Does the oil major’s 2017 Energy Perspectives mark new thinking for the company?

On June 8th, Statoil published the 2017 edition of its Energy Perspectives document; its take on the long-term perspectives in the international energy market. We find that Statoil is assessing energy futures reflecting the energy transition Carbon Tracker is already seeing, resulting in greater differentiation from other oil and gas majors in the process.

Business case scenarios

It is important to first highlight that none of the scenarios in Energy Perspectives are Statoil’s business case scenario, such as that presented by ExxonMobil in its Energy Outlook series. As such, we are unable to definitively make any judgments that what is included in Energy Perspectives is similar to Statoil’s expectations going forward. The document is however produced by Statoil’s own analysts, using a model and framework that ‘the company uses in connection with long-term analyses of the energy markets’, and so is not an unrelated, arbitrary exercise for the company.

The report is structured around three core scenarios – Reform, Renewal and Rivalry. This blog focuses on the findings in the Reform scenario given that this appears to be central of the three scenarios simply extrapolating ‘from current macroeconomic and energy market trends’.

Twin peaks round two?

In Carbon Tracker’s recent scenario analysis, produced in partnership with Imperial College London, we concluded that coal and oil demand will peak in the 2020s due to penetration of low-carbon alternatives in the power and road transport sector. This ‘dual-peaking’ also occurs in Statoil’s latest run of the Reform scenario – coal demand peaks in 2020 while oil demand follows sometime in the 2020s.

While this conclusion on coal demand has been a mainstay in Energy Perspectives for some time, this marks a stark change of view on oil demand compared to 2016’s Reform Scenario. Last year’s effort did not foresee oil demand peaking any time before 2040, nevermind as early as the 2020s. (Reform continues to see modest gains for natural gas demand across the forecast period).

EVs drive a U-turn

The shift in perspective with regards to oil demand appears to be largely down to electric vehicles (EVs). The Reform scenario models the impact if EVs achieve cost-parity with internal combustion engines (ICEs) by 2025. From this point onwards, EVs appear to penetrate at pace leading to 200m on the road by 2030 and 1 billion by 2050.

This growth trajectory is not hugely dissimilar to Carbon Tracker’s own electric vehicles scenarios. Our assumptions led to slightly more EVs on the road in the medium term – 400 million by 2030 approx.[1] – as a result of modelling cost parity being achieved by 2020 rather than 2025. But from this point on Carbon Tracker and Statoil’s Reform scenario see 8% compound annual growth to 2050.[2] If the Reform scenario reflects Statoil’s corporate thinking, it would show a belief that oft referenced obstacles to rapid EV deployment such as range anxiety, lack of charging infrastructure and cost, will be overcome. Also, this scenario would firmly place Statoil at the more bullish end of oil and gas industry positions on potential EV growth.

Investor needs

Statoil’s 2017 Energy Perspectives should be seen by investors as another step in the right direction with a good range of scenarios being presented. To speed up this progress towards a transparent and measured assessment of climate risks, investors should demand:

i) greater clarity on the relevance of these scenarios to Statoil’s corporate thinking; and

ii) greater disclosure of the assumptions used in Statoil’s modelling, rather than of the scenario results as per the 2017 Energy Perspectives.

Luke Sussams, senior researcher

Carbon Tracker Initiative

[1] Referencing scenario ‘NDC_EV’, i.e. NDC-consistent levels of climate policy and latest market data on current future EV costs.

[2] Calculations are based on approximations made from charts on page 25 of 2017 Energy Perspectives.