SAFER, SMARTER, GREENERDNV GL ENERGY TRANSITION OUTLOOK 2018ENERGY TRANSITION OUTLOOK 2018A global and regional forecast to 20503ENERGY TRANSITION OUTLOOK 2018A global and regional forecast to 20504DNV GL ENERGY TRANSITION OUTLOOK 2018REMI ERIKSENGROUP PRESIDENT AND CEO DNV GLThose colleagues assess, survey, test and verify energy infrastructure being built now to supply the energy the world will need in 2050. And, for the technology not yet installed, we run more joint industry projects than any other organization in our industries, focused on new research driving better technology and improved process standards. For us, and for many of our customers, the energy transition itself is the greatest source of risk – and opportunity.Our own exposure, combined with our expertise and investments in future-looking activities, has enabled us to create an ined outlook on the energy transition, which I believe is worth sharing with our customers and others who influence policy and social decisions. nullThere are many signs that the energy industry is on the brink of profound change. Globally, policy developments, despite some notable exceptions, continue to favour renewables technology. Last year, new renewable power capacity additions were more than double the new power capacity additions from fossil fuels. In capital markets, a reallocation of funds towards cleaner technology is underway. Where is all of this going to take us That is what we aim to answer. FOREWORDOur energy forecast has its foundations in the expertise of the thousands of DNV GL engineers working in both the oil and gas sector, and in power and energy use.5FOREWORDThere are certain trends of which we can be reasonably certain. One of these has to do with cost, which, like water, constantly seeks lower levels. An important feature of this Outlook are cost learning curves associated with key energy sources – in other words, the rate at which costs decline with each doubling of installed capacity. For renewables and battery storage, this rate is in the high teens, and that will force a profound change in the world’s energy mix in the coming decades.But greater changes yet will emanate from advances in energy efficiency. Driven by pervasive electrification, especially of transport, and by ongoing efficiency gains in other sectors, linked in many instances to digitalization, we expect energy intensity energy use per unit GDP to decrease more quickly than the global economy will grow in the long run. The net result of that will be a peaking of energy demand worldwide in the 2030s. An energy market becoming smaller in less than two decades from now makes the quest for efficiency so much more strategic and urgent. Naturally, the energy future is not likely to play out exactly in line with our forecast. The unexpected has a habit of turning up unannounced. Policy changes and technology and cost developments will unfold at uneven and sometimes unanticipated speed. That is why we have subjected our forecast to a number of sensitivity tests. While these adjust- ments lead to different outcomes, none is so diffe- rent as to alter our main conclusion that we have a rapid energy transition ahead of us with electrifica- tion and decarbonization of an ever-more efficient energy system. We forecast a very strong growth of solar and wind, initial growth in gas, and a decline in coal, oil and, eventually, gas, in that order. This is the second year we have issued an Energy Transition Outlook. We have updated our model with new data and made adjustments on the basis of feedback and experience, and the result is a strengthening of the conclusions we came to last year. In 2017, we forecast a levelling off in global final demand after 2030; this year our forecast points more towards a peaking of demand at a slightly higher level than last year, and, from 2035, a noticeable decline in demand to 2050. We have extended our work into other areas as well, and have more to say this year about effects of digitali-zation, resource limitations, cost of infrastructure and the role of hydrogen.However, the future we forecast is not the future humankind desires. Even with a peaking of energy demand, and fast uptake of renewables and electric vehicles, the energy transition trajectory is not fast enough for the world to meet the ambi-tions of the Paris Agreement. Indeed, even if all electricity was generated using renewable sources from this day forward, we would still exceed the 20C carbon budget. A mix of solutions is therefore required, including higher uptake of cleaner technology, more carbon capture and further improvement of energy efficiency. In those respects, our collective energy future enters the hard-to-forecast realm of political will and policy.WE LOOK FORWARD TO YOUR FEEDBACK ON OUR 2018 OUTLOOK.Remi Eriksen 6DNV GL ENERGY TRANSITION OUTLOOK 2018ACKNOWLEDGEMENTSThis study has been prepared by DNV GL as a cross-disciplinary rcise between three of our business areas – Oil we forecast that primary energy supply will peak in 2032.2. The world’s energy system will decarbonize, with the 2050 primary energy mix split equally between fossil and non-fossil sources.3. Oil demand will peak in the 2020s and natural gas will take over as the biggest energy source in 2026. Existing fields will deplete at a faster rate than the decrease in oil demand. New oil fields will be required through to 2040. 4. Electricity consumption will more than double by mid-century to meet 45 of world energy demand, and solar PV and wind energy will supply more than two thirds of that electricity. 5. The energy transition is affordable. As a proportion of world GDP, expenditure on energy will be lower in 2050 than today. Big shifts in investments are expected more capex will go into grids and renewables than into fossil projects from 2029 onwards. 6. The rapid transition we forecast will not be sufficient to achieve the less than 2C climate goal. A combination of more energy efficiency, more renewables and more carbon capture and storage CCS is needed to meet the ambitions of the Paris Agreement.HIGHLIGHTSENERGY TRANSITION TIMELINEHighlights of our forecast energy transition to 2050. The green slope represents the share of non-fossil energy sources in the energy mix. 20202016 2025 2030 2035 2040 2045 205050 of theenergy mixis non-fossilPercentage ofenergy mixnon-fossil2033Half of all light vehicle sales electric2042Half of the world’s fleet ofroad vehicles - light and heavy - is electric2047Heavy electric vehicles start to outnumber ICE heavy vehicles on the road2038Wind supply x10 more than 2016 2023PV install-ations1TW2040PV install-ations 10TW2026Gas over-takes oil2031Wind over-takes hydro2014Coal peakedEnergy peaksNon-fossil shareEnergy transitionsEnergy milestones2023Oil peaks2026Transport energydemand peaks2039Manufacturing energydemand peaks2035Peak finalenergy demand19 of the energy mix is non-fossil2034Natural gas peaks2024Light EVs reach cost parity withinternal combustion engine ICE vehicles2023Seaborne containertrade exceedscrude oil trade2034Non-fossil capex overtakes fossil capex2038Seaborne gas trade exceeds coal trade2042Half of mari-time energy use is non-oil2049Solar PV overtakes oil in primary energy2044Solar PV overtakesbiomass in primaryenergy2035World grid capacity doubles from 20162035Maritime energy demand peaks 202895 of world population has electricity access2048World gridcapacity triplesfrom 20162044Non-fossil expend-itures overtake fossil expenditures100908070605040302010020202016 2025 2030 2035 2040 2045 205050 of theenergy mixis non-fossilPercentage ofenergy mixnon-fossil2033Half of all light vehicle sales electric2042Half of the world’s fleet ofroad vehicles - light and heavy - is electric2047Heavy electric vehicles start to outnumber ICE heavy vehicles on the road2038Wind supply x10 more than 2016 2023PV install-ations1TW2040PV install-ations 10TW2026Gas over-takes oil2031Wind over-takes hydro2014Coal peaked2023Oil peaks2026Transport energydemand peaks2039Manufacturing energydemand peaks2032Peak primaryenergy supply2035Peak finalenergy demand19 of the energy mix is non-fossil2034Natural gas peaks2024Light EVs reach cost parity withinternal combustion engine ICE vehicles2023Seaborne containertrade exceedscrude oil trade2038Seaborne gas trade exceeds coal trade2042Half of mari-time energy use is non-oil2049Solar PV overtakes oil in primary energy2044Solar PV overtakesbiomass in primaryenergy2035World grid capacity doubles from 20162035Maritime energy demand peaks 202895 of world population has electricity access2048World gridcapacity triplesfrom 20162044Non-fossil expend-itures overtake fossil expenditures10090807060504030201002033NuclearpeaksENERGY TRANSITION TIMELINEHighlights of our forecast energy transition to 2050. The green slope represents the share of non-fossil energy sources in the energy mix. Energy peaksNon-fossil shareEnergy transitionsEnergy milestonesENERGY TRANSITION TIMELINEHighlights of our forecast energy transition to 2050. The green slope represents the share of non-fossil energy sources in the energy mix. 20202016 2025 2030 2035 2040 2045 205050 of theenergy mixis non-fossilPercentage ofenergy mixnon-fossil2033Half of all light vehicle sales electric2042Half of the world’s fleet ofroad vehicles - light and heavy - is electric2047Heavy electric vehicles start to outnumber ICE heavy vehicles on the road2038Wind supply x10 more than 2016 2023PV install-ations1TW2040PV install-ations 10TW2026Gas over-takes oil2031Wind over-takes hydro2014Coal peakedEnergy peaksNon-fossil shareEnergy transitionsEnergy milestones2023Oil peaks2026Transport energydemand peaks2039Manufacturing energydemand peaks2035Peak finalenergy demand19 of the energy mix is non-fossil2034Natural gas peaks2024Light EVs reach cost parity withinternal combustion engine ICE vehicles2023Seaborne containertrade exceedscrude oil trade2034Non-fossil capex overtakes fossil capex2038Seaborne gas trade exceeds coal trade2042Half of mari-time energy use is non-oil2049Solar PV overtakes oil in primary energy2044Solar PV overtakesbiomass in primaryenergy2035World grid capacity doubles from 20162035Maritime energy demand peaks 202895 of world population has electricity access2048World gridcapacity triplesfrom 20162044Non-fossil expend-itures overtake fossil expenditures100908070605040302010020202016 2025 2030 2035 2040 2045 205050 of theenergy mixis non-fossilPercentage ofenergy mixnon-fossil2033Half of all light vehicle sales electric2042Half of the world’s fleet ofroad vehicles - light and heavy - is electric2047Heavy electric vehicles start to outnumber ICE heavy vehicles on the road2038Wind supply x10 more than 2016 2023PV install-ations1TW2040PV install-ations 10TW2026Gas over-takes oil2031Wind over-takes hydro2014Coal peaked2023Oil peaks2026Transport energydemand peaks2039Manufacturing energydemand peaks2032Peak primaryenergy supply2035Peak finalenergy demand19 of the energy mix is non-fossil2034Natural gas peaks2024Light EVs reach cost parity withinternal combustion engine ICE vehicles2023Seaborne containertrade exceedscrude oil trade2038Seaborne gas trade exceeds coal trade2042Half of mari-time energy use is non-oil2049Solar PV overtakes oil in primary energy2044Solar PV overtakesbiomass in primaryenergy2035World grid capacity doubles from 20162035Maritime energy demand peaks 202895 of world population has electricity access2048World gridcapacity triplesfrom 20162044Non-fossil expend-itures overtake fossil expenditures10090807060504030201002033NuclearpeaksENERGY TRANSITION TIMELINEHighlights of our forecast energy transition to 2050. The green slope represents the share of non-fossil energy sources in the energy mix. Energy peaksNon-fossil shareEnergy transitionsEnergy milestones14DNV GL ENERGY TRANSITION OUTLOOK 2018CUTIVE SUMMARY15Over the next three decades, the world’s energy system will become substantially cleaner, more affordable, and more reliable. Understanding this energy transition is critical for businesses, investors, and regulators.CUTIVE SUMMARYWHAT IS THE DNV GL ENERGY TRANSITION OUTLOOKA STRATEGY TOOLBased on DNV GL’s independent model of the world’s energy system, this annual Outlook aims to assist our customers’ analysts and decision makers, and those in other stakeholder organiza-tions in the global energy supply chain, to develop their future strategic options. Our customers own and operate assets with useful lives that span decades and during this period pivotal changes in the world’s energy system will occur. On the brink of such changes between now and mid-century, we believe that it could be beneficial to take stock of business strategies and compare existing plans and investment decisions against the kind of model-based forecast that we have prepared.Our findings indicate that immense challenges and opportunities lie ahead for the industries that we serve, and we explore these further in three ’industry implications’ supplements − Oil and Gas− Maritime − Power Supply and UseAs this is an annual Outlook, it is subject to on go-ing refinement aimed at continually improving its accuracy and relevance for those using it in their own strategic projections. Thus, results may vary from year-to-year as we incorporate new data sets and refine our model based on contemporary developments and improved insights.AN INDEPENDENT VIEWDNV GL was founded to safeguard life, property, and the environment more than 150 years ago. Since then we have developed a strong footing in both the fossil and renewable energy industries, and there, as in all other industries, our business is about creating trust. This, coupled with being fully owned by a foundation, allows us to take an independent and balanced view of the energy future. As a company, we are a world-leading provider of quality assurance and risk management services in more than 100 countries. Two of our main business areas focus, respectively, on oil and gas, and on power and renewables. However, as the world’s largest ship classification society, the seaborne transportation of energy as crude oil, liquefied natural gas LNG, and coal are also key businesses for us. In fact, around 70 of DNV GL’s business is related to energy in one or another. DNV GL ENERGY TRANSITION OUTLOOK 201816This Outlook therefore draws on DNV GL’s broad involvement across entire energy-supply chains, spanning complex offshore infrastructure, onshore oil and gas installations, large- and small- scale wind, solar, storage, and energy-efficiency projects, electricity transmission and distribution grids, and seaborne trade in fossil fuels.DNV GL is a knowledge-led organization, typically spending 5 of revenue on research and innova-tion. The core model development and research for this Outlook was conducted by a dedicated Energy Transition Outlook team in our corporate