McKinsey predicts oil and gas demand peak pre-2030

McKinsey and Company, a renowned global management consulting firm, has recently released its October 2023 Global Energy Perspectives report, which sheds light on significant trends and projections in the energy sector. In this report, McKinsey anticipates that the demand for fossil fuels, particularly oil and gas, will reach its peak before the year 2030. This revelation has far-reaching implications for the future of the energy industry on a global scale.

The report underscores that, in all conceivable scenarios, total demand for fossil fuels is set to peak within the next decade. While the demand for coal is expected to undergo a sharp decline in all scenarios, oil and natural gas are anticipated to continue growing for several years and will remain integral components of the world’s energy mix for decades to come.

As we gaze into the future, specifically the year 2040, McKinsey’s report brings several key trends and considerations to the forefront:

1. **Persistence of Fossil Fuel Investments**: Despite the increasing global emphasis on reducing carbon emissions and a declining demand for fossil fuels, the report reveals that a substantial portion of energy investments, ranging from 20% to 40%, in 2040 will still be channeled towards fossil fuel projects. This can be attributed, in part, to the rising development costs of fossil fuel initiatives, even as green technologies become more cost-effective.

2. **Growing Natural Gas Demand**: Natural gas demand is projected to continue increasing through 2040, mainly because of its role in balancing renewable energy sources. This is especially crucial until large-scale battery deployment becomes more widespread. However, the trajectory of gas demand will vary according to different scenarios, with steady growth in more conservative projections and a sharp decline in scenarios where renewables and electrification advance rapidly.

3. **Investment Growth**: Annual investments in the global energy sector are expected to increase by 2 to 4% per year, roughly in line with global GDP growth. By 2040, these investments could range from $2 trillion to $3.2 trillion, signifying substantial capital flowing into the energy sector.

4. **Shift towards Green Technologies**: The report predicts a gradual transition in the focus of investments, shifting from fossil fuels to green technologies and electric transmission and distribution. In 2015, green technologies represented only 20% of total investments, but they are expected to constitute between 40% and 50% of total investments by 2040.

In essence, the energy investment landscape is undergoing a profound transformation. While fossil fuels, particularly natural gas, continue to play a pivotal role in the transition to renewable energy, there is a clear and significant shift towards green technologies and sustainable practices.

Now, considering the Nigerian context, these global energy trends carry particular significance. During the 3rd Biennial International Conference on Hydrocarbon Science and Technology (ICHST) organized by the Petroleum Training Institute (PTI) on Monday, October 23, the Minister of State for Petroleum Resources, Heineken Lokpobiri, emphasized the importance of addressing the unique challenges facing Nigeria’s oil industry. He urged researchers to focus on developing solutions tailored to the industry’s distinct needs.

This approach aligns with the Federal Government’s commitment to increasing oil production, highlighting its dedication to enhancing the country’s oil sector. Nigeria’s Minister of State for Gas, Ekeprikpe Ekpo, also underscored the necessity of concentrating on critical issues such as energy transition, sustainability, and energy security. These aspects are crucial to ensuring that Nigeria effectively harnesses the full potential of its abundant gas resources.

Minister Ekeprikpe Ekpo pointed out that recent global events, such as the Russia-Ukraine conflict, have highlighted the delicate balance in the dynamics of energy demand and supply. He specifically noted the inadequacy of Nigeria’s preparedness and inability to seize opportunities created by the increased demand for gas supply to Europe and other parts of the world. He also highlighted challenges on the domestic front, including inadequate infrastructure, an unfavorable regulatory environment for gas, pipeline sabotage, and the inability to optimize the value from the country’s abundant gas reserves.

In light of McKinsey’s global energy insights and the unique challenges facing Nigeria’s energy industry, it is imperative for the Nigerian government and industry stakeholders to develop a strategic and forward-thinking approach. This should involve a focus on sustainable practices, green technologies, and the optimization of the nation’s vast natural gas resources. By doing so, Nigeria can position itself to thrive in a rapidly evolving global energy landscape while simultaneously addressing the needs of its domestic market.