Strong business fundamentals underpin investments

Our view of global energy and product demand and supply through 2040 informs long-term strategies and investments.

Report Apr. 2, 2019

In this article

Strong business fundamentals underpin investments

Growing energy demand

Many factors will shape the world’s energy future. By 2040, world population is expected to reach about 9.2 billion people, up from about 7.4 billion in 2016. Global gross domestic product will likely double, and billions of people are expected to join the middle class over the same period.

Energy efficiency improvements will help curb the growth in global energy demand to approximately 25 percent over the period to 2040, roughly equivalent to adding another North America and Latin America to the world’s current energy demand levels. Emerging markets of non-OECD nations will account for essentially all energy demand growth, led by expanding economies in the Asia Pacific region, such as China and India.

Significant investment needed in oil and natural gas

Oil will continue to play a leading role in the world’s energy mix, with growing demand driven by commercial transportation needs, particularly from heavy-duty vehicles and airplanes. The chemical industry will also increase the demand for oil feedstocks, which are used to make plastics. In addition, without investments, we estimate the supply of existing oil naturally declines at a rate of approximately 7 percent per year. When combined with an expected average annual demand growth rate of approximately 1 percent, the amount of new supply needed every year approaches 7 to 8 percent of the prior year, underscoring the tremendous amount of investment required over the coming decades.

Natural gas is expected to grow more than any other energy source between now and 2040, primarily due to an estimated 60-percent growth in global electricity demand, as the world shifts to cleaner sources of energy for power generation. The imperative for investment in natural gas is similar to oil, with the annual decline of natural gas from existing supplies at approximately 5 percent and an expected annual demand growth rate of more than 1 percent. Liquefied natural gas (LNG) is well suited to transport natural gas over long distances where pipelines are impractical. As a result, LNG trade is expected to meet one-third of the natural gas demand growth to 2040.

The International Energy Agency’s (IEA) New Policies Scenario estimates approximately $21 trillion of cumulative oil and natural gas investment is needed from 2018 to 2040. In the upstream sector alone, it estimates about $685 billion of annual investment is needed to meet global demand for oil and natural gas.

To meet projected demand and offset the impact of natural field decline over the period to 2040, the estimated amount of new oil and natural gas supply is 555 billion barrels and 2,100 trillion cubic feet, respectively. This equates to about 16 times the level of oil and natural gas supplies in the year 2016 and highlights the magnitude of the supply challenge facing the industry. Even assuming average demand based on assessed 2°C scenarios, which are detailed in our 2019 Energy & Carbon Summary, the world would likely still need to add about 365 billion barrels of oil and 1,750 trillion cubic feet of natural gas. Regardless of any likely demand scenario, market fundamentals are expected to underpin the need for significant, continued investments in new supplies of oil and natural gas.

Demand grows for commercial fuels, chemicals, and higher-performing products

Growth in economic activity and personal income drives increasing trade of goods and services, leading to higher demand for related products like diesel and jet fuel. Personal mobility will also increase, but greater efficiency and more electric vehicles are likely to lead to a peak and decline in motor gasoline demand for light-duty vehicles.

Consumer demand for plastics, fibers, and other chemical products is expected to grow at about 1 percent above the growth rate in global gross domestic product. Preference for higher-performing products, including premium fuels, lubricants, and plastics, is also expected to grow significantly. This includes a considerable increase in demand for Group II basestocks, which serve as the basis for higher-performing finished lubricants.

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