due to the increasing use of heavier crudes from overtaking demand for oil in 2026 to become
countries such as Iran and Venezuela, and new the world’s primary energy source. Based on our
product slates to meet changing environmental model’s current assumptions, oil demand will peak
standards. Examples here include International around the mid-2020s, and gas demand will keep
Maritime Organization limits on sulphur in fuel in rising to 2033. Demand for gas will then plateau,
international shipping from 2020. and remain dominant until the end of our
forecast period in 2050, when it will account for
As a growing number of countries begin to consider 29% of the world energy mix. This all pre-supposes
net-zero carbon emissions targets, the case is no unexpected geopolitical or market shocks.
growing for carbon capture and storage (CCS)
although the current pace of implementation As the energy transition unfolds, and pressure for
is very slow. decarbonization increases, it is important that the
6 * For example, Oil & Gas UK’s Environment Report 2019 states that oil and gas exploration and production
accounts for 3% of the UK’s greenhouse gas emissions, although this percentage may vary by country.
EXECUTIVE SUMMARY
oil and gas industry keeps sight of its responsibility to be decarbonized as hydrogen and biogases are
to address the energy trilemma: how to provide added to the gas mix. As the least carbon-intensive
a secure supply of both sustainable and affordable fossil fuel, gas will play a pivotal role in continuing
energy. As our model’s findings suggest, oil and, to displace coal, which peaked as a global energy
in particular, gas will continue to play key roles in supply source in 2014. Gas will provide the energy
this regard over our forecasting period. security and stability we need alongside variable
renewables in the transition.
THE ENERGY TRILEMMA
Continued investment in new oil and gas
developments will still be necessary. Global oil
and gas reserve levels decline at a rate of around
4% per annum because of the depletion of
existing reservoirs, which is occurring faster
le
than our projected rate of demand decline.

lab
Gr
vai
ee
We forecast that new resources will need to be

da
na
an
developed to counter the depletion effect and

nd
le
cle
meet new demand from growing economies.

ab
ord
an
Aff
Our forecast emphasizes that that there is no

Secure and reliable single pathway to a decarbonized energy mix.
A combination of energy sources will still be
needed throughout the forecast period.
It is also important to remember not only the
significance of oil and gas in providing energy Despite a substantial increase in CCS in our 2019
for power and transportation, but also their value Outlook, our model still expects this technology
as raw materials for making chemicals, fertilizers, to capture only 807 megatonnes (Mt) of carbon
paints, pharmaceuticals and plastics. We estimate dioxide (CO2) in 2050: 4% of global energy-related
that around a quarter of every barrel of oil goes emissions. This forecast is based on current policy
into non-transport or non-energy uses. A wide positions from governments, and the relatively
variety of commonly used items are made from low prevailing carbon price. The amount of
materials that start off as oil or gas. These carbon captured via CCS is very sensitive to
include toothbrushes, PVC pipes in homes, carbon price. Sensitivity studies from our model
fibre in carpets, furnishings and clothing, and show that a doubling of existing carbon prices
disposable medical syringes. results in a tenfold increase in CO2. Factors such
as carbon price could change quickly as more
Oil will still be needed for transport during the countries consider CCS as a cost-effective way
transition. However, demand will be much reduced to achieve net-zero carbon emissions.
by society’s uptake of battery electric or hydrogen
fuel-cell vehicles, and by increasing efficiency of In the absence of significant near-term uptake of
internal combustion engines. With global demand CCS, the oil and gas industry must continue to
for oil looking most likely to peak within the next reduce its carbon footprint by curtailing methane
five years, we forecast that oil production will be emissions from its value chain. Its tools for achieving
40% less in 2050 than it was in 2017. this are reducing flaring and fugitive emissions;
introducing lower-carbon and environmentally
While natural gas will meet 29% of world energy sensitive solutions for exploration and production;
demand by mid-century, we expect gas supplies and, ‘greening’ of gas distribution.
7
Our model forecasts that global emissions will the forecast period in 2050, where it will be 8.6
exhaust 2-degrees-Celsius (°C) carbon budgets Mb/d, around 18% of global crude oil production.
before 2050. It indicates an end-of-century
global average temperature 2.4°C higher than Offshore oil production will still be important in
pre-industrial levels. This is not in line with the 2050. However, our model forecasts it to reduce by
COP 21 Paris Agreement on climate change, 30% from today’s 25.4 Mb/d to 17.7 Mb/d — 37% of
which aims to keep global warming to ‘well total crude oil production in 2050 — as producers
below 2°C’ and pledges to pursue efforts to increase their focus on easier-to-access oil resources.
limit the increase even further to 1.5°C. Our main
report describes how industry and society at Given this trend, we believe that the industry’s
large could close the gap and achieve the future appetite for producing resources from
described by the Paris Agreement.¹ challenging environments, such as deepwater
or Arctic locations, will change, as the commercial
““
and social costs of such developments may
Our forecast shows that the become prohibitive. However, we already see
world is unlikely to meet the some differing opinions emerging over Arctic
climate-change mitigation developments, with Norway and Canada trending
goals of the Paris Agreement. negatively in their opinion of such projects, while
Russia and the US trend positively. Deepwater
The need for the oil and gas industry to consider production costs have reduced significantly, but
the challenge of climate-change adaptation is they still have some way to go to compete with
increasing. Factors such as rising sea levels, more the lower lifting costs and proximity to markets
frequent severe weather and increasing demands of onshore shale deposits.
for decarbonization of production all need
considering today in the design of facilities for Global gas demand will peak in 2033, then slowly
operation over the next 30 years. decline to 2050, with some variation in supply
sources. Conventional onshore gas production
Against this background, this report provides an will peak in 2033, with offshore gas production
in-depth analysis of the implications of our peaking in 2040.
model’s forecast along the oil and gas value chain.
Unconventional onshore gas is forecast to
continue rising slowly to mid-century. This will
UPSTREAM provide more flexible access to gas at lower
cost, allowing gas to remain competitive as
Conventional onshore oil production will the cost of renewable energy production falls.
continue to play an important role in the global Conventional onshore gas production has
energy mix for decades to come. Our model already begun to fall steadily in North America,
forecasts conventional onshore oil production but it will continue to rise in North East Eurasia
to decline by 1.9%/yr on average until 2050, but until 2033, before also beginning to decline.
that it will still account for approximately 45% Total gas production in the Middle East
of all oil production by then. and North Africa will increase until about
2034 then begin to slow down. Unconventional
Unconventional onshore oil production remains onshore gas will retain an important share in
flat at 12.6 million barrels per day (Mb/d) between gas supply in North America, with production
now and 2025. Beyond that date, it declines in remaining stable until 2050.
proportion to overall oil demand until the end of
8
EXECUTIVE SUMMARY
The oil and gas industry will continue to invest in Larger amounts of oil will be transported by
enhancing efficiency to control costs and maintain pipeline to local storage facilities and refineries,
the important role that our model forecasts for increasingly catering for a local, rather than
hydrocarbons in the lead-up to the mid-century. global, liquids market. We will see an increase in
storage for oil, gas and intermediate products
Advances in standardization and the ability to as countries strive to add value to oil resources
incorporate elements of past asset designs locally, and to reduce the carbon footprint of
will help simplify requirements , leading to transporting base materials. As an example,
improvements in the efficiency of the upstream data from data from the Oil Companies
project-design process both onshore and International Study Group for Conservation
offshore. Improved reliability of equipment, of Clean Air and Water in Europe (CONCAWE)
subsea wifi, autonomous underwater vehicles, shows 21 refineries have closed in Europe since
and the switch to all-electric utilities will make it 2009, with a reduction in capacity of more than
possible to move more assets subsea. Assets that 2 Mb/d of refined crude oil.
are not subsea will be designed for use by robots
rather than people, leading to a fundamental Globally, oil refinery products output will
change in the approach to, and simplicity of, increase slowly to reach a high by 2022, at
designs. Autonomous supply vessels are rapidly 3.4% above 2017 levels. This will be followed
moving closer to becoming reality. by a substantial 45% decline in output by 2050.
This is due to significantly reduced demand for
““
liquid fuels in the transport sector. We expect
The oil and gas industry will greater refining sector focus on producing cleaner,
continue to invest in enhancing higher-grade transport fuels in mature markets
efficiency to control costs and with existing infrastructure. Transportation of
maintain the important role refined products is likely to decline as refinery
that our model forecasts for capacity adjusts to delivering only what local
hydrocarbons. markets need. Greater proportions of refinery
output will be directed towards the petrochemicals
Despite our desire to decarbonize, some sector as feedstock rather than fuels.
developing countries will seek to exploit national
resources as a matter of strategic priority. We Refiners face an increasing challenge: how
recognize that the desire to exploit hydrocarbon to maximize returns per barrel processed.
resources in these regions has the potential to We expect the ‘heavier’ end of the barrel to
outweigh the considerations of our model. struggle to find markets in the future because
of substantially reduced demand for diesel and
maritime fuel oil. This creates new economic and
MIDSTREAM AND DOWNSTREAM environmental challenges for refiners in what has
historically been a low-margin business. Only the
As the upstream sector focuses on oil production most advanced refineries, with the most efficient
from easier-to-develop resources — such as processes, are likely to survive these challenges.
onshore shale oil, and conventional oil in the
Middle East, Russia and Venezuela — processing Among the regional trends that we forecast, new
demand will increase in the midstream and petrochemical investments in the Middle East will
downstream oil systems. be increasingly based on cheaper, liquid feedstocks
such as naphtha and gasoil, or mixed gas/liquid
feedstock, instead of exclusively on gas. We expect
9
North America’s low-cost feedstock advantage of safely and cost efficiently, and to provide
recent years to decline slightly as new ethylene- customers, regulators, and partners with tailored
cracking capacity and export opportunities boost analyses of large volumes of operating data.
demand for ethane and propane, which could
increase prices. Substantial petrochemicals growth As new gases enter gas distribution networks,
in China and India, driven by local GDP growth, will customers will increasingly buy units of energy
increase demand for gas imports, mainly sourced rather than volumes of gas. Metering and billing
from Middle East and North American exports. will require more accurate and consistent
measurement of the energy value delivered to
Gas trade forecasts and other results from our end users. Greater computing power and more
model support the requirement for new pipelines advanced data analytics will allow gas
including those for cross-border transmission; distribution system operators to manage more
and, significantly increased demand for liquefied complex data and customize results for internal
natural gas (LNG) terminals of varying scale and external stakeholders.
(liquefaction and regasification terminals, fixed
and floating assets). We predict seaborne natural Globally, we forecast a drive to decarbonize
gas trade (LNG and liquefied petroleum gas production and optimize lifecycle performance
combined) to more than quadruple, from 383 for existing and new-build facilities throughout
million metric tonnes per year (Mt/yr) in 2017 to the refining and petrochemicals sectors.
1,604 Mt/yr in 2050. A shift in gas transportation Greater and more sophisticated digital
trends towards increasing diversity of supply technologies such as autonomous plant
will also drive globalization of markets for gas operations, and more efficient electrical
trading, particularly in the form of LNG. drives and controls, will assist these efforts.
We also foresee an increase in the creation
With gas demand set to remain strong until at least of low-carbon industrial clusters sharing
2050, we expect increased expenditure on, and by-products such as hydrogen, and for CCS
activity associated with, older pipeline systems in and carbon capture, utilization and storage
several regions, including Europe, Middle East and (CCUS). Utilization of CO2, an emerging area
North Africa, North America, and North East Eurasia. of interest, is the process of ‘locking up’ CO2
in products such as plastics or concrete, or of
In several countries, pipeline systems and using the CO2 for processes such as enhanced
compressor networks will continue to be oil recovery, or the production of chemicals
repurposed and undergo changes of service such as formic acid (see page 60).
due to shifts in where gas is produced and
consumed. This will be driven by new gases
(e.g. hydrogen and biogases) entering gas
networks at local distribution level, and by
a growing share of LNG imports over
traditional, piped gas from offshore locations.
Gas transmission system operators will

progressively incorporate advances in composite
materials, artificial intelligence, robotics,
augmented realityand the Internet of Things
into systems and processes. This will assist them
to build, maintain, repair and operate networks
10
EXECUTIVE SUMMARY
11
ENERGY TRANSITION TIMELINE:

THE OIL AND GAS HORIZON
1890 1977 2015

First offshore oil First use of a Floating Coal peaks as global
and gas production Production Storage and energy supply source
Offloading (FPSO) unit
54%
1949 2011 2017

First use of hydraulic fracturing First drillship to drill in more Oil and gas provides
than 10,000 ft of water 54% of world energy
12
EXECUTIVE SUMMARY
25% 46%
2022 2026 2036 2050

Global oil demand peaks* Gas overtakes oil as the Global refinery capacity reduces Oil and gas provides
world’s primary energy source* by 25% compared to today* 46% of world energy*
2025 2033 2039

Global CO2 emissions peak* Global gas demand peaks* Global LNG regasification and liquefaction
capacity doubles compare to today*
*Forecast by our 2019

Energy Transition Outlook model.
13
CHAPTER 1
INTRODUCTION
1 INTRODUCTION
Driven by our purpose of safeguarding life, property and the

environment, DNV GL enables organizations to advance the
safety, efficiency and sustainability of their businesses.
We are a global provider of quality assurance, Our ETO was first published in September 2017.
risk management, and technical advisory services Based on our insights and knowledge of the
in more than 100 countries. Approximately 70% industries that we serve, we continue to update
of our business is energy related. Two of our main and refine our forecast of the world’s energy
business areas support the oil and gas, and future and how the energy transition may unfold.
renewables and power generation industries in This updated forecast is based on our 2019 ETO.
producing, transporting, storing and processing The implications for the oil and gas industry and
energy safely and sustainably. As the world’s its customers in a rapidly changing energy
largest ship classification society, ship fuels and landscape are considered in this report.
the seaborne transportation of energy in all its
forms are also key topics for us. Our core ETO model is a system dynamics
feedback model, implemented with the Stella
This publication is one in DNV GL’s suite of Energy modelling tool. It predicts global and regional
Transition Outlook (ETO) reports. In all, four energy demand and the energy supply required
publications provide predictions through to 2050 to meet it. DNV GL’s model forecasts the energy
for the entire world energy system. Alongside the transition in 10 global regions (page 88), and
company’s main Outlook report1 and a companion this publication includes some key local oil and
Executive Summary document,2 the suite includes gas trends and analyses (Section 3.6). Key
three reports discussing implications for separate demand sectors such as buildings,
industries: oil and gas; power supply and use;3 manufacturing, and transportation (air, maritime,
and maritime.4 rail and road) are analysed in detail.
Our ETO reports are based on DNV GL’s In a somewhat crowded field of energy
independent energy model, which tracks and forecasting, our work seeks to create value through:
forecasts regional energy demand and supply,
as well as energy transport between regions. —— Source-to-sink treatment of the entire energy
Several DNV GL customers act as independent system, including, for example, the impact of
reviewers of the publications. increased global transport of LNG on emissions
from ships.
—— Focus on technology trends and needs for
the future.
—— Focus on the accelerating pace of the energy
transition and decarbonization challenge rather
than on the status quo of the energy system.
16
INTRODUCTION CHAPTER 1
FIGURE 1.1
Energy Transition Outlook model
Below presents the framework of our model. The arrows in this diagram show information flows.
Physical flows are in the opposite direction. Our model includes feedback loops such as that
shown between the amount of fossil fuel extraction and maritime transport (tonne-miles) as a source
of demand. There are other feedback loops not shown here; for example, the positive feedback
between cumulative installed capacity of renewables and the decline in their costs.
POLICY
POPULATION
Source of Final energy Energy Primary

demand demand transformation energy supply
GDP PER
PERSON
TRANSPORT TRANSPORT POWER GENERATION Solar PV

Measured in Maritime Electricity Wind
tonne-miles,
passenger- Road Direct heat Hydropower
kilometres Aviation Nuclear
and vehicles
Rail
BUILDINGS BUILDINGS HYDROGEN Biomass

Space heating & cool- Residential Geothermal
ing, water heating,
cooking, and appli- Commercial OIL REFINERIES Solar thermal
ances & lighting
FOSSIL FUEL
MANUFACTURING MANUFACTURING
EXTRACTION
Tonnes Manufactured
of goods DIRECT USE Crude oil
and base goods
Natural gas
materials Base materials
Coal
NON-ENERGY
Feedstock
OTHER
ENERGY SECTOR’S
OWN USE
ENERGY EFFICIENCY
17
In this report for the oil and gas industry, the More detailed analysis based on our model is
energy requirements of key demand sectors that available from DNV GL on request, and detailed
we have modelled are translated into trends we datasets from our ETO data are available on our
expect to see across the value chain. Veracity platform at: www.veracity.com. We also
provide consultancy support to tailor such content
We discuss in detail how the oil and gas elements to the needs of individual organizations.
of the energy system will meet this demand from
existing and new conventional and unconventional Our ETO, including that for oil and gas, presents
production capacity, both onshore and offshore. our independent view of what we consider to be
We also consider the implications for biogases, the most likely future amid the energy transitions
hydrogen, and LNG. unfolding around us. We stress that we present
only one ‘most likely’ future, not a collection
““
of scenarios.
Our ETO presents our
independent view of The coming decades to 2050 hold significant
what we consider to uncertainties for the planet, and the oil and gas
be the most likely future industry. These uncertainties are notably in areas
amid the energy transitions such as: future energy policies; emerging energy
unfolding around us. sources such as hydrogen; renewable energy
integration with oil and gas production; human
The enabling roles of digitalization, and emerging behaviour and reaction to policies; the pace of
construction and production technologies are technological progress; and, trends in the pricing
considered in terms of their impact on both of existing and new technologies. A full analysis
energy supply and demand. We also address how of sensitivities related to our energy system
the oil and gas industry will need to change over modelling is available in our main report.1
the next 30 years; not only to mitigate climate
change, but also to consider climate adaptation
in its operations.
18
INTRODUCTION CHAPTER 1
19
CHAPTER 2
OIL AND GAS
DEMAND FORECAST
2 OIL AND GAS

DEMAND FORECAST
We see a new energy world emerging; one in which

decarbonization tops the agenda, and global primary
energy demand is likely to peak before mid-century.
In 2017, our forecast for total world final energy We forecast that gas, followed by oil, will be the two
demand was 414 exajoules (Figure 2.1). This largest primary energy sources at the end of the
converts to some 10,000 million tonnes of oil forecast period (Figure 2.2). Gas will provide 29% of
equivalent (Mtoe). We forecast that this will global energy demand in 2050, and oil will provide
increase to a peak of 462 exajoules (EJ) in 2033, 16% of demand. Continued investment will be
12% higher than in 2017, before reducing again needed over this period to maintain production at
to 446 EJ by 2050. levels required to meet global demand, even in a
declining market. This is due to ongoing depletion
World final energy demand has risen by a third of oil and gas reservoirs, which we assume to
(36%) over the past 15 years, but we expect it to decline at an average rate of 4% per annum globally.
increase by only 9% between 2019 and 2033.
Thereafter, it will plateau and slowly decline towards While oil and gas will remain important sources
2050 due to slower growth in productivity and of energy throughout our forecast period, the mix
global population, and continuous increases in and contribution of renewable energy sources
energy efficiency, particularly in transport. will increase, driven by strong growth in solar
(12.1% share in 2050) biomass (11.3% share in
MEASURING ENERGY IN OUR OUTLOOK
1 Exajoule
is roughly
24 million 278 terawatt 1 day 2 years 2 minutes 1 year

tonnes of oil equivalent hours (TWh) of energy of the world’s current total of energy consumed by the worth of solar energy of heat used by Germany’s
(MToe) final energy demand New York metropolitan falling on Australia steel sector
area’s transport sector
The oil and gas industry normally presents its energy figures in million tonnes of oil equivalent (MToe), while the power industry is used to
terawatt hours. The International System of Units’ principal measure for energy is joules, or rather exajoules (EJ) when it comes to
global production. This is the unit we have chosen in our Outlook.
22
OIL AND GAS DEMAND FORECAST CHAPTER 2
FIGURE 2.1
World final energy demand by sector
Units: EJ/yr
500
Transport
Buildings
400
Manufacturing
Non-energy
300
Other
200
100
0
1980 1990 2000 2010 2020 2030 2040 2050
Historical data source: IEA WEB (2018)
FIGURE 2.2
World primary energy supply by source
Units: EJ/yr
700
Wind
600 Solar PV
Solar thermal
500
Hydropower
400 Biomass
300 Geothermal
Nuclear fuels
200
Natural gas
100 Oil
0 Coal
1980 1990 2000 2010 2020 2030 2040 2050
23
2050) and wind (10.6% share in 2050). Our main (Figure 2.3). By 2050, we forecast global oil demand
Energy Transition Outlook report provides to be just over half (57%) of the current demand level.
detailed analysis of the breakdown of the world
energy mix to 2050.1 Even though our model forecasts global oil
demand to reduce around the mid-2020s, there will
It should be borne in mind, when comparing be a continued need to replace the reserves that
Figures 2.1 and 2.2, that primary energy supply are being depleted daily, long after peak demand
has a higher value than primary energy demand. is reached. These will likely be developed from both
This is because energy is lost in the system between smaller and often more technically challenging
the point of supply and the point of consumption, reservoirs than those in operation today. The
often caused by thermal inefficiencies or industry must continue to innovate and implement
transmission losses. These inefficiencies reduce new solutions therefore, to develop such resources
towards the end of the forecast period, as thermal in cost effective and lower-carbon ways.
processes are increasingly replaced by renewable
energy sources. As such, our model expects We also expect an increase in seismic and drilling
primary energy supply to decline faster than activities as the oil and gas sector works harder
primary energy demand towards the end of the to find the hydrocarbons that the world needs.
forecast period. Production assets will also be smaller and more
agile, with shorter lifespans than today. To
become ‘faster and fitter’, the sector will need to
OIL DEMAND develop new, digital solutions to design and
manage approval, construction and operational
Our model forecasts a small (less than 2.6%) processes, without jeopardizing safety or
increase in global oil demand over the next few environmental performance.
years. Peak oil demand arrives in the mid-2020s
under our model’s assumptions, followed by a slow The main demand growth for oil in the lead-up
decline to 2030, and a steeper decline thereafter to 2050 is expected from emerging economies.
FIGURE 2.3
World oil demand by sector
Units: Mb/d
90 Transport
80 Buildings
70 Manufacturing
60 Non-energy
Energy sector
50
own use
40 Power station fuel
30 Other
20
10
0
1980 1990 2000 2010 2020 2030 2040 2050
Does not include natural gas liquids and bioliquids. Historical data source: IEA WEB (2018)
24
We forecast the largest growth markets to be the 2.7 Mb/d in 2017 to 1.1 Mb/d in 2050 for buildings.
Indian Subcontinent, Latin America, South East The power sector will also reduce its demand for
Asia and Sub-Saharan Africa. This will be driven oil to about 2.4 Mb/d from 4.8 Mb/d in 2017, as
largely by increased demand for oil feedstock for power generation is increasingly sourced from
petrochemicals rather than transport. Demand gas or renewables.
growth in these regions will be sustained
beyond 2030.
GAS DEMAND
Decline in oil demand will begin with significant
decreases beyond 2030 in three regions, according Gas has a much brighter future than oil in the
to our model: Europe, North America, and OECD energy mix. Global demand for this least carbon
Pacific. This is largely caused by a shift to battery intensive of fossil fuels has risen 102% in the past
or hydrogen fuel-cell vehicles in passenger and 30 years and will keep increasing for the next
commercial transport, modal shift of commercial 18 years, according to our model. Gas demand
transport to rail, and the increased efficiency of will peak in 2033 at just below 5,500 billion
next-generation combustion engines. cubic metres per year (Gm³/yr), 19% higher than
today (Figure 2.4). Thereafter, gas consumption
A shift in petrochemical production locations, will plateau, reducing slightly to 5,170 Gm³/yr
caused by the closure of associated refining capacity by 2050. This is still 13% higher than today’s
in these regions, will also have an impact. While demand however.
transport remains a major source of oil demand
throughout the forecasting period, reliance on oil The nature of the gas we consume will begin
for this purpose will reduce by just over 50% to change quite dramatically in the lead-up to
between 2023 and 2050, from 56 million barrels mid-century, as the gas supply begins to be
per day (Mb/d) to 28 Mb/d. This will be influenced decarbonized through the introduction of
by growing use of electric and hybrid vehicles. new forms of gas such as biogas, hydrogen
and syngas.
Refineries will need to re-balance their product
slates to reflect lower demand for liquid fuels, Hydrogen demand has increased in our forecast
for road, rail and maritime consumption, and compared with the results of our 2018 modelling,
greater demand for petrochemicals in most but it still only provides less than 2% of global final
regions, particularly in Greater China, the Indian energy in 2050. This is largely due to the lack of
Subcontinent and Sub-Saharan Africa (see current policy to support the large-scale rollout
Section 3.3). of hydrogen as an energy carrier.
Significantly, we forecast non-hydrocarbon There is clear evidence of the benefits of hydrogen

energy sources to account for 46% of energy use as a low-carbon fuel for heating, industrial
in transportation in 2050, compared with only decarbonization and transport, and several
4% in 2017. ground-breaking projects are developing its
applications. However, our model reflects a lack
Direct oil demand — oil as an energy source, not of clear support for carbon capture and storage,
as a process feedstock — in manufacturing and which is a necessary engineering solution to
buildings is already relatively small. However, it is allow ‘blue’ hydrogen (produced from fossil fuels)
expected to further reduce in both sectors over to be developed at scale, as opposed to ‘green’
the forecast period, from 5.2 Mb/d in 2017 to hydrogen produced via electrolysis. This trend is
2.3 Mb/d in 2050 for manufacturing, and from discussed further in Section 3.4 of this report.
25
The future demand picture for gas shows wide Global gas consumption for buildings remains
geographical variation. These will result in new stable over the forecast period, though we see:
transportation patterns for gas, particularly in the decline in Europe, North America, North East
form of liquefied natural gas (LNG). For example, Eurasia and OECD Pacific; a steady increase in
only a few years ago, more than 65 LNG import the Indian Subcontinent and South East Asia;
terminals were planned for the US; but following and, a strong rise in Sub-Saharan Africa. Global
the rapid growth in domestic shale gas, the US gas consumption in manufacturing will increase
is now an LNG exporter. in both relative and absolute terms to become
the most demand-intensive sector for gas
Gas demand will peak in Europe at 615 Gm³/yr beyond 2035.
in 2021 and in North America at 1270 Gm³/yr
the same year. In OECD Pacific, gas demand Gas use in transport will increase in the maritime and
peak was reached at 300 Gm³/yr 2013; and, heavy-vehicle sectors, in the form of compressed
in North East Eurasia, at 610 Gm³/yr in 2014. natural gas (CNG), including bio-CNG, and LNG.
However, it will decline in light vehicle combustion
Gas demand will continue to increase in the engines in which batteries or fuel cells will take
Indian Subcontinent, China, South East Asia, precedence. Peak natural gas demand in transport
and Sub-Saharan Africa right through to 2050. will occur in 2040. Including the increasing use of
hydrogen in fuel-cell vehicles, gas-based fuels will
Power generation will be the main consumer of still meet 10% of all transport consumption of
gas in most regions, challenged by manufacturing energy in 2050 however according to our forecast.
(mainly petrochemicals) in China, India, and Latin
America. Gas use in power generation will
increase over the next 15 years, before levelling
off and then declining towards the end of the
forecast period, when wind and solar start to
dominate power supply.
FIGURE 2.4
World natural gas demand by sector
Units: Gm³/yr
6 000
Transport
Buildings
5 000
Manufacturing
4 000 Non-energy
Energy sector
3 000 own use
Power station
2 000 fuel
Other
1 000
0
1980 1990 2000 2010 2020 2030 2040 2050
Includes natural gas liquids. Historical data source: IEA WEB (2018)
26
27
CHAPTER 3
TRENDS AND
IMPLICATIONS
3.1 ONSHORE AND OFFSHORE OIL

EXPLORATION AND PRODUCTION
Overall, our model predicts declining global crude We forecast offshore oil production to be much
oil production between the mid-2020s and 2050 lower by 2050, some 30% less than today. Mature
(Figure 3.1). However, we do forecast production assets will still be operating, but new capacity
to rise slightly from 80 million barrels per day (Mb/d) additions offshore will largely cease by the late
in 2017, excluding natural gas liquids (NGLs) and 2040s, as costs rise in challenging environments
other liquids, to a high of 87 Mb/d in around 2022 and it becomes tougher for operators to secure
before declining, slowly at first, then more rapidly, social license to operate in new frontiers.
to hit 48 Mb/d in mid-century.
Conventional onshore oil will continue to provide

ONSHORE OIL EXPLORATION
the largest and most stable share of total oil
AND PRODUCTION
production in the lead up to 2050. It will still
account for more than 45% of global oil production
Production from conventional onshore oil resources
at mid-century, though we see a steady decline
will peak in the mid-2020s at around 49 Mb/d, but
in production levels, averaging 3% per year
will be almost halved to 22 Mb/d by mid-century.
beyond 2027.
More than half of conventional onshore oil
Unconventional onshore oil production remains production will come from the Middle East
flat at 13 Mb/d between now and 2025. Beyond and North Africa region by 2050 according to our
that point, it declines in proportion to overall oil model, followed by North East Eurasia including
demand until the end of the forecast period in Russia. The latter region’s production will decline
2050, where it will be 9 Mb/d, around 18% of significantly from 2026, but will still be the second-
global crude oil production. largest. Latin America will move into a distant third
FIGURE 3.1
World crude oil production by field type
Units: Mb/d
90 Conventional
onshore
80
Unconventional
70
onshore
60 Offshore
50
40
30
20
10
0
1980 1990 2000 2010 2020 2030 2040 2050
Historical data source: Rystad (2019)
30
TRENDS AND IMPLICATIONS CHAPTER 3
place as output from China declines (Figure 3.2). production growth outside the Americas will not
Venezuela could significantly increase its oil output, happen for another five to 10 years, according to
but only after a change in its current political our model.
environment and a significant increase in investment.
With its ability to rapidly turn unconventional
This underlines the continued importance production up and down, the US shale industry
in the future for oil production in Middle East has arguably become the world’s new swing
and North Africa, and its geopolitics. Our model producer, at least for the short term. For the
assumes that regional supply increases are foreseeable future, major shale-oil developments
driven by large-scale, low-cost oil resources, will be centred in the Americas. They will
especially in this region as producers respond continue to have an impact on supply and
to growing relative abundance by asserting therefore oil prices in the near term.
competitive advantage.
Fully capturing the economic benefits of
GLOBAL IMPACT: UNCONVENTIONAL OIL developing unconventional oil resources
PRODUCTION BEYOND THE AMERICAS outside the Americas requires:
Continual additions to estimated reserves have
delineated 137 shale formations in 41 countries in —— public and regulatory acceptance
recent years (Figure 3.3). Global unconventional —— enough skilled workers
recoverable oil reserves are estimated to be —— access to drilling rigs and equipment
between 500 billion (bn) and more than one trillion —— efficient horizontal drilling and hydraulic
(trn) barrels. North America and Latin America fracturing technologies
dominate production, but other regions such as —— new/upgraded pipelines and roads to the many
China and North East Eurasia will begin to feature unconventional oil resources in remote areas.
as technology, infrastructure, regulation, public
acceptance and oil demand evolve. More rapid
FIGURE 3.2
Conventional onshore oil production by region
Units: Mb/d
50 NAM
45
LAM
40
EUR
35
SSA
30
MEA
25
NEE
20
CHN
15
IND
10
SEA
5
0 OPA
1980 1990 2000 2010 2020 2030 2040 2050
*For more information about the world regions covered by our model, see page 88 Historical data source: Rystad (2019)
31
If these challenges can be met, unconventional oil reservoirs are instead focusing on becoming
can play a significant transitional role in providing broader energy companies. They are building
energy until mid-century. Our model indicates that increasingly diverse portfolios, including large
the effect of the North American shale revolution investments in battery technology, vehicle
will be global, even though the related shale charging networks, hydrogen, and renewable
production will not. energy. This calls into question whether IOCs will
have the appetite to develop new deepwater or
harsh-environment resources against a backdrop
OFFSHORE OIL EXPLORATION of declining oil demand, and societal pressure to
AND PRODUCTION leave hydrocarbon assets stranded.
We predict a recovery in production volumes from The scale of investment required for the
offshore sources by the mid-2020s. This is due to exploration and production of these resources
already-sanctioned developments coming onstream, may place them outside the range of risk that
and continued cost control enabling lower-price newer, mid-sized, pure hydrocarbon players will
offshore production. Therefore, we forecast that consider. Analysis published by Wood Mackenzie
offshore production will remain stable until the in November 2018 highlighted the fact that 74% of
mid-2030s, when it enters slow decline (Figure 3.4) deepwater reserves were being progressed by
only eight companies, all of which are IOCs.5
Significant structural changes are under way in
the industry as the energy transition gathers pace That said, average break-even costs for deepwater
however. International oil companies (IOCs) that developments dropped from about USD 75 per
would have traditionally developed frontier oil and barrel (/b) in 2014 to USD 45/b in the fourth quarter
gas resources from challenging environments and of 2018. Sustained improvements in drilling
FIGURE 3.3
Global unconventional oil and gas resources
Assessed basins with resource estimate Without resource

Source: US basins from US Energy Information Administration and United States Geological Survey; other basins from
Advanced Resources International based on data from various published studies
32
efficiency are key, with operators now completing IMPLICATIONS FOR THE DRILLING FLEET
projects much faster than previously. For example,
the average deepwater well in Brazil or the Gulf of Day rates for jack-ups have been more than halved
Mexico can now be drilled twice as fast as in 2014. since the heights of 2014, and this is representative
for the whole drilling segment. There have been
Shell has said that it can now develop its a limited number of fleet retirements — about
deepwater Brazilian fields at a break-even cost 104 jack-ups — since 2014, with 60 being scrapped
of USD 30/b. We expect that, based purely on and 44 converted. A significant number of new
cost, more deepwater fields will be developed generation jack-up units have also been added to
in the next few years, and there are already some the existing fleet, which has not contributed to
positive signs of an upturn. improving the day-rate picture for the older units.
Costs will not remain low forever. As the market The need for jack-ups will remain relatively high
recovers, cyclical benefits, such as lower day due to new field developments. There is also likely
rates for rigs, will fade as service-sector costs to be more demand for these units for in-field
rise again. At its peak in 2013/2014, we saw an drilling and well maintenance to maintain current
average rig rate of more than USD 500,000 per production rates. Improvement in rates and the
day (/d); this is now down at USD 150,000/d due need for more units will nevertheless be limited
to reduced demand. As the investment cycle in the short term. This will increase only when
slowly picks up again, we see it driving rig rates more units are needed in operation, and when
back up to USD 300,000–350,000/d after 2020; more have been scrapped. Realistically, jack-up
not as high as in 2013/14, but still double the utilization needs to reach 85% before significant
current levels. rises in day rates will be seen.
FIGURE 3.4
Offshore oil production by region
Units: Mb/d
30 NAM
LAM
25
EUR
20 SSA
MEA
15
NEE
10 CHN
IND
5
SEA
0 OPA
1980 1990 2000 2010 2020 2030 2040 2050
33
Since 2014, 139 semi-submersible drilling units This means that the industry will need to continue
have been scrapped, but to restore a healthier innovating to find new solutions to improve cost
market balance, more units still need to be efficiency through the energy transition.
retired, as there is insufficient demand for the
existing number. In this segment, there has been We have seen a significant shift from fixed
only two new-build orders in the last four years, installations to floating production systems
and we expect very few new orders to materialize and subsea tiebacks, even in shallower water.
before 2021, except for a few small units for niche Although prices for floating solutions have
segments or services. begun to rise again, we forecast this to continue,
driving the industry to innovate development
““
solutions. In some cases, it is moving away from
We believe it unlikely that there will ship-based solutions to smaller, buoy-based or
be a rapid rise in oil prices caused circular ones, such as the Sevan design.
by a supply/demand imbalance.
New developments in data analytics, steerable
For ultra-deepwater drillships, we expect to see drilling and well design have allowed existing
the same trend as for harsh-environment jack-up reservoirs to be further exploited. New, previously
and semisubmersible units, namely the scrapping marginally economic reservoirs, such as ‘small
of older units and no new orders; although very pools’ or ‘fractured basements’, are becoming
few units are from before 2000, so the scrapping viable due to technology developments and the
potential is less. We expect demand for ultra- entry of new, lower-cost operators to the market.
deepwater drillships to remain essentially stable, This is explored further in Section 3.5.
comparable with today’s levels. However they will
experience a slight increase in the next two to four The arrival of novel ownership models in mature
years to support deepwater field developments basins, often backed by venture capital, has
currently being planned. enabled the development of new resources,
often as brownfield modifications.
COST IMPLICATIONS
The industry has reduced offshore development These smaller owners’ new operating models
and production costs by 30%–40% since 2015 are also winning backing from engineering,
in the face of a substantial reduction in oil price. procurement and construction (EPC) contractors,
These savings have been achieved through: which are providing both financing and operational
commercial pressure on the supply chain; rapid support. The combination of well-financed small
technology implementation allowing improved operators and lower-cost, faster-to-production
design concepts for new development fields; developments in floating production units,
new contracting and ownership models; and, has led to the development of many small pools
greater standardization. previously thought uneconomical. Challenges
to attract project finance still exist however,
Our model forecasts a small decline in production as some investors begin to favour greener
costs. Given the predicted decrease in demand investment portfolios.
for oil over the forecast period, we believe it
unlikely that there will be a rapid rise in oil prices The emergence of subsea processing will allow
caused by a supply/demand imbalance such as direct export of hydrocarbons to shore without
those witnessed in previous cyclical market a surface facility. Reusable installations are also
changes. We cannot rule out a price recovery deployed to exploit a series of smaller, previously
driven by political change or conflict however. ‘stranded’ fields. The provision of shore-based
34
power to subsea or platform-based projects supply failures – often as a result of political

reduces costs and brings environmental benefits. sanctions. These shorter cycles are not part of
our forecast; instead we have captured the
There are other examples of how innovation can longer-term trends towards reduced production,
extend field life and reduce costs. The standard lower prices, and lower costs.
recovery rate from an oil reservoir is about 35%,
with the remainder staying trapped in tight, The increasing pace of decommissioning in
difficult-to-reach pore spaces. Finding ways to mature basins is an emerging challenge.
improve recovery rates is key to both the Many IOCs are seeking to quit such basins to
economics of new fields and to field life extension. explore new, perhaps lower-cost, environments
Some oil companies are developing new ways with larger reserves, or to speed up the transition
to improve reserve recovery by manipulating from oil to gas in their portfolios. There is a
microbes found naturally in the reservoir to create growing risk that small operators succeeding
new processes such as organic oil recovery.6 them in the market will not have access to existing
infrastructure to develop smaller reservoirs
The world’s energy landscape is now heading through solutions, such as subsea tiebacks.
for a peak in oil demand rather than supply. Several governments are seeking solutions to
Consequently, we expect oil prices to stabilize this life extension challenge; one example is the
and exhibit fewer major swings. Shorter-term establishment of the UK’s Oil & Gas Authority.
spikes will still happen of course, usually in
reaction to disruptions in demand caused by
FIGURE 3.5
Global upstream oil gas capital and operating expenditure

Units: Bn$
1000 Gas
Capex
900
Opex
800 Oil
Capex
700
Opex
600
500
400
300
200
100
0
2020 2025 2030 2035 2040 2045 2050
35
3.2 ONSHORE AND OFFSHORE GAS

EXPLORATION AND PRODUCTION
Our model predicts that production of unconventional onshore

gas will increase from 2019 right through to the end of our forecast
period, growing by 68% from 2017 production levels.
Conventional onshore gas production will be Shale gas production will rise steeply by 2019 in
maintained at today’s output rates until the late China at a compound annual growth rate of 12%,
2030s. It will then decline slowly to mid-century, before levelling out and then shrinking after 2033.
ending at about 19% lower than 2017. Offshore However, at the time of its peak gas demand in
gas production will rise until 2040, when it will be 2038, gas production in Greater China will still
58% greater than in 2017, before declining slowly only be able to meet 10% of demand domestically,
to 2050, when it will still be more than a third driving massive requirements for imported gas.
(39%) higher than in 2017 (Figure 3.6).
North America, Latin America, Middle East and
North Africa, and Greater China (in that order)
ONSHORE GAS EXPLORATION hold the largest estimated recoverable shale gas
AND PRODUCTION resources, according to the US Energy Information
Administration (Figure 3.8). Saudi Aramco recently
After a dip in 2018, caused by low gas prices, our announced plans to ramp up unconventional gas
model predicts that North American unconventional production from the Jafurah Basin, eastern Saudi
onshore gas production will rise gradually to a peak Arabia.7 The plan also involves a new phase of the
of 1,220 billion cubic metres (Gm3/yr) in 2050 operator’s Jafurah gas-processing plant to produce
(Figure 3.7). We expect such resources to account raw natural gas, condensate, ethane and natural
for 85% of North American gas supply capacity gas liquids (NGLs). It aligns with the operator’s
by then. strategy to increase the share of gas in its portfolio.
Continued robust production from existing and While shale gas has grown strongly in North
emerging unconventional oil and gas plays will America, other regions are lagging behind in
remain critical to both US domestic energy developing their resources. Some simply do not
security and employment prospects. need to; others have concerns over water use,
geological issues, and environmental threats
Furthermore, unconventional gas will be the such as fugitive methane emissions. Bulgaria,
primary source for North American liquefied France, the Netherlands, Australia’s Northern
natural gas LNG exports and the region’s Territory, and some US states, counties and cities
growing petrochemicals industry. A switch in have bans in place. The UK government is supportive
demand for petrochemicals will be caused by of shale-gas development. It is easing planning
product innovation in markets including agricultural, regulations to allow it to proceed, but progress
pharmaceutical, and industrial fine chemicals. has been slow.
36
FIGURE 3.6
World natural gas production by field type
Units: Gm³/yr
6 000 Conventional
onshore
5 000 Unconventional
onshore
4 000 Offshore
3 000
2 000
1 000
0
1980 1990 2000 2010 2020 2030 2040 2050
Includes natural gas liquids from wells, but not refinery outputs. Historical data source: Rystad (2019)
FIGURE 3.7
Unconventional onshore natural gas production by region
Units: Gm³/yr
1 800 NAM
LAM
1 500
EUR
1 200 SSA
MEA
900
NEE
600 CHN
IND
300
SEA
0 OPA
1980 1990 2000 2010 2020 2030 2040 2050
37
In most regions, the debate continues, with advocates Hydraulic fracturing will become more efficient
of hydraulic fracturing stressing potential economic and less toxic. It will also become less water-
and climate benefits, and gas supply security. South intensive by reusing water or using high-pressure
Africa is an example of a nation that has lifted its ban nitrogen and/or carbon dioxide (CO2) gas streams
on hydraulic fracturing. to boost production. CO2 is now becoming
a tradeable commodity for enhanced oil
Despite a wealth of onshore gas resources recovery (EOR) in shale developments.
suitable for extraction, offshore gas production
in Latin America will grow faster than unconventional Many IOCs, such as BP, Chevron, and Shell are
sources. It will increase steadily towards a peak in investing in North American shale operations to
2044, some 76% higher than today, before levelling secure a long-term, lower-cost, gas resource base.8
out. In North East Eurasia, conventional onshore
gas production will also rise slightly from 2020 Our model predicts that, in the long term, average
onwards, reaching a peak in 2033 at 7.2% higher onshore oil and gas production costs will remain
than in 2017. stable or decrease slightly in most regions.
FUTURE DEVELOPMENT SOLUTIONS

As we discuss in Section 3.1, shale oil and gas OFFSHORE GAS EXPLORATION
producers have significantly reduced break-even AND PRODUCTION
production costs since 2012 by applying lean
engineering, new contacting strategies, and Offshore gas production volumes will increase
increasingly efficient technologies. Continued by approximately 58% between 2017 and 2040.
innovation in drilling technology will also decrease Growth comes principally from three regions in our
the number of wells and the surface area required model: Middle East and North Africa, OECD Pacific,
for hydraulic fracturing to develop shale gas Sub-Saharan Africa and Latin America (notably
resources in a given location. Brazil and Mexico). Production will then plateau
until the end of the forecast period (Figure 3.9).
FIGURE 3.8
Technically recoverable shale gas by region
Units: Tft 3
30
20
10
10
20
30
NAM LAM EUR SSA MEA NEE CHN IND OPA SEA
33.8 56.0 12.5 13.8 35.6 13.4 31.6 5.7 12.1 0.0
Source: ‘World shale resource assessments – attachment A: size of assessed shale gas and shale oil resources, at basin- and formation-levels
(last updated 12/29/2014)’, EIA, 24 September, 2015
38
Europe will remain a significant source of offshore FLNG was conceived for large gas fields. However,
gas during the forecast period, but production will the maturing of the technology, and the cost
slowly decline in the region beyond 2022. The reductions that it has so far achieved, have also
primary challenge will be reserves replacement, promoted the development of smaller FLNG
driven by economic factors. Energean’s Karish- designs such as Petronas’ FLNG1 (also known as
Tanin project offshore Israel, and Total’s deepwater the PFLNG Satu), and Golar’s Hilli Episeyo facility.
gas prospect in Block 11 offshore Cyprus, could
provide new potential gas sources for Europe. Many planned West African developments are
They are indicative of a substantial resource considering small-scale FLNG; these include
potential in the East Mediterranean basin. BP Tortue and Perenco Cameroon, both initially
based around the Golar FLNG design. Of the
ENABLING GREATER USE LNG professionals surveyed by DNV GL in 2019,
OF STRANDED OFFSHORE GAS 59% agreed that the industry will increasingly
Offshore gas producers face a significant challenge prefer smaller FLNG projects and tanker
with some of the world’s largest natural gas resources conversions over Prelude-sized FLNG units.9
far away from the biggest gas markets, in deeper
waters, and unconnected to export infrastructure Significant investments will be required to
routes or strong local markets. develop new gas supply resources such as those
served by FLNG. A recent report by the Gas
Substantial growth in the proposed use of floating Exporting Countries Forum (GECF) estimates
liquefied natural gas (FLNG) technology could that the cumulative investment needed for
unlock development of previously stranded offshore upstream and gas transportation systems
gas assets by enabling export of production by LNG between 2015 and 2040 is USD 8trn.10 GECF
carrier rather than uneconomic pipelines. In some forecasts that the upstream supply element
locations, companies may prefer to send LNG direct alone will require almost USD 7.5trn of this, with
to the final market’s entry point rather than processing the remainder being needed for liquefaction,
gas onshore. regasification, shipping and pipeline projects.
FIGURE 3.9
Offshore natural gas production by region
Units: Gm³/yr
2 000 NAM
LAM
1 600
EUR
SSA
1 200
MEA
NEE
800
CHN
IND
400
SEA
0 OPA
1980 1990 2000 2010 2020 2030 2040 2050
39
As we will discuss in Section 3.3, the challenge TECHNOLOGY DEVELOPMENTS

of finding markets and export routes for gas As we discussed in Section 3.1, we believe that
sales remains, but GECF forecasts global LNG the offshore gas industry will continue to seek
export capacity will increase by 38% between innovations in facility design, operating models,
2018 and 2040. They also forecast a need for and contracting strategies to maintain or improve
450 billion cubic metres of new gas pipeline operating margins. Increased digitalization,
capacity by 2040. standardization, and use of remote or autonomous
operations will continue to bring cost savings to
Break-even costs for deepwater gas developments the industry.
dropped from an average price of about USD 75
per barrel of oil equivalent (boe) in 2014 to USD We have seen a shift from fixed installations
62/boe in the first half of 2016 and USD 50/boe in to FLNG units, even in shallower water. New
the first quarter of 2018. As we discussed in Section developments in drilling and well design
3.1, the costs of drilling have also dropped have allowed existing reservoirs to be further
dramatically over recent years, and rig supply is exploited, with new, previously marginally
expected to exceed demand for the next few economic reservoirs, now becoming viable.
years, keeping rig day rates lower.
In another area of innovation, huge amounts of
Beyond cost, we have seen greater demand for methane hydrate have been found beneath Arctic
gas in domestic applications in emerging markets. permafrost, under Antarctic ice, and in sedimentary
This is notable in African nations, some of which deposits along continental margins worldwide.
see greater value in using a larger proportion of In some parts of the world, such as Japan, these
their gas resources for economic and social deposits are much closer to high-population areas
development, rather than exporting all production. than any current natural gas field.
Our model predicts that demand for natural gas
for residential and commercial buildings in These deposits might allow countries that currently
Sub-Saharan Africa will grow tenfold to 50 Gm³/yr import natural gas to become self-sufficient.
in 2050. The current challenge is to inventory this resource
and to find safe and economical ways to develop
The availability of gas for power generation and it. One alternative being explored by Japan and
for conversion into useful products, such as the US is to inject CO2 into the hydrate formation
fertilizers, chemicals and plastics, has created new to warm it and release the methane, thereby
opportunities for gas developments; particularly producing a valuable resource while trapping
for bringing gas to onshore terminals for an environmentally damaging one. Given the
processing, rather than being deployed solely for abundance of gas resources elsewhere in the
export. We expect this trend to continue, with world, we believe that this is unlikely to happen
greater demand for LNG barges and floating at any great scale, and these sources are not
storage and regasification units as a result. currently considered in our model.
40
GAS: THE BROAD PICTURE
Gas will continue to play a key role, alongside That said, there are challenges to the market
variable renewables, in meeting future, lower- position of gas. Regulatory issues — such as
carbon energy requirements. We expect to see carbon pricing, emission caps, and pollution
greater interest emerge in the fuel as traditional regulation — could pose risks to the future share
‘oil’ majors reduce the carbon impact of their of gas in the global power generation mix.
portfolios and move to become integrated
energy companies. This will accelerate the switch Gas competes easily with coal on availability and
from oil to gas production for many majors. affordability. While coal-to-gas switching will
continue, energy independence issues will drive
BP’s portfolio, for example, is already about 50% continued use of coal in both India and Greater
natural gas. Development of some very large gas China through to the end of the forecast period.
projects, such as Egypt’s Nile Delta, Khazzan in This will occur despite a massive rise in gas
Oman and Shah Deniz 2 in Azerbaijan, will see the consumption in both countries.
company increase the share of gas in its portfolio
to 60% by 2025. Gas is the cleanest fossil fuel, but it must also
compete with cleaner renewables. Carbon capture
The world has abundant natural gas resources: and storage (CCS) is part of the solution to this, and
530 trillion cubic metres (Tm3), of which about could further reduce the carbon footprint of gas.
37% (197 Tm3) are proven reserves. Alternative However, our model forecasts CCS uptake to be
lower carbon gas sources, such as biogas and low, at least for the next 15 years (see Section 3.4).
hydrogen, are also emerging. These will start to
enter existing gas distribution infrastructures in Fugitive methane emissions along the gas value
much greater quantities during the 2020s. chain come from flaring, venting, or leakage.
These issues must be addressed to reduce the
North East Eurasia, and the Middle East and carbon impact of gas production and support
North Africa, will increase natural gas output the fuel in playing a truly significant role in the
towards at least 2035, according to our model. energy transition.
Production will decline thereafter. North
America, currently the world’s largest gas
producer, will maintain that position until the
end of our forecast period.
Consumption is forecast to rise in South East

Asia, Greater China and the Indian Subcontinent,
more than doubling by 2035 in all three regions.
This rise in consumption will drive a quadrupling
of demand for LNG trade by 2050.
41
3.3 MIDSTREAM AND

DOWNSTREAM TECHNOLOGIES
TRANSMISSION SYSTEMS These trends in demand and trade could also

drive a further surge, beyond current projects,
Our model predicts substantial increases in gas of new cross-border and national transmission
demand in countries that have less well-established pipelines, LNG export and receiving terminals,
gas infrastructure, such as China and India. This LNG bunkering and LNG carriers.
leads to greater need for imports in these regions
as shown in Figure 3.10, and for the creation of a Geopolitics and national economic and social
substantial internal gas infrastructure. For instance, development agendas figure prominently among
in the period 2017–2035, our model predicts massive the uncertainties related to the growth of gas
growth in gas import demand from Greater China, trading. For example, the European Union (EU)
starting from about 156 Gm3/yr in 2017 to exceed supports development and expansion of
660 Gm3/yr by 2040. LNG-import facilities, in addition to related
downstream onshore gas infrastructure
Seaborne gas trade from North America to throughout Eastern Europe. This is to improve
China will increase to more than 230 Gm3/yr from security of supply for countries in this region,
today’s level of approximately 26 Gm3/yr. We also which would otherwise rely heavily on pipelines
expect growth in gas trade from Sub-Saharan from sole-source suppliers such as Russia.
Africa, mainly to the Indian Subcontinent and The EU also supports pipelines from new sources
South East Asia, of about 97 Gm3/yr in 2050. of supply, such as the East Mediterranean and
Caspian regions, as indigenous production in
As we discussed in Section 3.2, shale gas will historical demand centres such as North West
retain an important share of supply in North Europe declines. This requires gas transportation
America, with production rising continually across longer distances in high pressure, large-
towards 2050. Local gas production in Greater diameter, cross-country pipelines.
China is predicted to rise to a peak in 2020 at
150 Gm3/yr and then decline sharply towards For new supply regions, LNG provides a more
2050, driving an increased gas import demand viable route to monetize large gas reserves in
for the growing Chinese economy. remote locations, such as Sub-Saharan Africa,
which have no significant markets nearby, and only
Based on such trading expectations, our model limited connectivity to existing demand centres.
predicts that global seaborne natural gas trade
— LNG and liquid petroleum gas (LPG) combined — GECF estimates that almost a sixth (15%) of
will almost quadruple from 414 Mt/yr in 2019 to current LNG export facilities are operating below
about 1,604 Mt/yr in 2050. capacity, due to outages, security concerns,
losses or lack of feed gas. GECF expect this to
42
change by 2025 as demand for gas increases. According to Business Monitor International,
Gas transport as LNG is expected to grow faster transport of gas as LNG is expected to exceed
than pipeline transport, with the share of gas pipeline gas transportation by 2035. This may
transported as LNG to grow from 30% today support an increase in the global market for gas
to 45% by 2040. trading, with consumers no longer locked into
a pipeline route.
If gas prices to customers remain in the range
““
of USD 8–12 per million British thermal units
(MMBtu), and upstream operators can deliver Our model predicts that global
gas into pipelines or LNG liquefaction facilities seabourne natural gas trade will
at prices around USD 4/MMBtu, several large almost quadruple.
new gas projects could be initiated as early
as 2021.
FIGURE 3.10
Natural gas net imports by region
Units: Gm³/yr
800 NAM
600 LAM
400 EUR
SSA
200
MEA
0
NEE
-200
CHN
-400 IND
-600 SEA
-800 OPA
1980 1990 2000 2010 2020 2030 2040 2050
43
COST IMPLICATIONS Several onshore gas transmission assets have

The Energy Industries Council (EIC) forecasts changed ownership recently. The banking
that cumulative investment in new pipelines and and venture capital community sees such
additional LNG liquefaction and regasification infrastructure assets, when operating in well-
terminals will reach USD 1.3trn by the end of 2030 regulated environments, as good sources
to meet new gas demand.11 Figure 3.11, based of long-term, stable income. National oil
on EIC market intelligence reporting, shows companies are also looking for investment, as
investment by asset type and year, and includes they move to a more traditional balance sheet
plans in various stages of development. It should structure, and open up to foreign investment
be noted that some of these investments are not due to their needs to raise cash against the
yet approved and may not come to fruition. backdrop of stressed domestic budgets.
Pipelines are generally inspected and can be REGULATORY IMPLICATIONS

readily repaired until it is no longer safe or Governments play a crucial role in legislating and
economically viable to keep them in operation. assuring compliance to mitigate risk of incidents
More than 70% of the world’s subsea pipelines in the oil and gas industry. It is good practice for
are already operating beyond their design lives. lawmakers to define independent licensing
Timely replacement of old assets is important to authorities to conduct oversight at all stages
stakeholders focused on safety and security of of new projects. With our model indicating that
gas transport supply. more LNG terminals and pipelines will need to
be built to link new supply regions with fresh
With gas demand set to grow until at the least demand centres (some crossing national borders
the end of our modelling horizon, it seems and in more challenging environments), the
inevitable that there will be additional costs for application and oversight of regulations will
replacement and refurbishment of older become increasingly important. Regulators will
pipeline systems in regions such as Europe, also need to build new capacity to avoid
Middle East and North Africa, North East becoming a bottleneck to the approval of
Eurasia and North America. More than half of new developments.
US pipelines were constructed in the 1950s and
1960s, and some even earlier. Though lifetimes Commercial regulations also play a key role in
may exceed 100 years, we expect a continued price setting and competition control, and
and likely greater effort in asset lifetime many pipeline networks are also subject to
extension for pipelines in these regions. significant commercial oversight from regulators.
The challenge of having effective commercial
If we see a widespread increase in the use of regulation to protect consumers, whilst allowing
hydrogen as a decarbonized gas source, older transmission and distribution companies to
pipelines must operate at higher pressures and invest and innovate, is one with which many
flow rates to be able to deliver the same energy countries struggle.
value as natural gas.
44
FIGURE 3.11
Investment in pipelines, LNG liquefaction, and LNG receiving
Units: Bn$
Pipeline LNG liquefaction LNG receiving
0 20 40 60 80 100 120 140 160 180 200
2018
87
2019 35
134
2020 55
11
68
2021 33
21
137
2022 57
12
54
2023 202
11
26
2024 134
45
REFINERIES This, in turn, indicates a sustained rise in demand

from the region’s indigenous manufacturing
Several factors will have a profound impact and power sectors, and a corresponding increase
on the future of the oil refining industry. They in vehicle transport, across the market in heavy
include, among others: global shifts in demand and light vehicles including powered two and
for petroleum and diesel products; changes to three wheelers.
fuel quality specifications for aviation, road and
marine applications; and, the switch to battery Sub-Saharan Africa’s refinery demand will rise 37%
or fuel-cell electric vehicles. Refiners will need to by 2040, albeit from a small base. This will be driven
keep adjusting refinery configurations to match largely by increased regional transport oil demand,
the energy transition’s impact on their markets. and a fivefold growth in oil consumption for power
This will require investment in refinery locations generation, as local prosperity grows.
and processes, and a focus on the sector’s
energy consumption and CO2 emissions. We forecast that mature refining markets, including
Europe, North America, and OECD Pacific will
The International Maritime Organization has shrink by 2050 to refinery processing levels
set a global limit for sulphur in fuel oil used on equivalent to roughly 33%–50% of those seen in
ships of 0.5% mass/mass from January 2020. 2017. Many refineries will instead be converted into
This is the biggest single specification change storage terminals for intermediate or finished
to ever hit the refined product market. It will products. This is proportionate to ongoing declines
cause a major disruption in supply and demand, in each region’s transport sector energy demand.
and result in more refinery closures. Our model
for the refinery industry forecasts limited global We expect Greater China, the second-largest
growth of only 2.5% from current levels. refined oil producer after North America, to cut
We forecast a peak in refinery output in 2022 its overall oil demand by 2050, to 47% of 2017
at about 32,000 million barrels per year (Mb/yr) levels. During this period, oil demand from the
of liquids, followed by a 45% decline in global region’s power sector will be phased out and
production to 17,600 Mb/yr by 2050. This is due replaced by renewables, coal, gas-fired generation
to significant transitions in regional energy and nuclear energy. We forecast that the region's
consumption, and reduced transport sector transport oil demand will peak by 2024 at 20 EJ/yr,
demand for liquid fuels. 27% more than in 2017. Demand will then return
to 2010 levels by 2040. We project other regions’
Regionally, our model predicts refinery demand refinery oil demand to be driven largely by similar
growth in only four regions — Greater China, policy and technology shifts in the petrochemicals,
South East Asia Indian Subcontinent, and transport, and buildings sectors.
Sub-Saharan Africa — the former two in the near
term and the latter two predominantly post-2030.
The Indian Subcontinent’s need for refinery
processed oil is expected to increase 70%
from today, to reach its peak in 2040. This will
be driven by a doubling in demand for oil in
the region’s road transport sector in this period.
46
We expect three key shifts in refinery technology the latter including more-efficient rotating
in the future: equipment and new heat-exchangers.
—— In mature markets, a focus on producing Major capital projects, such as changes to the
cleaner, higher-grade transport fuels, and technical configuration of individual refineries,
decarbonizing their production. will also be needed. Examples include extensive
revamps of existing facilities; new process plants;
—— In the growing Indian Subcontinent and
new power/steam generation; and, inter-unit heat
Sub-Saharan Africa markets, a focus on building
integration. Much work is ongoing into the
scalable, operationally flexible refinery capacity.
development of the next generation of fluid
—— In all markets, a focus on optimizing catalytic cracking, the process at the heart of
lifecycle cost performance for existing most modern refineries. These next generation
and new-build facilities. processes deliver lower energy consumption in
processing and the recovery of high-value
Continuous refinery energy efficiency chemicals, alongside an increase of premium
improvements will be essential for economic and gasoline production, thereby minimizing waste
environmental reasons. Examples include catalyst and energy input during the refining of crude oil.
and hardware improvements, with examples of
FIGURE 3.12
Relationship between world oil demand and world road sector energy demand, by fuel type
Units: EJ/yr
180
World demand
160 Oil
140 Road sector demand
120 Electricity
100 Hydrogen
Biomass
80
Natural gas
60
Oil
40
20
0
1980 1990 2000 2010 2020 2030 2040 2050
47
PETROCHEMICALS Africa, where greater prosperity and the rise of

middle classes boosts demand for transport and
The short-term outlook for the petrochemicals consumer goods.
market is robust. The US is commissioning the
largest fleet of new ethylene crackers in more than Globally, our model forecasts a transition in the
20 years. The global ethylene market will remain industry’s feedstock mix from 56% oil/37% gas
strong, with effective operating rates (the utilization in 2017 to 50% oil/42% gas in 2050. This further
rate of plants that are running) at 92%. In the illustrates increasing gas prominence in the
medium- to longer-term horizon, and although we global energy mix against a backdrop of
forecast a growth in petrochemical demand, we see declining oil consumption.
greater adoption of recycling and the circular
economy playing a key role in reducing overall We predict that the largest modern petrochemicals
feedstock and energy demands. regions will experience the following significant
changes in their shares of global market demand by
Ongoing growth in demand will be caused by 2050, ultimately within a much smaller market:
product innovation in markets including agricultural,
pharmaceutical, and industrial fine chemicals. For —— Greater China: from 22% in 2017 to 27%
perspective, the US Food and Drug Administration by 2034, then 23% by 2050.
approved 46 drugs in 2017, more than twice as
—— North America: from 18% in 2017 to 7%
many as in 2016. Many are based on the small
in mid-century.
molecules manufactured by the fine chemicals
industry, derived from oil and gas feedstock. —— Europe: 6% by 2050, half of 2017 levels.
Several trends will likely increase demand for The trend in Europe will be because of a pronounced
specialty chemicals. These include a shift to electric decline in oil use over the next 30 years and a
vehicles (EVs) and a move away from the use of shrinking local market for petrochemical products.
fluorochemical coolants in home refrigerators;
manufacturers are seeking coolants with low Notably, the industry’s 6% proportion of coal-
global-warming impact. Many makers of home derived feed in 2017, popular only in China,
refrigerators, especially in Europe and Japan, are represents a larger level of supply than the Indian
shifting to hydrocarbon-based refrigerants. Subcontinent’s total pre-growth demand. Coal will
remain an important feedstock in Greater China
China plans to establish a system of quotas through coal gasification.
requiring EVs to account for at least 10% of vehicle
output from 2019, increasing annually thereafter. The feedstock market share of natural gas is forecast
This will likely bolster demand for battery materials to grow in Europe, Greater China, Middle East and
and electrolyte solutions, and lightweight plastics North Africa, and North America. Oil will continue to
and composites for vehicle construction. provide most feedstock elsewhere.
Our model predicts only small growth in Bio-based feedstocks have the potential to reduce
petrochemicals production over the next decade fossil-fuel demand in the long term but will need
but with wide regional variations driven by strong policy support to start and grow. Issues
feedstock supply and product demand. It projects around food scarcity and water consumption will
significant growth in three regions: the Indian also need addressing before bio-based supplies
Subcontinent; Greater China, and in Sub-Saharan can be used at scale.
48
49
GAS TERMINALS gas production, we do not expect Europe to

experience any growth in gas processing, apart
Our model’s prediction of robust and increasing from blending facilities for lower-carbon gases.
global demand for natural gas (see Chapter 2)
suggests continued complementary growth in Gas-processing plants operate at about two thirds
gas processing, the link between production and (68%) of capacity on average, for reasons including
transportation to market. Gas processing separates transportation constraints, varying input supplied
NGLs from natural gas, and often performs other from gas wells, and regional economics. Lower oil
functions, such as contaminant removal, and gas prices have motivated the natural gas
dehydration, odorant addition, and fractionation. industry to meet rising demand while reducing
production costs through innovation. Operations
Demand for butane, ethane, and propane are other and maintenance improvements are the most
growth drivers for the processing market. Some common strategy for maximizing production.
60% of propane is recovered during extraction of
natural gas and oil; the remaining 40% is produced While current oil and gas prices have slowed
during crude oil refining. NGLs such as propane investment in gas field development, thereby
can add value based on the difference between delaying gas-processing projects, wider global
prices for individual liquids and the market value demand for gas over the coming decades will
of unprocessed natural gas. require new processing capacity.
““
Globally, more than 1,800 gas-processing plants
are in operation today. Investment in such facilities Our model’s prediction of robust
is dictated by unique supply and demand and increasing global demand for
circumstances in different geographies. For natural gas suggests continued
example, Russia, the world’s leading gas supplier, complementary growth in
may spur growth in processing when it starts gas processing.
delivering even more gas to Asia. Due to declining
50
51
3.4 EMERGING AND ENABLING

TECHNOLOGIES FOR DECARBONIZATION
DECARBONIZING GAS CONSUMPTION Gas is critical to keeping household energy bills

at reasonable levels and ensuring industrial
In many countries, gas networks transport more competitiveness. For domestic customers, the
energy at lower cost than electricity networks, and average price of gas across the EU is 4.9 EUR cents
can be particularly important for meeting peaks in per kWh, or 6.7 EUR cents per kWh including taxes
demand. During peak winter demand periods in and levies. For electricity, the average price is 13.3
colder climates, gas networks can provide several Per killowatt hour (kWh), or 21.1 EUR cents per kWh
times more energy than the electricity grid network, including taxes and levies. Per unit, electricity is
and they have a significant role to play in energy around three times the price of gas, and the ratio
storage and peak shaving. is similar for industrial consumers (Figure 3.13).13
It is critically important therefore to consider direct
In the UK, for example, metered gas demand peaks decarbonization of the gas system alongside
at around 2,500 gigawatt hours per day (GWh/d) in greater electrification.
winter. This is compared with an electricity demand
peak of around 1,000 GWh/d. Including exports, TECHNOLOGIES TO DECARBONIZE
storage, power stations, industry and local uses, GAS CONSUMPTION
overall gas demand in the UK peaks at around 4,000 With increasing numbers of countries adopting
GWh/d per day, around four times that of electricity.12 or considering net-zero carbon targets, gas
FIGURE 3.13
Average domestic and industrial gas and electricity prices in the European Union in 2018
Units: € cents per kWh Excluding taxes Including taxes
Domestic Domestic
gas electricity
Total: Total:
6.7 20.1
Industrial Industrial
gas electricity
Total: Total:
3.0 8.7
52
consumption needs to be decarbonized. The three For biomethane specifically, production rose 12%
principal means to achieve this directly are biogases, in 2017, reaching 19.3 GWh, or 1.94 bcm. The EU’s
hydrogen and carbon capture and storage (CCS). inland consumption of gas, however, was 487 bcm
in 2017, meaning that biomethane represented
BIOGASES 0.4% of the total.13
Biogases can be produced in a variety of ways.
Anaerobic digestion of varying biomass sources Use of biomethane as a fuel for buses and trucks is
to produce biomethane, while advanced plasma also growing, delivering major reductions in CO2
technology produces a synthetic natural gas (SNG) and air pollutants compared with diesel. In the UK,
from waste materials that are usually sent to landfill there are five compressed natural gas (CNG) filling
or incineration. Bio-LPG for transport or off-grid stations, including two that provide biomethane, and
properties can also be produced from waste 12 LNG filling stations, with three using bio sources.15
sources. Although there are issues with calorific
value, biomethane and bio-SNG can be used as A cross-industry collaboration in Germany is
a direct substitute for natural gas, and can also looking to accelerate growth of gas in transport
be used to decarbonize buses and trucks. with the aim of seeing one million natural-gas
vehicles and 2,000 filling stations in operation
According to the European Biogas Association, there by 2025. In vehicle applications, we see the initial
were almost 18,000 biogas plants overall in Europe at uptake here in heavy goods vehicles, which are
the end of 2017, an 18% increase over the previous five unsuitable for battery-based solutions. Several
years. Almost 11,000 of these were in Germany. Total vehicle manufacturers are already providing
electricity generating capacity from these reached vehicles that can use biogas as CNG, directly
10.5 gigawatts, a 5% rise on the previous year.14 as a fuel.
FIGURE 3.14
Representation of energy capacity by discharge rate
1 year
Super-capacitors
Hydrogen
or gas storage
1 month
Flywheels
Discharge time at rated power
Batteries
1 day
Compressed
or liquid air
energy storage
1 hour Thermal
energy s torage
Pumped hydro
1 min
1 sec
1 10 100 1 10 100 1 10 100 1 10 100
KWh KWh KWh MWh MWh MWh GWh GWh GWh TWh TWh TWh
Energy capacity
53
FIGURE 3.15
Main options for production, storage and transport of hydrogen
HYDROGEN PRODUCTION OPTIONS

SOURCE
Power + water Natural gas Coal Biomass

PRODUCTION
HYDROGEN
Gasification or
Electrolysis Reforming Gasification
biogas reforming
DECARBONIZATION
MEASURE
Low-carbon Carbon capture Carbon capture None = neutral

electricity & storage (CCS) & storage (CCS) CCS = negative
STORAGE AND TRANSPORTATION OPTIONS

STORAGE
OPTIONS
Pipeline Subsurface Compressed Liquid Ammonia Liquid

infrastructure gas storage hydrogen hydrogen hydrogen
STATE OF TRANSPORT
AND STORAGE
Compressed Cryogenic Ammonia Liquid organic

hydrogen liquid hydrogen hydrogen carrier
TRANSPORTATION
OPTIONS
Pipeline Truck Ship Rail or barge
54
HYDROGEN —— China: There are plans to open 300 hydrogen-

Hydrogen emits no greenhouse gases when filling stations by 2025, and 1,000 by 2030, to
combusted or used in a fuel cell, and can therefore support 50,000 fuel-cell cars by the first date
be thought of as the ultimate clean-energy carrier. and one million by the second.19
The range of potential applications is as broad as
—— Japan: The country is planning to power the
for natural gas, although existing equipment will
2020 Olympic Games by hydrogen. Kawasaki
often need to be replaced with equipment that
Heavy Industries has announced a Japanese
is compatible with hydrogen.
Hydrogen Energy Supply Chain that plans to
gasify Australian brown coal in Victoria’s Latrobe
Hydrogen can also be stored seasonally, and
Valley and transport it to Japan by ship.20
blended in the gas grid at low concentrations
(up to 20%), without the need to modify appliances. —— Netherlands: The H2M project will include a
The key requirement is to produce it in a low-carbon natural gas-to-hydrogen production plant with
manner. This is achieved either by employing CCS CO2 capture, with the hydrogen destined to
on hydrogen production from gas or coal (known as fuel the Magnum gas-fired power plant.21
blue hydrogen); by using low-carbon electricity for
—— UK: Several large-scale hydrogen initiatives
electrolysis of water (known as green hydrogen);
are planned, including the HyNet industrial
or, by making hydrogen from biomass sources.
hydrogen scheme in England, 22 the Acorn
Emerging technologies, such as direct pyrolysis of
project in Scotland, 23 and the H21 plan
methane to produce hydrogen with a carbon solid
to convert domestic households to 100%
by-product are possible, but have currently only
hydrogen in cities across the North of England.24
been demonstrated at laboratory scale.
CARBON CAPTURE AND STORAGE

Some 3% of global energy consumption today is
CCS can be used to capture and permanently store
used to produce hydrogen. Only 0.002% of this
carbon emissions from a wide variety of sources.
hydrogen, about 1,000 tonnes per year, is used
These include power generation from gas or coal,
as an energy carrier.16 In our ETO model the
hydrogen production from gas or coal, and directly
contribution of hydrogen as an energy carrier
from energy- and emissions-intensive industries such
results in it meeting only 1.7% of total global
as those making ammonia, cement, and steel. When
energy demand by 2050; yet there is the potential
used with biomass sources in power generation,
for hydrogen to become a major clean energy
CCS can produce negative emissions, which are
carrier in a world struggling to limit global warming.
critical to achieving any net-zero target in practice.
Facilitated by CCS developments or by continuing

CCS starts from a low base, with current activity
growth of renewable electricity generation,
dominated by EOR. In the absence of definitive
hydrogen projects continue to be developed.
policies, CCS uptake will only begin in earnest
They include the following examples:
when carbon prices start to approach the CCS
cost level. Our model forecasts this to happen
—— Germany: The first hydrogen-powered
in the 2040s. By 2050, we forecast that only 4%
passenger trains are in use. By July 2019,
(0.8 gigatonnes of CO2 per year [GtCO2 /yr]) of
the country had 71 hydrogen filling stations,
fossil fuel-related emissions will be captured by CCS.
with 29 more due by 2020, and a further
250 planned beyond that.17 The world’s
There are large regional variations in this.
largest electrolyser (10 megawatts) is to be
We forecast that half of all currently captured
built at a Shell refinery in the Rhineland.18
emissions are in Greater China in 2050. In Europe
55
it is 19% and in North America 13%, leaving little megawatt facility. The Allam Cycle aims to
captured by the rest of the world (Figure 3.16). produce gas-fired power with CO2 capture at
Recent decisions by a number of governments the same cost as current gas-fired power
to set a net-zero target are likely to increase the without CO2 capture.
demand for CCS solutions, but that is not currently
—— The planned Porthos project at the Port of
included in our model.
Rotterdam in the Netherlands would capture
around 2 MtCO2/yr from industrial facilities in
The Global CCS Institute’s CO2RE database shows
the region, storing it in disused gas reservoirs
23 large-scale CCS facilities operating (capturing
in the North Sea. By 2030, the project could
almost 40 MtCO2 /yr) or under construction.
scale to 5 MtCO2/yr, and could connect to other
A further 28 pilot and demonstration-scale facilities
industrial clusters, including Antwerp in
are also operating (capturing 3 MtCO2 /yr) or being
Belgium and Germany’s Ruhr area.
built.25 Notable projects include the following:
—— Norway’s planned full-chain CCS facility would
—— In Australia, the Gorgon CO2 injection project transport CO2 from a cement plant and an
will start up in 2019, separating CO2 from incinerator by ship to a facility along the coast,
natural gas piped in from offshore gas fields from where it would be piped to an offshore
and storing 3.4–4.0 MtCO2/yr. CO2-storage site. The concept could then be
extended to collect CO2 emissions from other
—— In 2018, China’s Jilin Oilfield CO2 facility began
sources across Europe.
operating, reaching an injection capacity of 0.6
MtCO2 /yr for EOR. The facility owned by China —— In the US, CCS projects will be supported by
National Petroleum Corporation is the country’s staged increases to the 45Q tax credit that was
first large-scale CCS project. A further 20 CCS agreed in the 2018 Budget. By 2026, the credit
facilities are at various stages of planning in China. for CO2 stored permanently underground will
rise from USD 28/t to USD50/t, while the rate for
—— In the US, NetPower’s 50 megawatt pilot power
CO2 used in EOR or other processes will rise from
station using the Allam Cycle is operating, and
USD 17/t to USD 35/t over the same period.26
the company is considering sites for a larger 300
FIGURE 3.16
Carbon emissions captured by region
Units: MtCO2/yr
800 NAM
700 LAM
600 EUR
SSA
500
MEA
400
NEE
300
CHN
200 IND
100 SEA
0 OPA
2017 2020 2025 2030 2035 2040 2045 2050
56
HEATING DUTCH HOMES WITH HYDROGEN

Central boilers in an apartment block in Rotterdam Stedin’s partners in the project include DNV GL;
are running on 100% hydrogen, a first for homes burner manufacturer Bekaert Heating; heating
in the Netherlands. The demonstration project, and hot-water systems maker Remeha; a housing
involving 25 apartments, is demonstrating that association; and, Rotterdam City Council.
zero-carbon hydrogen can help to decarbonize DNV GL scoped and engineered the project,
heat by replacing natural gas. and is managing it for Stedin. DNV GL’s experts
gave on-site guidance during the building phase,
Stedin, the Dutch gas and power network operator inspected safety, and performed tests and gas
behind the project, is proving the viability of quality measurements at the company’s
this approach across the entire gas value chain. specialist laboratories.
It is supplying two boilers in the apartment block
with green hydrogen from a nearby small-scale This demonstration is the second phase
electrolysis facility powered by electricity. Multiple (2018–2023) of the Stedin-led Power2Gas
electrolysers can run individually or collectively as project.a The first phase (2013–2018) produced
required to meet varying hydrogen demand. synthetic natural gas (SNG), methane, made by
Their output is supplied through a short, separate reacting hydrogen with carbon dioxide, for the
gas distribution network that can safely transport apartment block. The same pipeline now delivers
100% hydrogen. A gas-fired boiler in the block the hydrogen.
provides backup if demand is higher than the
electrolysers can meet.
57
THE NEED FOR A FLEXIBLE GAS SYSTEM hydrogen. This is because the hydrogen produced
Decarbonized gas technologies imply a very from fossil fuels without CCS is already being used
different gas system in the future. Today’s gas in these areas.28
systems transport energy to a wide range of
users at low cost, meet peaks in demand, and Industrial clusters in port areas offer a key
provide a degree of flexible back-up for variable opportunity to expand the use of decarbonized gas
renewable sources, such as wind and solar more generally, particularly if they are located close
photovoltaic. In the future, gas networks will to power generation and offshore CO2 storage:
continue to play these roles. They will however
need to be much more flexible if they are to —— CO2 emissions from existing industrial facilities
handle a range of low-carbon gases with differing could be captured, and a pipeline built to
calorific values and other properties; manage transport the CO2 to an offshore storage location.
CO2; and, integrate more deeply with variable
—— Power generation from gas or coal could be
renewable electricity generation.
retrofitted with carbon capture, or new
““
CCS-ready power generation built, and the
CO2 transported via the same pipeline. With
Gas networks will need to be
biomass power generation, negative emissions
much more flexible to handle
could be achieved when combined with CCS.
a range of low-carbon gases.
—— Hydrogen production from methane
Several key elements are required for a flexible gas reformation could either be retrofitted with
system. One key element will be the ability to carbon capture, or new hydrogen production
monitor and bill for the actual energy content of the with carbon capture built in could be constructed;
gases passing through the network at any given again using the same pipeline to transport the
time. With a narrow calorific value range for natural carbon dioxide.
gas, the traditional method of billing based on
—— Hydrogen could also be produced from
volume of gas is reasonably accurate. But, with a
electrolysis using renewable electricity
range of gases blended into the network, including
generation such as offshore wind. The
biogases and hydrogen, the energy content of gas
hydrogen could either be produced offshore
may vary greatly in different parts of the network.
or onshore, and would reduce energy
A system of accurate measurement and billing is
curtailment when wind speeds are high.
therefore essential. DNV GL is working with UK
gas distribution system operator Cadent on a —— The low-carbon hydrogen could be used to
framework for developing the best technical replace existing unabated hydrogen sources,
options for billing consumers this way.27 DNV GL has with no need to re-equip industrial facilities.
also set up a smart meter test laboratory that will aim Other industrial facilities could also fuel-switch
to prove that a calorific value measured local to a from natural gas to hydrogen.
consumer can be transmitted to a smart meter.
—— Hydrogen could also be used to fuel ships such
as ferries and short-sea vessels, and by local
THE KEY ROLES OF INDUSTRIAL
facilities refilling hydrogen fuel cells for trucks
CLUSTERS AND PORTS
and trains.
The International Energy Agency’s 2019 review of
the future of hydrogen concluded that ports with —— Hydrogen could also be exported and imported,
concentrations of refining and chemicals production possibly after its conversion to liquid hydrogen
would be ideal places to scale up use of low-carbon or to a liquid ‘carrier’ such as ammonia.
58
—— Biogases could be produced in volume as —— Norway: With predominantly electric heating,

low-carbon alternatives to hydrogen, including and substantial hydro resources, we envisage
for truck transport. that Norwegian hydrogen will primarily be used
for industry and heavy transport. For this
—— Finally, hydrogen and biogases could be
segment, hydrogen from electrolysis, which
blended into the wider natural gas grid.
generates the high purity needed for fuel cells,
is likely to dominate. Hydrogen from methane
Economies of scale, large demand and the
reformation with CCS is likely for industrial
potential to integrate hydrogen, renewables and
ammonia and methanol production. Norwegian
CCS in shared infrastructure make these locations
gas exports may start to be decarbonized,
attractive starting points for a wider transition to
either through production of hydrogen in
decarbonized gas. These features can also help
Norway for export, or from export of natural
to overcome the problem of needing a level of
gas with hydrogen production and CCS in the
demand to make expanding supply worthwhile,
destination country.30
as the industrial demand already exists.
—— China: Gas penetration in China is growing
POTENTIAL MARKET GROWTH rapidly but still accounted for only 7.5%
The EU bioeconomy is already worth over EUR 2trn,29 of primary energy consumption in 2018.
and global markets for decarbonized gas solutions In contrast, coal accounts for 58% of China’s
are expected to grow substantially over the coming energy mix.31 At the same time, there are
decades. We see several decarbonized gas solutions high levels of renewable curtailment, partly
being developed in different countries, depending due to grid issues. Hydrogen production in
on local fossil-fuel feedstocks, the proportion of China is therefore more likely to come either
households with gas-fired heating, and the extent of from electrolysis using excess renewable
low-carbon electricity generation. There is no single electricity, or from coal gasification with CCS.
pathway to a decarbonized energy system. Here are In the first of these cases, it is most likely to be
some examples: used in transport applications.
FIGURE 3.17
Abatement cost of carbon capture and storage
Units: USD/tCO2
120
100
80
60
40
20
0
2017 2020 2025 2030 2035 2040 2045 2050
59
—— UK: The UK has one of the most extensive gas envisages hydrogen use growing tenfold to
networks in the world, connecting 85% of 270 terawatt hours per year (TWh/y) by 2050,
households. There is a large gas-fired power with 176 Mt CO2 being captured and stored
generation fleet; substantial CO2 storage annually by then, including 35 Mt for bioenergy
capacity; and, a growing level of offshore wind. with CCS. As the CCC concludes: ‘CCS is a
It also has clusters of heavy industry. The potential necessity not an option.’ The report also
exists for hydrogen production from electrolysis envisages a growing role for biomethane.32
using renewable power, and by methane
reformation with CCS. We also envisage CCS Globally, the UN Intergovernmental Panel on
being deployed in industry, and on gas- and Climate Change has concluded that without CCS,
biomass-fired power generation. Hydrogen use the cost of achieving the Paris Agreement objective
in transport is likely to focus on non-electrified of limiting global warming to well below 2°C
rail lines, ships and trucks. We also foresee compared with pre-industrial levels would be
biomethane’s role in transport growing. 138% higher on average. In most models, this
target could not be achieved without CCS.33
—— North America: The US is assessing a variety of
pathways to capture and convert CO2 to value
DECARBONIZING OIL
added products using renewable electricity.
AND GAS PRODUCTION
Such products act as storage media (hydrogen)
Although oil and gas production accounts for
or as valorization (e.g. glycols) for excess
a small proportion of greenhouse gas emissions
renewable electricity. Funded by the US
(GHGs) operators are seeking new ways to reduce
Department of Energy, DNV GL is scaling up a
their carbon emissions. A traditional offshore oil or
technology called ECFORM to produce formic
gas platform would use fuel gas to meet its needs
acid from CO2 using excess electricity and then
for process heat mechanical and electrical power,
using genetically modified bacteria to convert
and to transport oil or gas to shore through
the formic acid to downstream products such
a pipeline via pumps or compressors. In some
as glycols. We are also collaborating with
cases, the role of an offshore platform can be
companies to use formic acid as a liquid
re-thought, as the following examples illustrate:
hydrogen carrier for power production.
In this case, the CO2 acts as an energy shuttle
between renewable energy and hydrogen, —— Platform electrification: Where offshore
replacing water as the electrolysis medium. windfarms are installed nearby, platforms can
import renewable electricity directly. Equinor’s
Ultimately, the development of decarbonized gas Hywind Tampen project is potentially the first to
solutions is highly sensitive to policy. For example, use wind turbines for electrification of an oil and
gas with CCS will cost more than the unabated gas asset. It forecasts a reduction of 200,000 t
alternative, and its growth will therefore depend CO2/yr from the Snorre and Gullfaks fields in the
on carbon prices or other policy mechanisms, as Norwegian North Sea.34
well as on the development of new uses for CO2.
—— Gas-to-wire: Instead of piping gas to shore
which may be uneconomic for smaller, remote
MEETING NET ZERO
fields, the gas can be used to produce power
AND THE PARIS AGREEMENT
offshore. The electricity produced by this
Despite numerous challenges, decarbonized gas
process can then be transported to shore
is widely viewed as essential to achieving net-zero
through the same power cable used by a nearby
emissions in practice. The net-zero report from
offshore wind farm, which may have considerable
the UK’s Committee on Climate Change (CCC)
spare capacity when wind speeds are lower.
60
Flexible generation is likely to be in higher —— Energy island: Dutch electricity transmission

demand in the future, as the share of variable system operator TenneT has proposed an
renewables in electricity supply increases. ambitious scheme for a large artificial island
in the North Sea. This could connect up to 30
—— CO2 storage: Although it is not possible to reuse
gigawatts of offshore wind capacity to a six
all existing offshore oil and gas infrastructure
square-kilometre island, using cheap
for CO2 transport and storage, platforms could
alternating current (AC) connections to the
be used, for example, to drill new wells for
island. The power would then be converted to
permanent CO2 storage beneath the seabed.
direct current (DC) for more-efficient transport
—— Power-to-gas: Existing gas pipelines could over distance to several neighbouring
be used to transport hydrogen produced from countries. This could also allow electricity
electrolysis of seawater using offshore wind trading between the connected countries.35
power, or from offshore-based methane The IJmuiden Ver (IJVER) project is
reformers. The hydrogen could be used investigating the feasibility of a smaller
in industry, transport or power generation offshore island to connect around 4 gigawatts
onshore, or injected into the gas grid, providing of offshore wind to high voltage DC cables.36
a more flexible form of renewable energy
(see page 57.)
Illustration copyright Equinor
61
3.5 DIGITAL TRANSFORMATION IN

THE OIL AND GAS INDUSTRY
We see the oil and gas industry exploiting these new technologies
and data-driven opportunities across the value chain to develop
new, more efficient and more sustainable products and services,
and novel business models.
Automation, autonomy, robotics, use of data, With embedded memory and communications,
digital tags and wearables, digital twins37 and such systems will report their live status from
the rise of artificial intelligence are merging a remote location to a central hub onshore.
the ‘physical’ and ‘virtual’ worlds.
A growing trend towards moving offshore operations
Here are some of the ways in which digital solutions to the seabed is enabled by: subsea wifi and the
can help the oil and gas industry maintain sharp subsea Internet of Things; all-electric solutions;
focus on business optimization for safer, more improved reliability of equipment and control;
reliable and more efficient operations, to remain and, advances in autonomous underwater vehicles.
competitive in the energy transition:
Installations will be designed to enable the
—— By enabling de-manning, therefore reducing movement of robots rather than people. This
the need to transport people and supplies and leads to a fundamental change in the approach
reducing the associated carbon footprint. to and simplicity of design, reducing weight and
associated steel consumption. As installations
—— By enabling new lower-carbon concepts, such
also seek to reduce their emissions, all-electric
as subsea rather than fixed platforms
topsides will proliferate, often taking power from
—— By enabling new manufacturing solutions, such as offshore renewable sources. They will be supported
additive manufacturing, that can reduce the GHGs by autonomous supply vessels, a concept that is
associated with delivering parts and structures. rapidly moving closer to reality.
Advances in standardization, and the reuse of

THE UPSTREAM DIGITAL HORIZON elements of past asset designs, will help to simplify
requirements and improve the efficiency of the
We expect technology and innovation to significantly design process. Two-dimensional design will
reduce personnel on board an asset. This reduces give way in most future work to enriched three-
people’s exposure to hazardous environments dimensional (3D) models. This will improve
and lessens the environmental impact of their collaboration and visualization in the design
travel to work. Inspections will increasingly be process. Requirement and compliance
autonomous, using robotics supported by management will become simpler, repeatable,
advanced sensors and machine vision. and more collaborative. We will see pre-approved
designs being pieced together and tested virtually
to ensure they work before being built.
62
Construction will become more automated or other forms of data exchange. This will improve
and integrated. The main enablers of this will decision making, reduce the need to transport
be lifecycle software tools, fabrication robots, and accommodate experts, and provide real-
advanced materials and additive manufacturing, time visibility of operations and maintenance.
a sophisticated form of 3D printing. This will lead Developing concepts for detecting, analysing
to more flexibility, greater productivity, and and predicting health, safety, and environmental
shorter build times with the introduction of (HSE) risks in real or near-real time can create
advanced modelling tools. These tools will run barriers to incidents that could damage an
scenarios to derive optimum manufacturing operator or the environment. Dynamic barrier
solutions that consume less material. management utilizing sensors, information and
communications technology, and data analytics is
DNV GL has published the first guideline for using one such concept.38
3D printing in the oil and gas, offshore and marine
industries. Its Global Additive Manufacturing The emergence of virtual and augmented-reality
Technology Centre of Excellence in Singapore training for operations and hazard awareness will
aims to increase the oil and gas industry’s trust in also be used to improve inspection and maintenance
3D printing by providing technical standards and activities. It will ensure that issues such as lack of
guidelines for qualifying and certifying equipment, access or multiple permits to work do not delay
processes, products, materials and personnel. tasks. Enhanced mobile computing assisted by
It also serves as an incubator and testbed for 3D advanced analytics will increase uptime, improve
printing technology. productivity and reduce margins of error.
In the operational phase, personnel will Logistics will become smarter. GPS tracking and
increasingly have advanced wearable tools, algorithms will optimize logistics routes with
giving them remote, high-speed access to potential to share services and products across
experts worldwide through video streaming differing assets, regardless of ownership. Fewer
63
deliveries will be needed as de-manning lessens enable strategic responses to market demand
the call for supplies offshore, and as additive and regulation, and to energy policy and
manufacturing makes components or larger decarbonization targets.
products at, or close to, where they are used.
Advanced, self-diagnostic sensors will allow
Data analytics will continue to optimize subsurface automated and real-time scenario planning, and
mapping of the optimum drilling locations, indicating operational adjustment. For example, UK gas
how and where to steer the drill bit, and suggesting transmission company National Grid is working
the best way to stimulate the reservoir. Drilling with DNV GL to better predict the operational
automation has shown it can raise performance and availability and emissions performance of
reduce risk and maintenance costs from crown block compressor station engines in its gas transmission
to downhole. Greater gains will come through network, via remote monitoring solutions.
even wider deployment of smart drill pipes that This improves efficiency and reduces emissions.
report downhole conditions via fast, reliable
telemetry. Robotic drilling systems that respond For gas distribution, digital technologies will be
to downhole data are on the way and will increase key to dealing with increasingly complex challenges
the safety and efficiency of drilling operations. in the cost-effective, safe management of networks
to provide readily available, affordable energy.
These include the need for distribution system
THE MIDSTREAM AND DOWNSTREAM operators to ensure consistent gas quality in the
DIGITAL HORIZON eventual operation of networks using mixed gas
sources such as natural gas, regasified LNG,
Data analytics will facilitate more sophisticated biomethane and hydrogen. In addition, gas-flow
network models midstream and downstream. directions will change more dynamically, perhaps
Augmented by faster network-control systems including reverse flow from the distribution to
and supported by cloud computing, this will the transmission system.
64
There will be tighter integration of gas and CLOUD COMPUTING AND PLATFORMS
electricity networks. Consumers may increasingly
use both for heat depending on geography, the Collaboration is essential to fully exploit the
energy mix, and availability of natural resources. digital opportunities that we foresee for the oil
Amid such complexity, systems will be managed and gas industry. It is becoming progressively
in real time to achieve the best price for consumers. easier and cheaper across the industrial world
There will be an increasing trend towards real- to collect, move, analyse, and interpret data.
time pricing and dealing with gas of varying On-site computing and storage is shifting towards
energy values being diverted to different becoming fully based in the cloud via a hybrid
consumers at different times. stage. We foresee most organizations being in the
cloud, maximizing the advantages that this brings.
Data will facilitate smarter pipeline-integrity Digital platforms will emerge to give stakeholders
management based on predictive analytics. greater insights. For example, this will support
Robots, autonomous aerial vehicles, and satellite price reductions and make gas markets more
imaging will be used to monitor and maintain the competitive, particularly across national boundaries.
infrastructure. National Grid, for example, has
developed a pipeline inspection robot capable As industry platforms enable collaboration, such
of steering itself through complex pipeline as sharing data and tools/apps, breaking down
geometries against gas flow if needed. This traditional functional silos is vital. The depth, pace,
project, known as GRAID, is now being rolled and success of the transformation rest on asset
out into operation.39 and operations managers embracing change as
much as, if not more than, top management.40
As a critical part of national infrastructure, gas
networks will also have to address the increasing The most powerful impact on projects and
cyber-security challenge posed by a range of operations comes when leading subject-matter
threat sources. Refinery and petrochemicals expertise is combined with data analytics,
operators will need to invest in digital solutions information management, and real-time control
to react to the more agile nature of their supply to optimize operations and maintain safety.
chain and product slate. Greater flexibility in Many datasets can provide solutions to important
processing will be required to react to changes problems and inform decisions. However, the size,
in feedstock and product requirements. complexity, quality, and diversity of these datasets
make them difficult to process and analyse.
We believe there is significant potential for the
ENABLING TECHNOLOGIES industry to become more accustomed to openly
IN THE DIGITAL TRANSFORMATION sharing data across projects and operations, using
common cloud-based data platforms such as our
Several technologies will enable digital Veracity platform: www.veracity.com.41
transformation, providing increasingly deep
and timely insights to optimize projects and DATA ACQUISITION AND SECURITY
operations. These technologies will allow us Data is a raw material that needs refining and
to share rich, reliable datasets, to which we can combining with information from other sources
apply analytics that enhance safety, efficiency, to realize its value. Focus will shift from volume
and sustainability. We will also be able to predict of data to quality of data. Utilizing both domain
tomorrow’s challenges, enabling faster and knowledge and digital know-how will create
smarter business-driven decision making. maximum value. DNV GL receives large volumes
of data on oil and gas production, transmission,
65
storage and consumption. We work closely with The emergence of robotic technologies for
the industry to produce insights for improving inspection and maintenance activities across
energy efficiency, HSE performance and security the industry, from subsea operations offshore
of supply. to pipeline and structural assessment onshore,
is proving a game changer in improving
While cyber security is high on the agenda of knowledge whilst reducing personnel risk.
industries, governments and regulators, the safety
and vulnerability of digital systems are not yet fully DIGITAL TWINS
understood. The current focus and assurance Digital twins exist in many forms, from time-
methods largely target physical and business domain analytical models to visualization tools.
process risks. Our industries urgently need to There will be greater ability to merge and
properly identify, understand, and manage these communicate between different types of models.
emerging digital risks. At the same time, the These will become an interface and host for all
transparency enabled by digital technologies types of data, with digital twins effectively
creates new trust gaps and increases the threat becoming an asset’s ‘passport’ in the future. It will
of cyber attacks. let supply-chain companies incorporate and test
their designs directly into the digital twin master
Artificial intelligence cyber-security solutions will model, and will enable advanced cyber-security
become increasingly important. Anomaly testing. Digital twins will generate rich datasets
algorithms will detect changes in network and provide foundations for virtual robots and
behaviour and automatically resolve attacks. automated design-checking algorithms. This will
Consequently, some software-controlled critical quickly lead to autonomics, which will reduce
systems could be replaced by hard-wired or design time and boost the likelihood of a design
mechanically protected ones. being ‘right’ first time. The combination of digital
twins and real-time sensor data will significantly
ARTIFICIAL INTELLIGENCE enhance safety in the operational phase.
AND AUTOMATION
Artificial intelligence, and specifically its subset DNV GL is working with stakeholders to further
machine learning,42 will be extensively used to progress the development of the digital twin
help make decisions. People currently interpret concept so that, say, a virtual offshore platform
dashboard visualizations of information to make will provide up-to-date information throughout
decisions; this will be supplemented by machines. the asset’s lifecycle for many purposes. These
For example, analysing data within a maintenance include: asset health monitoring; asset risk;
system can provide insights into where to focus barrier management; facility data management;
efforts, leading to a reduction in maintenance cost managing spare parts; performance analytics;
and improving uptime. Machine learning will focus regulatory compliance; and, simulation and
on high probability, low-consequence scenarios,43 planning. Elements of the digital model will be
of which there are many in the oil and gas sector. used to produce physical components, using
advanced manufacturing techniques, which will
Widespread use will be made of virtual robots increasingly be sited local to the physical asset.
to execute repeatable low-level tasks. Acting
together, such robots will bring significant
efficiency gains to administrative tasks.
66
67
3.6 REGIONAL VARIATIONS
Drawing upon our forecast, this section focuses on DNV GL

experts’ considered insights about the forces and regulations
impacting some countries and regions with oil and gas hubs.
We highlight some of the trends that we expect to play out in
the future as a result of these and wider forces.
Our model forecasts the energy transition in with the largest populations, energy use,
10 world regions and the energy trade between and so on, are assigned more weight when
them (see page 88). The input to, and results calculating averages for relevant parameters
from, each of these regions are the sum of all such as oil and gas supply, demand, and
countries within it. production capacity additions. This means
that prominent characteristics of certain
Weighted averages are typically used for the countries are averaged over the entire region.
world region forecasts in our model; countries
68
NORTH AMERICA The scale of interstate onshore gas transmission

pipelines and gathering lines has remained largely
Natural gas dominates our forecast of the energy unchanged from 1984–2017 at about 500,000
transition in North America for years to come, kilometres (km). The kilometrage of gas distribution
largely driven by shale gas in the US. According lines steadily increased from 2.0 million (m) km to
to our forecast, 31% of primary energy supply in 3.6m km during the same period and is expected
the region will come from natural gas in 2050. to rise further. The recent large oil and gas finds in
the Permian basin will add demand for further
Three factors will drive rapidly decreasing coal use export capacity from the basin and will necessitate
for energy generation in the region: low prices for significant new pipeline construction.45
shale gas; increasing investment in renewable
energy due to incentives at state and local levels; There has been a small rise in total kilometrage
and, the high cost of operating coal-fired power of hazardous liquids pipelines in recent years;
plants due to environmental regulations. from 270,000 km in 2004 to 350,000 km in 2016.
The number of plants in North America has also
US Federal policy on GHGs is in flux. The current risen by 22% since 2012, as expectations rise for
administration has leaned away strongly from any the US to experience the greatest growth in LNG
regulations limiting GHGs. However, the switch exports over the next three years.47
away from coal will happen for at least two reasons,
even if the Federal government loosens Hydrogen is viewed as an energy carrier
environmental regulations. Firstly, 22 US states and storage medium for renewable power.
have set GHG emission standards.44 For example, Transportation of hydrogen through existing
California has goals for annual emissions in 2020 or purpose-built pipelines is considered
to be no higher than in 1990, and 80% lower in developmental. There may be regional variations
2050. Secondly, investment decisions that have in hydrogen transportation and use; some
already been made anticipate significant carbon western US states are showing greater interest.48
emission costs. We expect similar trends in Canada.
Canada’s federal policy is to phase out coal for
Lower costs for renewables generation and electricity generation by 2030 and replace it with
storage will encourage more switching from coal a natural gas and renewables.49 It aims to produce
to renewables. We expect significant, varying 90% of electricity from non-CO2-emitting sources
shifts in the energy mix of individual US states by 2030. The country also has a goal to reduce
because of differing policies and laws affecting methane emissions from oil and gas by 40%–45%
growth of renewables and battery electric by 2025 compared with levels in 2012.50 Reflecting
vehicles (EVs) and fuel-cell vehicles (FCVs). these goals, some utilities in Canada are divesting
Shifting US trade policies are a significant themselves of all fossil power generation.51
uncertainty in the cost of renewables.
Existing contracts will ensure continued

investment over the mid term in offshore
US oil and gas. However, capital investment
in offshore projects is lower than before 2014,
and cost containment is set to persist even as
oil prices stabilize.
69
FIGURE 3.18
North America primary energy consumption by source in 2050
Natural gas 31%
Oil 20%
Wind 18%
Solar PV 9%
Nuclear fuels 9%
Biomass 6%
Hydropower 3%
Coal 1%
Geothermal 1%
Solar thermal 1%
70
THE MIDDLE EAST particularly solar PV, will increasingly contribute

to the region’s energy mix. Seven GW of renewable
We predict continuing energy demand growth power capacity is expected in Gulf Cooperation
in the Middle East, but at a slowing pace for oil Council member states by 2020.54
and gas, for which combined demand peaks in
the early 2030s; then oil consumption declines.52 Shifts to gas-fired power generation, battery
Power generation will be the biggest driver of electric and fuel cell vehicles and cleaner transport
rising natural gas consumption. fuels are underway. Middle East nations are
interested in how decarbonization elsewhere will
Gas distribution will likely expand, creating reduce demand for their main exports, but they are
options for combined cooling, heat and power, excited by solar PV’s potential for domestic power
and releasing more propane for export. We generation. Solar PV expansion enables reduced
forecast that 57% of primary domestic energy oil imports (Egypt, Jordan); greater oil exports
supply will come from gas in the Middle East (the UAE, Iraq, and Oman); or, cheaper power
and North Africa region in 2050. generation (Saudi Arabia).
Significant gas field development projects and Middle East energy companies are investing
expansions have been sanctioned, including in heavily in renewables and energy efficiency.
Egypt, Qatar, Saudi Arabia and the UAE. A growing Digital technologies support development of
trend to develop domestic gas resources to smart power grids for improved electricity
safeguard national security of supply will support transmission, reduced peak demand, and
our forecasted increase in local gas consumption. renewables integration. EXPO 2020 in Dubai will
likely increase focus on implementing renewable
Onshore wind and solar photovoltaic (PV) grow energy pilot projects and showcasing sustainable
fastest from 2020 in our energy supply forecast.53 technologies in the UAE and the broader region.
Cheaper renewables, backed by private investment Innovations in hydrogen such as production
and political support for carbon-free energy, make through direct electrolysis of seawater, are
the region a potential powerhouse for renewables attracting interest.
development. Smaller-scale renewables,
FIGURE 3.19
Middle East and North Africa primary energy consumption by source in 2050
Natural gas 57%
Oil 19%
Solar PV 10%
Wind 8%
Coal 3%
Biomass 2%
Hydropower 1%
Geothermal 0%
Solar thermal 0%
Nuclear fuels 0%
71
RUSSIA pipeline capacity between them doubled.59

Russian crude exports to China were 1.48 Mb/d
Russia is the world’s second largest natural gas in 2018 from 1.3 Mb/d in 2017.60
producer, and third largest oil producer.55
Production far outstrips domestic consumption Russia’s Energy Strategy to 2035 suggests its
and its gas exports in particular are unrivalled. current policy direction will be maintained.
Continued international sanctions have had Despite Paris Agreement emission limits, Russia
limited immediate impact on energy production.56 and other CIS nations are likely to continue
However, they may slow newer, more challenging, developing hydrocarbon resources. The Russian
medium-term projects, as financing and economy’s dependence on oil and gas remains
technology will be less available and export important. Oil and gas-related revenues in
routes are uncertain. Local content policies may Roubles accounted for 46% of total federal
have a similar effect. income in 2018.61
Europe remains Russia’s key hydrocarbon export Russia is developing solutions to decarbonize
market. State-run Gazprom, the world’s largest production but does not share others’ views on
gas producer, exported a record 200-plus cubic major contributors to climate change, or on the
gigametres to Europe in 2018.57 Russia is trying use of CCS. It plans greater investment in climate
to diversify its export portfolio and strengthen adaptation to prolong the life of installations,
European ties. New pipelines — Nord Stream 2, and protect the public, rather than mitigation.
TurkStream, and Power of Siberia — are due on
stream in 2019. Final approval for Russia’s second Hydrogen research focuses on plasma-based
Arctic LNG megaproject is also likely this year. direct cracking of methane to make hydrogen
gas with solid carbon as a by-product for use
Crude oil production hit a record 11.26 Mb/d last elsewhere. Plans for the introduction of
year after 10.98 Mb/d in 2017 and despite OPEC+ renewable energy sources are low, and our
production caps in 2018.58 The country is model forecasts that, in 2050, 80% of energy
diversifying its oil export portfolio towards Asia. supply in North East Eurasia will still be provided
China is the largest importer of Russian oil after by natural gas, oil and coal.
FIGURE 3.20
North East Eurasia primary energy consumption by source in 2050
Natural gas 52%
Oil 23%
Nuclear fuels 7%
Hydropower 5%
Coal 4%
Wind 4%
Biomass 3%
Solar PV 2%
Geothermal 0%
Solar thermal 0%
72
GREATER CHINA Primary energy demand in China will peak at

a 2035–2040 plateau of about 5.6bn tonnes per
The People’s Republic of China is heading towards year of standard coal equivalent. With rapid
coal, oil and gas, and non-fossil energy being its energy optimization, energy-related CO2
main energy pillars in 2050.62 Cleaner energy emissions will peak by 2025. Non-fossil energy
sources will meet new energy demand, gradually and natural gas will meet incremental demand
replacing carbon-intensive resources. However above the baseload supplied by coal.
ultra-low-emission technology for coal-fired power
plants will support continued prioritization of using Guided by environmental policies, natural gas
domestic energy sources. Our model forecasts will see greater demand growth. Substantial gas
that 43% of the primary energy supply in China will imports, primarily LNG, will be needed until
come from coal, natural gas, and oil, with gas being at least 2050 to supplement China’s natural gas
the fastest growing energy source. production, which will increasingly be
unconventional gas.63
The nation’s general direction is for energy to be
cleaner, though environmentally friendly solutions Hydrogen will become an important source of
must be affordable as many parts of China still need clean energy, and a major source of automotive
development funding. power for light and heavy vehicles in China.
Nuclear power will continue to be important
The growth and changing pattern of China's energy both for domestic consumption and as an
consumption will increasingly affect trends in world export technology.
energy and emissions. Industry’s share in energy
consumption will fall, while those of residential
buildings and transport will steadily increase.
Emphasis when purchasing energy will shift from
cost to environmental requirements.
FIGURE 3.21
Greater China primary energy consumption by source in 2050
Solar PV 20%
Coal 16%
Natural gas 15%
Wind 12%
Oil 11%
Hydropower 10%
Biomass 10%
Nuclear fuels 4%
Solar thermal 2%
Geothermal 0%
73
EUROPEAN UNION amendment of the EU gas directive67 also extends to

non-EU countries supplying EU states. The directive
The EU is an energy transition leader through also aims to strengthen EU security of supply interest,
decarbonization targets, policies, regulations through the provision of diverse supply sources.68
and energy-efficient technologies and practices. North Sea exploration and production companies
The future of the Union’s gas consumption is clouded drove investment in new oil production to a three-year
by decarbonization targets, rising renewables, high in 2018, mostly in the UK and Norway.69
and price trends for coal, oil, and carbon dioxide.64
Europe’s largest oil and gas companies are boosting
The European Commission (EC) recently published investment in natural gas and renewables. Several
a plan to facilitate a clean energy future consistent EU and national initiatives promote LNG for land
with the Paris Agreement’s 1.5°C target.65 The Clean transportation. Renewable gas and biomethane
Energy Package66 is being implemented throughout production are rising.
2019, and a new Gas Package is scheduled for 2020.
Gas and electricity markets have been integrated Other initiatives support development of hydrogen
over recent decades. Our model forecasts that 42% as a low- and zero-carbon energy fuel for use in
of primary energy supply will come from natural gas, existing gas infrastructure. Current pilot projects
oil and coal by 2050. and studies with different scopes (domestic heating,
power-to-gas and road transport) are primarily being
The market will support more gas imports in the undertaken in areas of North West Europe with
future as Union-wide gas production continues to well-developed gas networks.
decline despite increased North Sea activity.
The impact of Brexit on UK integration in EU The EU’s energy transition requires about 2.8% of
energy markets is, as yet, unclear. GDP (EUR 520bn–575bn) investment annually to
achieve a net-zero GHG economy in 2050, according
Geopolitics and national development agendas to the EC. Using existing infrastructure such as a gas
obscure where and how big future EU gas-transport grids can help to keep down cost increases for
projects will be. To further support new import consumers, thus making the energy transition
pipelines from new supply regions, the 2018 more socially affordable and acceptable.70
FIGURE 3.22
Europe primary energy consumption by source in 2050
Natural gas 25%
Biomass 15%
Wind 14%
Oil 13%
Nuclear fuels 12%
Solar PV 10%
Coal 4%
Hydropower 4%
Geothermal 2%
Solar thermal 0%
74
NORWAY focusing on core competences to meet demand

for hydrocarbons in the coming decades.
Norway is relying on offset trading mechanisms
to reach carbon neutrality by 2030. A Climate Act Continuing recent trends, most small and
(2017) targets a low carbon-emission society by medium discoveries will be subsea tie-ins to
2050, starting with a 40% cut in GHGs by 2030 existing infrastructure. Longer term, profitable
relative to 1990. Some of this 40% will come from development of such discoveries requires new
successful government incentives for EVs. Norway concepts and solutions within unmanned
wants all new passenger vehicles to be electric by platforms, and technology development in
2025. In 2018, 31.2% of new passenger cars were automation, drilling, and subsea production.
full-electric, 17.9% plug-in hybrids, and 11.1%
combustion hybrids. LNG export will become more important, countering
any pipeline infrastructure constraints on gas
Formal climate goals for Norway’s oil and gas exports and providing flexibility if key European
industry will arrive in 2020, with five-yearly checks markets for piped gas decline or suffer disruption.
and updates thereafter. Average CO2 emissions
per barrel of oil are below half the world average, New technologies and solutions will reduce
due partly to high carbon taxes, EU emission carbon cost and risk for new developments.
allowances, and support mechanisms for Onshore renewables power several offshore
emission reduction. fields, and more will be electrified. Energy-
efficiency initiatives for powering NCS oil and gas
However, Norway’s offshore industry generates operations are underway. Seadrill’s drilling rig
more than a quarter of national emissions. The West Mira will have batteries, which the company
government will continue using carbon pricing estimates will reduce CO2 emissions by 15%.
and requiring best available techniques to cut Equinor is to support the Snorre and Gullfaks
emissions on the Norwegian Continental Shelf fields with offshore wind power.
(NCS). Future requirements look set to include:
climate-risk evaluation of new development Growing interest in CCS is driven mainly by the
projects; assessment of alternative power technology’s business case. As part of a full-scale
solutions; and, low- or zero-emission vessels for demonstration, the Northern Lights project
new oil and gas activity. Norway’s oil and gas involving Equinor, Shell and Total, has permission
industry is updating its 2016 climate road map, to store CO2 in an NCS geological reservoir. The
which set emission-reduction goals for 2030 first injection well is scheduled for October 2019.
but did not promise actual reductions. A pilot CO2-capture unit has been tested at an
onshore waste incinerator to verify capture
As oil and gas majors worldwide transform into efficiency and optimize the process.
energy companies, Norway’s Equinor aims to
accelerate its renewables capacity by investing The break-even oil price for several NCS field
25% of research funds in low-carbon solutions developments has reduced by 30%–50% since
by 2020. It aims for 15%–20% of its investments 2015. It will be important to maintain this
to be for new energy solutions by 2030. competitive advantage. Focus on cost control,
enabled by automation, digitalization,
Large oil and gas operators on the NCS are standardization and subsea solutions will
adjusting production portfolios for flexibility help, particularly with the cost of renewables
in a more complex, fragmented energy future. expected to fall rapidly, according to our model.
Smaller oil and gas operators will mostly keep
75
OECD PACIFIC imported fossil fuels is still impacted by the

Fukushima nuclear plant disaster among other
Australia lacks clear policies to achieve its factors. These include government plans to keep
commitment to reduce emissions in line with the re-opening nuclear plants that can demonstrate
Paris Agreement. GHG emissions keep growing improved safety; public finance for new coal-fired
despite booming renewables. Government support power plants; and, a continuing search for
for renewables is unclear. Concerns over reliability alternatives to energy imports. Japan is piloting
of renewable energy technology are driving interest liquid hydrogen for decarbonizing heat and
in pumped hydro storage and batteries. Coal transport and targeting growth in offshore wind
production can expand, but its social license is and rooftop solar PV for power generation.
unclear. Despite the financial importance of
thermal coal exports, primarily to Asia, production South Korea aims to further increase the share of
is growing weakly. Australia will soon become the renewables in its energy mix. Its January 2019
largest exporter of LNG, but domestic use of gas roadmap aims for competitive economic advantage
is under pressure from export-market pricing in hydrogen cars and hydrogen fuel cells (HFC) by
effects. The country is exploring CCS projects, 2040. It is a major player in the small but growing
and domestic use and export of hydrogen for global market for HFC vehicles. Energy policy will
which Japan and the Republic of Korea (South continue to favour LNG, renewable energy and
Korea) are potential markets. Although Australia green transport, due particularly to high and rising
remains a major coal exporter, little is used concern about fine airborne particulates.
domestically, and local coal consumption is
expected to peak in 2020. Our model forecasts Leveraging New Zealand’s renewable electricity
that by 2050, oil, natural gas and coal will provide advantage is a priority in its transport sector.
only 42% of primary energy, with wind and solar Renewables, energy-efficiency improvements,
PV providing the majority of supply. and efficient use of process heat in energy-intensive
industries will also be priorities. Energy transition
Japan’s carbon emissions from energy have research is being located in areas hit by policy
plateaued in recent years. Dependence on restricting offshore fossil fuel production.
FIGURE 3.23
OECD Pacific primary energy consumption by source in 2050
Wind 26%
Oil 18%
Natural gas 18%
Solar PV 13%
Nuclear fuels 9%
Biomass 6%
Coal 6%
Geothermal 2%
Hydropower 2%
Solar thermal 0%
76
SOUTH EAST ASIA Domestic and imported LNG will rise in volume
to enable greater power generation locally
The overall picture in South East Asia is one of without the need for large increases in
increasing final energy demand right through to electrical infrastructure.
2050, with natural gas, oil, and coal accounting
for 63% of primary energy supply. The breakdown Energy policy in Malaysia, a large natural gas
by country is however more nuanced. and coal user, is to increase the share of gas
in the generation mix post-2025 and promote
Cheap coal from Australia and elsewhere will energy efficiency. Coal-fired generation will
flood South East Asia to heap pressure on increase until then. The government wants to
energy transition mechanisms. Australia leverage Malaysia’s manufacturing strengths
expects growing coal exports to Cambodia, to drive production and use of solar PV and EVs.
Myanmar, and the Philippines to replace
potential lost sales to China. Singapore, a small energy user with a large
influence on the region, depends much on natural
The largest South East Asia nation, Indonesia, gas, but with growing solar PV uptake, which it
exports and imports energy, and has large fuel encourages. It seeks to enhance energy efficiency
markets between its islands and regions. It has and increase imports and use of LNG, including as
huge coal and natural gas reserves. Coal is the a marine fuel. Decarbonized natural gas, mainly
dominant fuel, with natural gas close behind. hydrogen, and smart grid technologies are
Access to geothermal and hydropower is under development.
combining with a regional push for solar PV to grow
renewables’ share in the mix, but change is slow.
Electrical infrastructure is developing to enable
growth in renewables distribution, but new gas
distribution is also being built in some locations.
FIGURE 3.24
South East Asia primary energy consumption by source in 2050
Natural gas 35%
Oil 19%
Solar PV 12%
Biomass 11%
Coal 9%
Wind 7%
Hydropower 4%
Geothermal 3%
Nuclear fuels 0%
Solar thermal 0%
77
CHAPTER 4
THE NEXT FIVE YEARS
4 THE NEXT FIVE YEARS
We see clear indications of an industry addressing the energy

transition with gathering pace, as oil and gas companies continue
to update their strategies.
Large international oil and gas companies are The pace of change differs considerably by
beginning to position themselves as broader region however. Energy transition activity
energy companies and the energy utilities of is most pronounced in Asia Pacific (60%),
the future. Half (51%) of the senior oil and gas compared with only 30% in North America.
professionals surveyed for DNV GL’s Industry Amid rapid and geographically diverse change,
Outlook 2019 research say their company is here are some of our expectations for the key
actively adapting to a less carbon-intensive challenges and opportunities that the oil and
energy mix this year.72 gas industry will face between now and 2024:
Decarbonization Gas
will top the agenda will become the primary energy source
Cost control Digitalization and automation

will remain critical will cut costs and enhance safety
80
THE NEXT FIVE YEARS CHAPTER 4
DECARBONIZATION
WILL TOP THE AGENDA
As societal concern over climate change increases, could become the world’s first project to use
the oil and gas industry faces growing challenges wind turbines for electrification of oil and gas
to demonstrate how it will continue to supply the installations.35
energy that the world needs, in a manner that
minimizes its impact on the environment. Other solutions include WIN WIN, DNV GL’s concept
for wind-powered water injection, offshore energy
The extraction, processing, and export of islands, power sharing between platforms, and
hydrocarbons involves several activities that provision of power to offshore installations from
produce potentially harmful environmental shore-based electrical supplies.74
emissions. These include combustion processes
to provide electrical power for motors and pumps; Operators are looking at a number of other
heat demands for processing; flaring and venting opportunities, aside from power generation.
for safety; and, incidental releases from These include conducting carbon capture and
hydrocarbon loading/unloading operations. storage (CCS) offshore, hydrogen production
However, such releases are small in comparison offshore, exporting electricity to shore rather
to other emitters. As an example, the upstream than gas (gas-to-power), reducing offshore
oil and gas industry on the UK Continental Shelf manning, and alternatives to flaring.
released 15.7 million tonnes of greenhouse gas
(GHG)-related emissions in 2017. This represented In the midstream and downstream sectors, the
3% of the UK’s total GHG emissions in that year.73 use of gas to heat homes, or to power industry,
are on a clear trajectory to decarbonization
Many operators are developing new solutions to through the introduction of green gases such as
decarbonize production. Approximately 70% of biomethane or hydrogen. In the refining and
GHG emissions from offshore operations relate petrochemicals sectors, increasing energy
to gas turbines or gas engines, so this is a major efficiency, the use of CCS, and the growing use
target for action. Recent developments in this of recycled materials as feedstock is expected
area include Equinor’s Tampen project, which to substantially reduce carbon footprint.
81
GAS WILL BECOME THE PRIMARY

ENERGY SOURCE
This year, there are even stronger signals from our plateau thereafter. Meanwhile, demand for North
model that gas will become the largest primary American gas will continue to increase until the
energy source from the mid-2020s. Gas demand end of the forecast period. Unless governments
will continue to grow until 2033, when it will plateau, agree to allow shale gas developments, we predict
before maintaining this position to the end of our continued decline in European gas production,
forecast period in 2050. By then, gas will provide both on- and offshore.
29% of the world's energy demand.
Gas will play the energy baseload role, alongside

variable renewables, to help meet future, lower-
carbon, energy requirements. The potential for
gas networks to complement variable renewables
““ Gas will play the energy baseload
role, alongside variable renewables,
to help meet future, lower-carbon,
energy requirements.
is increasingly being recognized. Over the next
five years, we expect the nature of the gas Regulatory and political change could significantly
delivered to end users to change as the system alter our expectations for the volume of hydrocarbons
accepts more ‘green’ gas: biogas, syngas and, in the energy mix however. Such changes could
from 2025 in our model, hydrogen. include increased drive towards a net-zero carbon
emissions target by the end of our forecast period,
Major oil companies are actively increasing the possibly supported by carbon pricing, emission
share of gas in their reserves, and we expect this to caps, and local air pollution laws. These present
increase in the coming years as they decarbonize opportunities to further reduce the carbon footprint
their energy portfolios. North East Eurasia, and the of gas by curtailing methane emissions across its
Middle East and North Africa will increase gas value chain, and by improving the economics of
output towards at least 2040. Production will CCS for gas-fuelled power generation.
82
However, the other side of that equation is the vessel-loading, and tank storage; 25% from
need to provide energy at a cost that consumers fugitive losses; 25% from flaring; and, 6% from
can bear, to avoid the risk of driving vulnerable energy use. Onshore activity has more than twice
sectors of society into fuel poverty. the methane intensity of offshore activity. Several
oil and gas industry organizations and individual
Our model expects the average prices for emitting operators have recently signed up to the Climate
carbon to rise to no more than a fraction of the & Clean Air Coalition’s set of Methane Guiding
current cost of carbon capture. This is because Principles to enable the reduction of fugitive
of difficulties in agreeing a cross-border carbon methane emissions.76
price. It has historically been difficult to foresee
a large-scale rollout of CCS without higher carbon
prices and clear policy support from governments.
However, governments are increasingly considering
net-zero, or even negative emissions targets, to
reduce the impact of climate change. We therefore
anticipate that, within the next five years, there
will be increasing governmental willingness to
see CCS as a key mitigation mechanism.
It is important that the oil and gas industry maintains

focus on reducing methane leakages. The global
oil and gas industry association for advancing
environmental and social performance, IPIECA,
notes that the sector accounts for 54% of total
methane emissions. Of this, 44% is from venting,
83
COST CONTROL WILL

REMAIN CRITICAL
Three quarters (76%) of the senior oil and gas contracting strategies to allow companies
professionals surveyed for our Industry Outlook to maintain or improve operating margins.
2019 research said they are optimistic about the We also expect more merger and acquisition
sector’s growth prospects this year. This is a activity driven by divestment of marginal
sizeable step up from 63% a year ago, and more and mature fields. Larger players will fine-tune
than double the levels recorded in 2016 and 2017. and decarbonize their portfolios and move into
the broader energy market. Meanwhile, smaller
Confidence in the outlook for the industry has players will continue to enter the oil and gas
returned to the level we observed in 2010, but market, optimize existing production facilities
today’s market looks very different to that time. and undertake brownfield projects to become
Companies are faced with a far more volatile pure play hydrocarbon producers.
landscape today, and we expect that uncertainty
may continue as the energy transition further Cost reduction has been achieved through
unfolds. For example, the arrival of peak oil a series of measures over recent years.
demand, which we forecast to happen in the There is now a bias towards shorter-term,
mid-2020s, will have an impact on price and more flexible, new field developments,
investor confidence, and negatively affect with much greater use of floating production
future developments. systems and subsea tiebacks for both oil
and gas in the offshore market.
Oil and gas companies will need to proactively
change their short-term tactics to avoid the cost Technology developments are reviving interest
inflation that the industry has experienced in in deepwater and harsh-environment projects.
the past. We expect to see continued innovation Average break-even costs for deepwater
in facility design, operating models, and developments fell about 10% to USD 52 per
84
barrel (/b) between 2014 and the fourth quarter In the midstream and downstream gas market,
of 2018. If oil holds above USD 50/b, several commercial regulation is often the driver for
deepwater projects could launch in 2020 innovation and cost reduction due to proximity
and/or 2021. to customers. We have seen many examples of
where digitalization, and the use of new composite
““
materials for pipelines and structures, have
Oil and gas companies will brought about significant cost savings.
need to proactively change their
short-term tactics to avoid the
cost inflation that the industry
has experienced in the past.
Oil and gas executives in production companies

and across the supply chain now accept that
pan-industry collaboration is the most productive
way of maintaining innovation amid cost pressures.
We expect collaborative industry efforts to drive
standardization and digitalization over the next
five years, laying foundations for consistent
reductions in capital and operational expenditure
(capex and opex).
85
IGITALIZATION AND AUTOMATION WILL

D
CUT COSTS AND ENHANCE SAFETY
We expect increasing uptake of digitalization and their repair and replacement costs, and the
automation to make a significant contribution to management of suppliers is ideally suited to
the trend of improving efficiency and reducing a blockchain environment. The fact that an
emissions over the next five years. This is not lost asset’s lifecycle, and service and test records
on industry leaders: three quarters (73%) of those can be recorded and traced on a blockchain
we surveyed for our Industry Outlook 2019 now system, offers greatly enhanced transparency
say that their organizations need to embrace and auditability.
digitalization to increase profitability, compared
to 49% in 2017. A substantial increase in autonomous operations,
and in remote inspection or survey, will reduce
Digitalization will reduce both capex and opex the need to have personnel working in hazardous
costs, and improve safety by enabling reduced environments. This will also lessen the equirement
downtime while enhancing predictive maintenance, for travel to offshore operations, significantly
performance forecasting, real-time risk management improving safety levels, and will also reduce the
and energy efficiency. The increased use of data ‘hotel’ load on offshore facilities, lowering costs
sharing platforms, 3D digital twins, and artificial and delivering environmental benefits.
intelligence will speed up design processes, and
minimize both human and interface errors. A growing trend towards locating operations on
the seabed in some environments will require new
We expect the uptake of blockchain technologies information and communications technology,
to spread rapidly in the industry. Several oil and accompanied by process automation, robotic
gas majors such as BP, Shell and Equinor have maintenance, intelligent sensors, and analytics
recently joined forces in the development of new for failure prediction. Challenges in how we send
blockchain trading solutions. Management of vast and receive data subsea will be solved, through
amounts of data associated with assets and their the creation of a subsea Internet of Things.
supply chain is a growing industry challenge.
Accurately managing thousands of components,
86
87
OUR OUTLOOK REGIONS
The Energy Transition Outlook model divides are used: countries with the largest populations,
the world into 10 geographical regions. They energy use, and so on, are assigned more
are chosen based on geographical location, weight when calculating averages for relevant
resource richness, extent of economic parameters. Prominent characteristics of certain
development, and energy characteristics. countries — nuclear dominance in France, for
example — are averaged over the entire region.
Each region’s input and results are the sum of all
countries within it. Typically, weighted averages
MAP AND KEY OF OUTLOOK REGIONS
North
North America: (NAM) and the US
AmericaCanada NorthEast
North Eurasia (NEE)
East Eurasia: Russia and neighbouring
Canada and the United States Russia and
countries neighbouring
including countries
all former including
Soviet Unionall
states
Latin America: former Soviet Union states except the Baltics.
Latin AmericaAll nations from Mexico to the southern
(LAM) except the Baltics. Includes Mongolia
Includes Mongolia and North Korea and North Korea
tip of
AllSouth America,
nations andto
from Mexico including the tip
the southern Caribbean
of South
America, and including the Caribbean Greater China (CHN)
GreaterChina: Mainland China, Taiwan, Hong
Europe: All(EUR)
European countries including the Baltics. The People’s Republic of China and Taiwan
Europe Kong, Macau
Excludes Russia,countries
All European all former Soviet Union
including republics,
the Baltics. Excludes Indian Subcontinent (IND)
Russia, all former Soviet Union republics, and Turkey
and Turkey India, Subcontinent:
Indian Pakistan, Bangladesh,
India,SriPakistan,
Lanka, Afghanistan,
Bangladesh,
Nepal, Bhutan, Maldives
Sub-Saharan Africa (SSA) Sri Lanka, Afghanistan, Nepal, Bhutan, Maldives
Sub-Saharan Africa:except
All Africa countries All Africa countries
Algeria, Egypt,except
Libya, OECD Pacific (OPA)
Algeria, Egypt,
Morocco andLibya,
TunisiaMorocco and Tunisia Stretches
South Eastfrom Myanmar
Asia: Stretchesto from
PapuaMyanmar
New Guinea.
to Papua New
Includes
Guinea. many smaller
Includes manyisland
smaller states in the
island Pacific
states in the Indian
Middle East andNorth
North Africa (MEA) Ocean. Indonesia is the largest country
Middle East and Africa: Stretching from
Stretching from Morocco to Iran. Includes Turkey and and Pacific Oceans. Indonesia is the largest economy
Morocco to Iran. Includes
the Arabian Peninsula Turkey and the South East Asia (SEA)
Arabian Peninsula Japan,
OECD Republic
Pacific of Korea
: Japan, (‘South Korea’),
Republic of Korea Australia
(‘South
and New Zealand
Korea’), Australia and New Zealand
88
OUR OUTLOOK REGIONS
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68 ‘Exploring methane emissions’, IPIECA fact sheet,
56 `World and China Energy Outlook 2050’, CNPC June 2015, view at ipeca.org
Economics & Technology Research Institute
69 ‘Reducing methane emissions across the natural
(ETRI), 2017
gas value chain: Guiding principles’, Climate &
57 ‘Meeting the challenge of China’s dash for gas’, Clean Air Coalition, 22 November 2017, viewed
DNV GL, PERSPECTIVES [online], 2019, view at at ccacoalition.org
www.dnvgl.com
70 ‘Gas for climate: The optimal role for gas in a
58 ‘Fostering energy markets, empowering net-zero emissions energy system’, Navigant
consumers’, DNV GL study for Council of European Netherlands, March 2018, downloadable PDF
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at www.ceer.eu
71 ‘A test of resilience: The outlook for the oil and
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long-term vision for a prosperous, modern, at industryoutlook.dnvgl.com/2019
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European Commission, COM(2018) 773 final,
view at oilandgasuk.co.uk
28 November 2018
73 ‘Wind-powered water injection’, J Sandberg,
60 ‘Russia's oil exports to China hit new
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high’, V Abbasova, Caspian News, 29 January
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June 2015, view at ipeca.org
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amendments 75 ‘Reducing methane emissions across the natural
gas value chain: Guiding principles’, Climate &
62 ‘Energy Union: Commission welcomes tonight's
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at ccacoalition.org
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November 2019, view at www.coindesk.com
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29 October 2018, view at www.forbes.com
91
PROJECT TEAM
OIL AND GAS
Steering committee
Remi Eriksen, Ditlev Engel, Ulrike Haugen,
Trond Hodne, Liv Hovem
Project director
Sverre Alvik
Modelling and core team

Bent Erik Bakken, Anne Louise Koefoed,
Onur Özgün, Mats Rinaldo
Lead author
Graham Bennett
Contributors
Rob Coveney, Tim Hare, Warner ten Kate,
Johan Knijp, Sridhar Narasi, Torild Nissen-Lie,
Neil Pollock, Julia Schweitzer, Jan Egil Sæberg,
Lars Sorum, Corin Taylor, Maurice Vos,
Wu Yi Wolfgang
92
PROJECT TEAM OIL AND GAS
HISTORICAL DATA
This work is partially based on the World Energy

Balances database developed by the International
Energy Agency, © OECD/IEA 2018 but the
resulting work has been prepared by DNV GL
and does not necessarily reflect the views of the
International Energy Agency. Published by DNV GL AS - Oil & Gas
Design SDG/Drive McCann/Wildfire/Infogr8
For energy related charts, historical (up to Print 07 Media AS
and including 2017) numerical data is mainly Paper Arctic volume white 115/250
based on IEA data from World Energy Balances Images DNV GL (cover, 12, 19, 28, 57, 63, 67, 68,
© OECD/ IEA 2018, www.iea.org/statistics, 86) Equinor (illustration 61), Shutterstock (11, 20,
License: www.iea. org/t_c; as modified by DNV GL. 27, 51, 64, 70) iStock (5, 14, 49, 78, 81, 82, 84)
93
ENERGY TRANSITION OUTLOOK 2019

REPORTS OVERVIEW
ENERGY TRANSITION OUTLOOK POWER SUPPLY AND USE

Our main publication details our model-based This report presents implications of our energy
forecast of the world’s energy system through to forecast to 2050 for key stakeholders involved in
2050. It gives our independent view of what we electricity generation, including renewables;
consider the most likely trajectory of the coming electricity transmission and distribution; and
energy transition, covering: energy use. Amidst electricity use increasing
rapidly and production becoming dominated by
−− The DNV GL Model and our main assumptions; renewables, the report details important industry
on population, productivity, technology, costs implications. These include:
and the role of governments and policy
−− The global energy demand for transport, −− Substantial opportunities for those parties
buildings and manufacturing, the changing involved in solar and wind generation
energy mix, energy efficiency and expendi- −− Massive expansion and reinforcement of
tures transmission and distribution networks
−− Detailed regional energy outlooks −− Further need for implementation of energy
−− The climate implications of our outlook and an efficiency technology
assessment of how to close the gap to well −− Acceleration of the electric vehicle revolution
below 2°C −− The energy transition is fast, but not fast enough
to meet the goals of the Paris Agreement
94
REPORTS OVERVIEW
OIL AND GAS MARITIME

Our Oil and Gas report discusses how these This year’s Maritime Forecast zeroes in on the
hydrocarbons remain key to the secure supply of IMO strategy to reduce greenhouse gas emis-
affordable energy up to 2050. Key features sions. New fuels, and energy-efficient design
include: and operation, are key to this. We detail:
−− Gas becomes the primary energy source from −− New ‘barometers’ indicating world-fleet
the mid-2020s as oil and gas companies decarbonization and readiness of alternative
decarbonize portfolios and gas increasingly fuels
complements variable renewables −− Uptake and characteristics of relevant
−− Gas demand growth plateaus in 2033 but it technologies, i.e. dual-fuel engines, fuel cells,
remains the dominant primary energy source, and battery electric power
supplying 29% in mid-century. New sources of −− How fuel flexibility and bridging technologies
gas (e.g. biogas, hydrogen and synthetic can smooth transition from traditional fuels
methane) are will be introduced to domestic −− CO2 emissions and which fuels are likely to be in
and commercial energy systems, helping the mix towards 2050
to decarbonize gas consumption −− A new multi-scenario approach for robust
−− Oil supplies 17% of primary energy in 2050, newbuilding strategy based on our expanded
despite oil demand peaking in the mid-2020s concept of future-proof ships
−− A need for greater efficiency and investment in
new oil and gas production are indicated
95
SAFER, SMARTER, GREENER
HEADQUARTERS: DNV GL is a global quality assurance and risk management company.

Driven by our purpose of safeguarding life, property and the environment, we
DNV GL AS
enable organizations to advance the safety and sustainability of their business.
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Tel: +47 67 57 99 00 We provide classification, technical assurance, software and independent expert
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ENERGY TRANSITION

SAFER, SMARTER, GREENER

More than half of senior professionals surveyed

Our Energy Transition Outlook makes it clear

The successful and rapid decarbonization of the

Just a decade ago, the concept of using wind

As we work to decarbonize the oil and gas value

3.1 Onshore and Offshore Oil Exploration and Production 30

4 THE NEXT FIVE YEARS 78

OUR OUTLOOK REGIONS 88

The pace of the energy transition is accelerating. Pressure is growing

than our projected rate of demand decline.

We forecast that new resources will need to be

developed to counter the depletion effect and

meet new demand from growing economies.

Our forecast emphasizes that that there is no

Gas transmission system operators will

ENERGY TRANSITION TIMELINE:

1890 1977 2015

1949 2011 2017

2022 2026 2036 2050

2025 2033 2039

*Forecast by our 2019

Driven by our purpose of safeguarding life, property and the

Energy Transition Outlook model

Source of Final energy Energy Primary

TRANSPORT TRANSPORT POWER GENERATION Solar PV

BUILDINGS BUILDINGS HYDROGEN Biomass

2 OIL AND GAS

We see a new energy world emerging; one in which

MEASURING ENERGY IN OUR OUTLOOK

24 million 278 terawatt 1 day 2 years 2 minutes 1 year

World final energy demand by sector

World primary energy supply by source

World oil demand by sector

Significantly, we forecast non-hydrocarbon There is clear evidence of the benefits of hydrogen

World natural gas demand by sector

3.1 ONSHORE AND OFFSHORE OIL

Conventional onshore oil will continue to provide

World crude oil production by field type

Conventional onshore oil production by region

Global unconventional oil and gas resources

Assessed basins with resource estimate Without resource

Offshore oil production by region

power to subsea or platform-based projects supply failures – often as a result of political

Global upstream oil gas capital and operating expenditure

3.2 ONSHORE AND OFFSHORE GAS

Our model predicts that production of unconventional onshore

World natural gas production by field type

Unconventional onshore natural gas production by region

FUTURE DEVELOPMENT SOLUTIONS

Technically recoverable shale gas by region

Offshore natural gas production by region

As we will discuss in Section 3.3, the challenge TECHNOLOGY DEVELOPMENTS

GAS: THE BROAD PICTURE

Consumption is forecast to rise in South East

3.3 MIDSTREAM AND

TRANSMISSION SYSTEMS These trends in demand and trade could also

Natural gas net imports by region

COST IMPLICATIONS Several onshore gas transmission assets have

IGITALIZATION AND AUTOMATION WILL