An economic rebound after the COVID-19 pandemic has triggered price spikes for multiple commodities. The conflict in Ukraine has led to even further increasing energy prices and security-of-supply concerns. However, the transition to a lower-carbon energy system continues and accelerates, and McKinsey’s Global Energy Perspective 2022 provides insights into the longer-term trends that will continue to be essential in shaping future energy systems.
Energy markets face extreme volatility
The conflict in Ukraine, as well as other factors, have triggered significant peaks in energy prices as uncertainties around supply security and affordability are paramount. This comes at a time where markets are already tight following the COVID-19 rebound.
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Throughout 2021, global energy demand and emissions increased by 5% compared to 2020, almost reaching pre-COVID-19 levels (~33 Gt energy-related CO₂ equivalent).
In the context of COP26, a total of 64 countries (accounting for 89% of global CO₂ emissions) have made net-zero pledges, while financial institutions and decarbonization aspirations.
Energy mix is projected to shift toward power
Electricity demand is projected to triple by 2050 as sectors electrify and hydrogen and hydrogen-based fuels increase their market share due to decarbonization.
Renewable generation is projected to reach 80–90% of the global energy mix by 2050 as the global build-out rates for solar and wind grow by a factor of five and eight respectively.
Hydrogen demand in new sectors could reach 350–600 mtpa in 2050 (compared to ~80 mtpa today); global demand for sustainable fuels is expected to mature, reaching 8–22% of all liquid fuels by 2050.
Peak in demand for fossil fuels continues
Peak oil demand is projected to occur between 2024 and 2027 driven largely by EV uptake – a development that is already underway. Coal demand peaked in 2013 and, after a temporary rebound in 2021, is projected to continue its downward trajectory.
The conflict in Ukraine is leading to price spikes as the market and consumers balance supply security and affordability.
Toward 2035, gas demand across all scenarios is projected to grow another 10–20% compared to today; after 2035, gas demand will likely be subject to larger uncertainties, driven especially by the interplay with hydrogen.
Two to four¹ Gt of CO₂ will need to be captured by CCUS by 2050 to decarbonize heavy industries where fossil fuels continue to play a significant role.
Global warming is projected to reach 1.7°C by 2100
All scenarios require substantial shifts to occur across the energy landscape. Even in the Current Trajectory scenario, significant investments will likely be required to kickstart new technologies.
With current government policies, additional commitments, and projected technology trends, global warming is projected to exceed 1.7°C, making a 1.5° pathway increasingly challenging.
To keep the 1.5° Pathway in sight, the global energy system may need to accelerate its transformation significantly, shifting away from fossil fuels toward efficiency, electrification, and new fuels, quicker than even the announced net-zero commitments.
Total investments across energy sectors are projected to grow
Annual investments in energy supply and production are expected to double by 2035 to reach $1.5 trillion to $1.6 trillion; almost all growth is expected to come from decarbonization technologies and power, which will by 2050 exceed today’s total energy investments.
EBIT in decarbonization technologies and power is expected to grow by 5% per annum, and could outpace the growth in underlying investments.
Business models in a highly decarbonized system are expected to remain uncertain across sectors, and will likely rely on adjustments in market design (for
example, capacity payments for flexible thermal power generation), subsidies, or other support mechanisms (for example, support for CCUS on top of CO₂ prices).
Renewables are projected to account for 80 – 90% of power generation globally by 2050
In all scenarios, renewables are projected to lead the power generation mix, reaching 80—90% in 2050. In the Further Acceleration scenario, RES share is expected to double in the next 15 years, from 29% to 60%.
Most of the growth in RES is expected to come from solar and onshore wind, due to declining costs, and they are projected to make up 43% and 26% of generation respectively in 2050 under the Further Acceleration scenario. Offshore wind is projected to remain limited to less than 7% of global generation due to permitting constraints and policy hurdles, with potential to grow further if constraints on onshore wind such as land use persist.
Thermal generation is still expected to play an important role as a flexibility provider, with gas providing substantial shares of base-load generation up to 2040 in regions with favorable fuel costs.
Nuclear generation is still expected to require economic support from policies, which is not yet present in many regions as public acceptance continues to prove challenging.
Carbon capture, utilization, and storage (CCUS)
CCUS is niche today but is projected to scale notably, reaching ~2 – 4 Gt by 2050. This will likely require a significant acceleration compared to the current pipeline.
In addition, by 2050, ~80% of CCUS uptake is projected to be deployed in cement, iron and steel, and H₂ production, yet is expected to be subject to sector-specific uncertainties and to show regional differentiation.
Finally, CO₂ revenue schemes are uncertain, as projected CO₂ prices of up to $150–$205/ ton are likely insufficient to accelerate CCUS uptake towards a net-zero
trajectory.
EXPLORE MORE AT MCKINSEY’S GLOBAL ENERGY OUTLOOK
