Decarbonisation Technology - May 2024 Issue

2027 Global liquids demand from light vehicles peaks; Global energy use (or combustion) of liquids excl. biofuels peaks

2041 Global liquids demand in aviation peaks

Pre-2020 Demand in industry, power generation, RCA* peaked in 1979. By 2019, demand fell by 55% (power generation), 40% (industry) and 5% (RCA)

Post-2050 Global non-energy use

2028 Global demand peaks for diesel/gasoil (excl. biodiesels)

2033 Global liquids demand in road freight peaks

(or non-combustion) of liquids use continues growing by 2050

2043 India liquids demand peaks

2039 Global jet fuel (excl. biojet) demand peaks

2032 Global liquids demand peaks

2044 L iquids demand peaks in Latin America

2026 US liquids demand peaks

2025

2035

2020

2030

2045

2050

2033 Asia Pacic liquids demand peaks

2025 Global marine oil demand peaks

2040 Middle East liquids demand peaks

2041 Russia & Caspian liquids demand peaks

2029 Global liquids demand in transport peaks

Pre-2020 Liquid demand peaked in OECD Asia Pacic by 1997 and in Europe by 20 0 6

2027 China liquids demand peaks; Global demand peaks for gasoline (excl. ethanol)

2035 Global LPG demand peaks

Post-2050 Africa liquid demand continues growing by 2050

*Residential, commercial, and agriculture

Figure 3 Peak oil demand by sector, product, and region Source: Wood Mackenzie Product Markets Service

is, however, flawed. Global composite refining margins are likely to decline as we progress through 2024 and the wave of new refining projects in Africa, Asia, and the Middle East become fully operational, with more than 2 million b/d of refining capacity scheduled for this year. Figure 2 shows the short-term outlook for the global refinery composite gross margin, which is back to (or below) the five-year historical average later this year and for 2025. The energy transition is a disruptive megatrend for refining Refining margins are unlikely to return to the unprecedented highs of recent years. The challenge for refiners is how to continue value growth in their businesses as the energy transition takes hold. The adoption of electric vehicles in the passenger car segment is the leading edge of the energy transition that will further decouple economic activity from oil demand. Oil demand has already peaked in the industrial and power generation sectors and in regions such as Organisation for Economic Co- operation and Development (OECD) Asia Pacific and Europe. Figure 3 shows how peak oil demand is set to come in waves across sectors and regions, with global oil demand peaking within a decade and then starting to decline. The peak in demand masks two contrary developments; first, the

declining role of oil in energy use, primarily for transportation, and second, the growing demand for oil as a petrochemical feedstock. Mature OECD economies such as Europe and North America will lead the decline in oil demand for transport use as vehicles become more fuel efficient and increasingly electrified. Peak oil demand is a direct threat to the refining sector, as declining demand lowers global refinery utilisation and profitability, leading to the closure of competitively weak sites. Refiners based in regions of falling domestic demand will become increasingly reliant upon the export market to retain high utilisation levels. This will be in direct competition with refiners in destination markets. Given that peak oil is not projected to occur this decade, refinery utilisation will be set by the balance between demand growth and new refining capacity currently under development. With global refining capacity to rise by 2.3 million b/d by 2030, lagging demand growth, refinery utilisation is to remain healthy during this decade, as shown in Figure 4 . Healthy refinery utilisation typically delivers refining margins that sustain operations, providing cash flow for future investments. However, with refined product demand in structural decline in regions such as Europe, refiners need to plan to adapt if they are to remain commercially viable after global oil demand has peaked.