The Global Energy Perspective 2023 models the outlook for demand and supply of energy commodities across a 1.5°C pathway, aligned with the Paris Agreement, and four bottom-up energy transition scenarios. These energy transition scenarios examine outcomes ranging from warming of 1.6°C to 2.9°C by 2100 (scenario descriptions outlined below in sidebar “About the Global Energy Perspective 2023”). These wide-ranging scenarios sketch a range of outcomes based on varying underlying assumptions—for example, about the pace of technological progress and the level of policy enforcement. The scenarios are shaped by more than 400 drivers across sectors, technologies, policies, costs, and fuels, and serve as a fact base to inform decision makers on the challenges to be overcome to enable the energy transition.
Growing global momentum could accelerate the energy transition, as demonstrated by the UAE Consensus, released in December 2023, that calls on Parties to make a just and orderly transition away from fossil fuels. Nevertheless, analysis from multiple sources, including the IEA, IPCC, and McKinsey, suggests that conventional fossil fuels are likely to remain a part of the energy mix to 2050, even in a 1.5° pathway, and may act as a bridge for an orderly transition. Therefore, decarbonizing the fossil fuel system and substantially reducing emissions, including methane, is a key area of focus. Within that evolving context, this article examines the potential road ahead for oil according to our sector-based adoption models. To view our natural gas outlook, please visit Global Energy Perspective 2023: Natural gas outlook.
About the Global Energy Perspective 2023
The energy transition is expected to change the trajectory of global oil demand. According to our analysis,1 demand could fall by up to 50 percent by 2050, depending on the scenario modelled. However, even under the most accelerated scenario, the analysis shows that investment in a broad energy mix, including oil and gas, would continue for a period in order to shore-up security of supply and meet demand across the range of scenarios, particularly in end-use sectors such as chemicals, aviation, and heavy trucking. As a result, our bottom-up energy transition scenarios consistently see a certain amount of new field development continuing in order to meet overall energy demand, offset rapid production declines, and to meet transition energy shortfalls. Furthermore, our scenarios see investment in the oil and gas sector, both for fuel and non-fuel purposes, remaining robust through 2030 as the world navigates an orderly and affordable transition.
Growing energy efficiency and EV uptake could advance the timeline for oil demand decline
After a steep decline due to COVID-19, oil demand increased to pre-pandemic levels in 2023 at 101.7 million barrels per day (MMb/d). However, growth may not last long, as peak demand is projected to materialize before 2030 across our four bottom-up energy transition scenarios.
The four scenarios align on a relatively close timing of peak oil demand between 2025 and 2030, driven by efficiency gains across sectors and growing electric vehicle (EV) adoption in passenger cars. Energy efficiency (including electrification) spending made up two-thirds of overall government investments in clean energy in the last two years, and the continued electrification of transport has contributed significantly to the reduced demand for oil.1 In particular, growing uptake of EVs is expected to contribute to between 5 and 10 MMb/d of oil demand reduction by 2030, and is the major differentiating driver of peak demand between scenarios.
Oil demand is projected to shift from road transport to chemicals and aviation
In the long-term, our analysis shows that decline in oil demand would mostly be driven by its decline in road transport. Demand in the light-duty segment would decline across all scenarios as the proportion of EVs among cars on the road reaches between 55 and 80 percent by 2050, contributing to a decline in oil demand by 2050 of between 15 and 25 MMb/d.
Heavy transport (such as long-haul duty trucks) could have a more uncertain outlook. While demand in this segment would continue to grow in the Fading Momentum scenario, advancements in both battery technology and hydrogen could enable large-scale decarbonization in the Achieved Commitments scenario, resulting in a decline of around 10 MMb/d compared to today.
On the other hand, despite the expected overall decline in global oil demand by 2050, our analysis shows that oil could still provide considerable supply to end-use sectors, such as aviation and chemicals, where decarbonization options, such as sustainable fuels, are not yet cost competitive in many cases, or where oil is used as a feedstock instead of as a fuel. In fact, chemicals and aviation are the only sectors where demand continues to grow to 2050 in all our bottom-up energy transition scenarios, driven by increased demand for plastic and travel, respectively. These sectors could account for almost 50 percent of global oil demand by 2050 (compared to around 22 percent today).
However, in the Achieved Commitments scenario, up to 50 percent of aviation demand would be supplied by bio- and syn-kerosene, which have low or zero emissions due to the sequestered carbon in the production process.
As the transition gathers pace and oil demand drops, the supply mix may continue to evolve
At the beginning of the COVID-19 pandemic, lowered demand caused oil prices to decline, even to below zero, and prices remained below $50 per barrel for most of 2020.2 Since then, in line with the post-COVID socio-economic recovery, oil prices have climbed significantly, hovering around $80 per barrel for the majority of 2023.
In parallel, a new wave of capital expenditure has been seen from multiple oil and gas companies.3 However, with all energy transition scenarios projecting peak demand by 2030, the sector may need to evaluate how much additional supply, if any, is needed to meet demand.
Under the Current Trajectory scenario’s sector adoption assumptions, both national and independent exploration and production companies will actively develop new resources, and even more so under the Fading Momentum scenario, which assumes that frontier exploration and a more efficient use of the existing production base will be used to meet demand.
Under the Further Acceleration scenario’s sector adoption assumptions, a larger share of the shrinking market could be taken up by low-cost, Middle Eastern OPEC producers by the mid-2030s. This would happen even sooner under the Achieved Commitments scenario assumptions.
For any new capital expenditure in oil, parties will need to consider actions to enable a just and orderly transition away from fossil fuels in the coming decades and accelerate efforts globally towards net zero-emission energy systems, utilizing zero- and low-carbon fuels well before or by around mid-century.
Given the fact that it accounts for around 10 percent of global greenhouse gas emissions, the oil and gas industry can play an important role in reducing emissions, mostly notably in methane reduction, which represents around 45 percent of all oil and gas emissions globally and generates a temperature impact that is 80 times higher than CO2 over a 20-year timeframe.4 There has recently been acceleration in this area; for example, the Oil and Gas Decarbonization Charter (OGDC), launched at COP28 in December 2023, commits signatories to achieving net-zero operations by 2050 across Scope one and two emissions, near-zero methane in upstream operations by 2030, and zero routine flaring by 2030.
The oil supply mix is projected to shift
Looking in detail at the Current Trajectory scenario, the supply mix would shift to three main sources under the assumptions of that scenario:
- OPEC Middle East would continue to hold low-cost reserves, with a broadly flat output. The region produces the lowest-cost oil, and key players favor long-term market stability.
- Shale oil would add 17 percent to the 2022 baseline (1.7 MMb/d), plateauing in the 2030s.
- Deepwater output would grow by 12 percent compared to the 2022 baseline and peak before 2040, unless significant discoveries are made (such as in Guyana, Namibia, and Suriname), despite the overall shrinking trend in offshore output. In offshore, deepwater is likely to see the most growth.
Effectively, 24 MMb/d of yet unsanctioned production outside of OPEC Middle East would be needed to meet 2040 supply projections under our Current Trajectory scenario, with nearly 21 MMb/d coming from shale and offshore assets. These increases would be offset by reductions in other conventional and shallow water reservoirs, resulting in lower supply by 2040 to meet lower demand.
North American shale oil production could plateau in the near term
North American shale production is projected to plateau in the mid-2020s at around 10 MMb/d and remain stable through 2040. The outlook is driven predominantly by the Permian Basin, where production is expected to grow through the mid-2030s before potentially plateauing at around 7 MMb/d by 2040.
Three factors could impact the future growth of North American shale production:
- The capital discipline of public operators and uncertainty around future long-term consistency.
- Potential energy transition trends and local policy impacting supply growth.
- Permian Basin productivity gains, which represent a major driver of production growth, and which have begun to plateau.
The evolution of oil demand would impact future prices
The price dynamics that oil could see in the short and longer terms is an important consideration for the energy transition. Under the Current Trajectory scenario, based on fundamental analysis of currently identified resources, the market is projected to reach a long-term price equilibrium in 2040 within a range of $50 to $60 per barrel ($ real, 2022), or $90 to $100 per barrel (nominal). Marginal production is expected from offshore deepwater projects. This assumes production restraint by lowest cost producers, which in some cases see break-evens of around $10 per barrel.
Hence, given the wide range of demand scenarios and price outlooks, oil and gas companies may have to carefully manage decline in demand to avoid the risk of stranded assets, while at the same time ensuring that they are future-proofed with investments in energy transition opportunities, as many have already started doing.
To request access to the data and analytics related to our Oil outlook, or to speak to our team, please contact us.