Global spending on energy as a proportion of economic output is set to slow sharply as energy demand declines, according to DNV GL.
The risk management consultancy has published its latest Energy Transition Outlook and says that global energy demand will start to decline from 2035, marking a “historically significant change” in energy needs.
According to DNV, the forecast decline in energy demand is largely down to rapid electrification of the energy system and the resulting inherent improvement in efficiency. Global expenditure on energy, as a percentage of GDP, will fall 44 per cent by 2050, it says.
The decarbonization of the energy mix will be reflected in investment trends with money spent on renewables set to triple by 2050. Conversely, fossil fuel spending will drop by around a third.
DNV GL adds in its report that coal has already peaked and that oil will peak in 2023. Natural gas will become the largest single source of energy globally by 2026.
Renewables and fossil fuels will equally share energy supply by mid-century, DNV says.
However, it adds that the rapid changes it is forecasting will not be enough to meet the sub-2°C climate goal outlined in the Paris Climate Agreement.
“The attention of boardrooms and cabinets should be fixed on the dramatic energy transition that is unfolding,” said Remi Eriksen, Group President and CEO of DNV GL. “As money and policy increasingly favour gas and renewables, the rapidly electrifying energy system will deliver efficiency gains that outpace GDP and population growth.
“This will result in a world needing less energy within half a generation from now. The transition is undeniable. Last year, more gigawatts of renewable energy were added than those from fossil fuels and this is reflected in where lenders are putting their money.”
Fossil fuels will continue to play an important role in the energy future with its share of the energy mix set to drop from around 80 per cent today to 50 per cent by the middle of the century, with the other half provided by renewables. Natural gas will become the single largest source in 2026 and it will meet 25 per cent of the world’s energy needs by 2050.
The reduced requirement for energy will be reflected in investment with overall expenditure set to drop to 3.1 per cent of global GDP from 5.5 per cent today. As fossil fuels will have a smaller slice of a smaller pie, spending will fall by around a third to $2.1 trillion. This will be offset by the tripling of both renewables ($2.4 trillion) and grid expenditure ($1.5 trillion).
The nature of the spending will also alter with wind and solar projects typically requiring greater upfront CAPEX and then less operating expenditure, the opposite to oil and gas.