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McKinsey: demand for fossil fuels will not return to pre-COVID growth path

After a year of extraordinary challenges one of the world’s largest consultancies, McKinsey & Company has published its Global Energy Perspective 2021 report, forecasting the ways in which energy production and demand patterns will change through to 2050.

The report suggests that peaks in demand for hydrocarbons will occur earlier than projected with oil peaking in 2029 and gas in 2037, whereas coal will show a steady decline. Yet fossil fuels will continue to play a major role in the energy system by 2050, driven by growth in areas such as chemicals and aviation.

According to the Reference Case scenario, gas will continue to increase its share of global energy demand in the next ten to 15 years — the only fossil fuel to do so — and then peaks in the late 2030s. Following the peak, declining demand for gas is expected to be driven by the power sector, as gas shifts its role from baseload provider to flexibility provider. The report highlights that even in the Reference Case, gas demand in 2050 is projected to be 5 per cent higher than today.

After a long period of growth, global oil demand is expected to peak in the late 2020s, followed by a 10 per cent decline in demand by 2050, mainly driven by slowing car-park growth, enhanced engine efficiency in road transport, and increased electrification.

Under increasing regulatory and financial pressure, coal’s role in the power sector will diminish, contributing to the overall decline in demand of almost 40 per cent from 2019 until the middle of the century.

The report highlights that in the next decade renewables will become cheaper than existing fossil plants, which triggers a sharp uptake in the installed capacity of solar photovoltaics as well as onshore and offshore wind (5 terawatts of new solar and wind capacity installed by 2035 — which is equivalent to fivefold growth). By 2036, half of the global power supply is expected to come from renewable sources.

McKinsey expects that green hydrogen – considered to be a game-changer of the net-zero path especially for hard-to-abate sectors – will gain momentum and become cost-competitive in the 2030s.

In the longer term, the demand impact of COVID-19 is modest and fundamental shifts in the energy system is expected to continue. However, McKinsey underlines that the pace of change is too slow and moving to a 1.5°C pathway requires stronger ambitions and accelerated implementation at a global scale.

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