STR 2020
02 Energy
2.1Key trends
2.2COVID-19 and the transition to low-carbon energy
2.3Net-zero commitments for oil and gas


2.1 A revolution is underway in energy systems

In 2019, across all uses of energy, renewables supplied more energy than coal in the US. Coal meets more end use electricity consumption than renewables, but this is set to change in the coming months. Meanwhile, the UK had two continuous months without coal generation in 2020.

Figure 44: Coal and renewable energy consumption, US, 1949-2019

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Renewables already out-compete fossil fuels in many countries

The costs of renewable energy have fallen precipitously. In two-thirds of the world, wind and solar power are now the cheapest energy forms.

Figure 45: Global levelised cost of energy benchmarks, 2009-20

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Global energy investment has shifted towards renewables

In the past decade installation of solar power across the world was 50% larger than installation of gas power.

Figure 46: Power-generation capacity additions, 2009-19

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Fossil-fuel energy consumption has been rising at the global level. A huge shift is required to tackle the climate crisis
Figure 47: World energy consumption, 1965-2019
There is growing interest in hydrogen technology as a solution to a range of challenges

Much of the promise for hydrogen's future is in industrial and heavy transport applications that enable deep decarbonisation. However, it will be critical to scale up green hydrogen production using renewable energy. Today, 99% of hydrogen is produced from fossil fuels.

Figure 48: Number of countries implementing policy supports for hydrogen deployment, 2018
Figure 49: Global demand for pure hydrogen, 1975-2018

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A new frontier of energy demand is likely to be data and data centres

Global data volume is growing rapidly, which in turn is leading to a surge in energy demand. New industry partnerships are urgently needed.

Figure 50: Global data volume projections, to 2025
Figure 51: ICT energy demand

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2.2 COVID-19 and the transition to low-carbon energy

COVID-19 has unleashed a huge shock to energy markets

Global energy demand is shrinking because of the pandemic. Oil prices fell close to all-time lows in real terms as global demand shrank.

Figure 52: Real price of barrel of West Texas Intermediate oil, 1947-2020

Dollars in 2020 prices.

Figure 53: Rate of change in primary energy demand, 1900-2020
There are new opportunities to accelerate the transition. Did oil demand peak in 2019?
Figure 54: Liquid fuels production and consumption, global, 2015-21

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2020 has highlighted the resilience of renewable energy

Renewables are supplying more during the pandemic while other sources are supplying less. On May 5th 2020, it was reported that in the United States, renewables had generated more electricity than coal for the last 40 days, surpassing previous records. While in Britain, renewable energy generated more than 40% in the first three months of the year.

Figure 55: Projected change in energy demand during pandemic, 2020 levels versus 2019

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Low oil prices will have limited impact on renewables because there are few opportunities for substitution

Oil plays a small and declining role in electricity generation.

Figure 56: Electricity generation, global, share by fuel, 1986-2018
Coal is being squeezed out of the power sector except where it is heavily subsidised

In April 2020 Sweden closed its last coal-fired power station two years ahead of schedule, becoming the third European country to do so after Belgium (in 2016), and Austria (also April 2020).

Figure 57: Electricity generation capacity, US, by major energy source, 1990-2019
Figure 58: Coal generation, seven European countries, 2016-20

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The biggest effect on renewables so far has been via trade dislocation and the impact on investment

General nervousness and uncertainty because of the pandemic has limited investment across the economy, while frozen supply chains are making it more difficult to embark on renewables projects.

Figure 59: Business confidence, global, 2019-20

Data show four-week moving average

Figure 60: In the COVID-19 crisis, what is the level of impact on renewables projects because of import dependency?

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The clean-energy sector has suffered from job losses

In the United States, 600,000 jobs in clean energy were lost during March and April 2020.

Figure 61: Job losses, by energy sector

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Renewables and energy efficiency are an attractive option for recovery plans

Calls are growing for a green-investment-led plan to boost the economy after the pandemic.

Protesters calling for a Green New Deal

Sunrise Movement

Figure 62: Job creation under the Transforming Energy Scenario

The Transforming Energy Scenario aligns energy investments with the need to keep global warming “well below 2oC”, in line with the Paris Agreement.

Accelerating the shift to renewables would have a meaningful positive impact on jobs

$10m spent on renewable energy creates nearly three times as many jobs as $10m spent on fossil fuels.

Figure 63: Jobs created, directly and indirectly, per $10m in spending

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Companies procuring renewable energy is a further signal that renewables will prove resilient
Figure 64: Corporate renewable-energy power purchase agreements, by region, 2010-19

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COVID-19 and the transition to low-carbon energy
Accelerating sustainability trends

The pandemic has had a profound effect on the energy sector. We believe that the overall effect will be to accelerate the transition, but we can expect significant turbulence in energy markets, with a wave of consolidation.

The accelerated transition to clean energy will be driven by multiple factors. They include: the economic advantage of renewables; the job-creation opportunities in clean energy; the correlation between local air pollution and higher COVID-19 mortality rates; the collapse in oil demand and the consequent impacts on fossil fuel energy companies and the resilience of distributed networks.

Climate action

Decisions by governments this year could prove decisive in the climate crisis. At the time of publication, there is evidence of both green and brown stimulus occurring. The EU Green New Deal could have a profound effect, but perhaps even more important are China’s choices for the 14th Five-Year Plan (2021-2025). Businesses can play a key role in giving governments the confidence to move forward with net-zero recovery plans.

Economic-recovery plans should facilitate a managed decline for high-carbon energy and a scaling up of zero-carbon energy systems. Recovery policies should focus on clean physical infrastructure, buildings efficiency, clean R&D, and greenhouse-gas removal technology.

Radical partnerships

The shock has opened a window of opportunity to move onto a 1.5°C climate pathway. Scaling up zero-carbon energy and carbon sequestration at a time of unprecedented uncertainty for the sector will require collaboration at all levels. The decline in emissions that has occurred in 2020 due to the pandemic needs to happen every year for the next 20 years, even as the population and global energy demand continue to grow.

There is always a risk that we return to an unsustainable business-as-usual pathway. Companies that react to the crisis by losing focus on climate and other sustainability issues will, we believe, face questions over their societal licence to operate sooner rather than later. On the positive side, many companies are joining together to underscore their continued focus on climate action. Corporate leadership is increasingly characterised by how companies engage with public policy and collective action in the face of global, systemic crises.


2.3 Net-zero commitments for oil and gas

For oil and gas companies, emissions must decline sharply to meet global climate goals

Oil and gas companies’ annual emissions are far above where they need to be to avoid dangerous climate change.

Figure 65: Emissions necessary to stay within company carbon budgets based on the B2DS

B2DS: Beyond Two-Degree Scenario

Oil companies have made notable commitments to net-zero emissions in recent months

Net-zero commitments have so far been made by Repsol, BP, Shell and Total. Some commitments are stronger than others.

Figure 66: Oil and gas companies setting and updating emission targets including Scope 3

I am more convinced than ever that this is the right thing to do, and we need to crack on with it. The pandemic only adds to the challenge that already exists for oil in the medium to long term... [Solar] is a sector which continues to attract investment and I think that’s because it is what society wants. These are the reasons why my commitment [to net-zero] remains as deep, if not deeper than it has been.

Bernard Looney, BP CEO

There is an energy transition underway that may even pick up speed in the recovery phase of the crisis, and we want to be well-positioned for it… Will demand ever go back to where it was? That's hard to say... we live a crisis of uncertainty at the moment. We have always said we expect oil and then later on, gas demand to peak. We said [peak] oil demand could be as early as this decade. I think the likelihood of that happening has indeed gone up.

Ben van Beurden, Shell CEO

Some companies have slowly increased the amount invested in clean energy, but the crisis has disrupted this progress

Some companies have invested fairly sizeable amounts in clean energy, but in the first four months of 2020, clean investment by oil majors was way down. Spending on renewables remains a very small share of overall investment.

Figure 67: Clean energy tech portfolio companies by O&G corporate venture capital
Figure 68: Clean investment by oil majors, 2010-2020

2020 figures only to April

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How will oil companies tackle emissions from customers using the fuel?
Figure 69: BP's emissions, by scope

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Meeting these net-zero goals may require a huge scaling up of CO₂ removal including “nature based solutions”

There are important challenges around the application of these technologies and of accountability and governance.

Figure 70: Climate mitigation of 20 natural pathways in 2030

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Net-zero commitments for oil and gas
Accelerating sustainability trends

Net-zero targets are a bold, necessary step forward for the oil and gas sector. Now it’s all about delivery. Capital allocation and lobbying positions by companies are the key metrics to track.

The pandemic has not yet undermined existing net-zero commitments. There is a risk that companies with net-zero targets will delay putting robust plans in place for meeting them.

It is also a concern that fewer companies and governments may sign up to commitments as a result of the economic impact. To date, 23% of global greenhouse gas emissions are covered by net-zero commitments by countries and businesses.

Climate action

More clarity is needed around how Scope 3 emissions will be tackled in net-zero plans, especially when it comes to investment in innovation for carbon removal and governance around “nature-based solutions”.

Companies could seek to meet net-zero goals by “outsourcing” their production to companies which have weaker commitments on climate action, and they could argue this is not their responsibility. This points to the importance of coordinated approaches.

Radical partnerships

Many oil and gas companies have not yet set net-zero targets. They can expect to come under continued investor pressure, led by initiatives such as the Climate Action 100+ group and the Principles for Responsible Investment.

National oil companies control most of the world’s hydrocarbon resources. With lower prices and rising societal needs, they will come under pressure to reform and restructure.