Editorial comment
The International Energy Agency (IEA) announced in October that the world oil market is expected to experience a significant surplus in the coming year. This statement comes as oil prices have recently increased, due to concerns about potential Israeli retaliation against Iran for a missile attack, which could affect Iranian oil facilities. However, the IEA reassured markets that it is prepared to respond to any supply disruptions, noting that public oil stocks exceed 1.2 billion bbls and OPEC+ spare capacity is at historic highs.
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The IEA also revised down its global oil demand growth forecast for this year, largely due to weakness in China. Chinese demand is now expected to grow by 150 000 bpd in 2024, down 30 000 bpd from the previous forecast.
Another forecast released in October was DNV’s Energy Transition Outlook. It projected that 2024 will be the year of peak energy emissions, marking the beginning of a long-term decline in energy-related emissions for the first time since the industrial revolution. Emissions are expected to nearly halve by 2050; however, this reduction falls short of the targets set by the Paris Agreement, with global temperatures projected to rise by 2.2°C by the century’s end.
The decline in emissions is largely attributed to significantly lower costs of solar energy and batteries, which are driving the phase-out of coal from the energy mix, and stunting oil growth. Annual solar installations increased by 80% last year, while battery costs dropped by 14%, facilitating the 24 hour delivery of solar power and the rise of electric vehicles (EVs), which saw a 50% increase in sales. Notably, China led the global decarbonisation efforts, accounting for 58% of global solar installations and 63% of new EV purchases last year, although it remains the largest coal consumer and CO2 emitter.
While the adoption of solar and batteries has accelerated the energy transition, progress in hard-to-abate sectors remains slow. DNV has reduced its long-term hydrogen forecast by 20% and, despite an increase in carbon capture and storage (CCS) projections, DNV has revised its CCS forecast, predicting that only 2% of global emissions will be captured by CCS in 2040 and 6% in 2050.
So: surplus oil, reduced growth in global oil demand, and the year of peak energy emissions? Within this picture lies many challenges for the oil and gas pipeline sector, not least the imperative to build hydrogen infrastructure.
Sverre Alvik, Director of the Energy Transition Research Programme at DNV, writes in Forbes: “Hydrogen and hydrogen derivatives are needed to decarbonise sectors which are hard to electrify, such as deepsea shipping and aviation. When we last year modelled a pathway to reaching net zero by 2050, we found that hydrogen would need to meet about 14% of the world’s energy needs by the middle of the century. In this year’s Outlook, we forecast that number to be just 4%.1
Alvik argues that there is a growing mismatch between what is required to accelerate the energy transition and the priorities of governments. He says that 4% is still a significant number – equating to trillions of dollars in capital expenditures in hydrogen production and billions of dollars in pipeline construction – but this is only a small percentage of what is required. As it stands, the markets and regulatory framework is just not conducive to scaling hydrogen. Turn to p.53 for more on the development of high-pressure hydrogen pipelines.
