Global Energy Perspective 2022 Executive Summary

Global Energy
Perspective 2022
Executive Summary
April 2022
McKinsey’s Global Energy Perspective is a collaboration
between Energy Insights and adjacent practices
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Insights in collaboration with sustainability, climate resilience, energy 80% of the largest mining companies offers a detailed demand outlook
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and operational decisions by using partnerships. exhaustive in the realm of all possible
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an integrated suite of market models, outcomes, and currently do not
McKinsey’s Global Energy and Materials works with industry executives to
proprietary industry data, and a global reflect the impact of the invasion of
Practice (GEM) serves clients in address issues that include strategy,
network of industry experts. It works Ukraine on energy markets.
industries such as oil and gas, mining, organization, operations, technology,
with leading companies across the entire
steel, pulp and paper, cement, chemicals, marketing, sales, and risk. The
energy value chain to help them manage
agriculture, and power. It assists them to practice focuses on core operating
risk, optimize their organizations, and
make decisions on the most important capabilities and helps clients take a
improve performance.
issues regarding strategy, operations, long-term, through-cycle view of the
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by half by 2030, and to achieve net zero practice—offer fundamental insights transformations to accelerate revenue Learn more
by 2050. McKinsey Sustainability seeks into commodity-market dynamics. GEM generation, technology integration,
to be the preeminent impact partner serves many of the top global players, operations design, and margin and cash
flow improvements.
2 Global Energy Perspective 2022

Editor's note
April 2022
decades. Although most of these pledges have yet to be translated into concrete policies
We publish this long-term energy outlook at a time when global energy markets are
and actions, the continued growth of low-carbon technologies shows that key enablers
facing unprecedented uncertainty. The global energy landscape has been impacted by
for the energy transition keep momentum.
increased market uncertainty due to the conflict in Ukraine. Already before the conflict
began, the rebound in energy demand triggered supply constraints and price spikes for
These shifts and their interplay raise several key questions about the potential path
multiple commodities. Additionally, the long-term shift to low-carbon energy systems
ahead for the global energy landscape. Will price spikes delay the energy transition,
continues to gain momentum and has been accelerating in several respects.
or will high fossil fuel prices accelerate adoption of low-carbon alternatives? Will
governments and businesses further increase their efforts to decarbonize, or will
We choose to publish this report now to contribute a set of scenarios that may help
challenges in implementation lower ambition levels? How might the invasion of Ukraine
calibrate the invasion of Ukraine with the longer-term energy transition momentum.
influence the direction and speed of the transition? And, will there be an orderly
The conflict is having immediate impacts on energy markets around the world. The
transition to a low-carbon economy, or will rapid shifts come with instability and unrest?
resulting uncertainty is something that the world has not seen in a long while and, as
of today, the potential scenarios that could unfold remain very uncertain. As a firm, we
Our 2022 Global Energy Perspective presents a new suite of five energy scenarios.
have been exploring overall scenarios on how the situation might evolve and what the
Based on contributions from hundreds of McKinsey expert practitioners from around
implications on the energy markets could be. As we continue to monitor the situation,
the world, these scenarios cover a spectrum of possible outcomes, ranging from strong
we will provide regular updates on where the energy market could be headed as
decarbonization in line with many of the recent net-zero pledges to a scenario that sees
stakeholders try to balance affordability, energy security, and long-term decarbonization
fading momentum for a transition of the global energy system. We use these scenario
ambitions. At the same time, most of the developments may be pertinent to the longer-
outlooks—and the underlying models—to support hundreds of leaders around the world
term trends in energy systems that we have observed in the past decade, like increased
and across a broad range of sectors, helping organizations navigate the transitions in
competitiveness of electrification and renewables. This report specifically focuses
energy systems.
on those longer-term trends and is based on the insights and analytics developed
by McKinsey’s Energy Insights as well as the expertise of our industry and regional
This report is divided into four parts. Part one provides a perspective on the
practitioners.
development of fundamental drivers for the global energy system. Part two provides
an outlook for power systems, and outlooks for each energy type and carrier, including
Looking back to 2021, the economic recovery from the effects of the COVID-19
hydrogen, sustainable fuels, natural gas, oil, and coal, as well as a view on the role of
pandemic brought a rebound in energy demand around the globe. This, coupled with
CCUS. Part three discusses carbon emissions, and part four reflects on implications for
supply side constraints, caused energy prices to see notable increases, especially
business leaders and policy makers, including a view on value pools and an outlook for
for natural gas and electricity. While gas prices hit a 30-year low at the start of the
energy investments.
pandemic, they reached a nearly two-decade-high point in 2021. Power prices showed
similar volatility, impacting energy costs for many businesses and households.
We hope that this report provides valuable insight into the energy transition, and that it
helps inform thinking around the low-carbon future.
At the same time, the transition to a low-carbon economy is continuing. In the
context of COP26, a large number of countries, as well as many of the world’s largest
corporations, have committed to achieving net zero emissions within the next few
Global Energy Perspective 2022 4

Key insights from McKinsey's Global Energy Perspective 2022
1 2 3 4 5
While governments and businesses Going forward, the energy mix is The projected peak in demand Even if all countries with net-zero Total investments across energy
are increasingly committed to steep projected to shift toward power. for fossil fuels continues to move commitments deliver on their sectors are projected to grow by more
decarbonization targets, energy By 2050, electricity and enabling forward; demand for oil is projected aspirations, global warming is than 4% per annum and are projected
markets face extreme volatility hydrogen and synfuels could to peak in the next five years projected to reach 1.7°C by 2100 to be increasingly skewed towards
driven by geopolitical tensions and account for 50% of the energy mix non-fossil and decarbonization
a rebound in energy demand Peak oil demand is projected to occur All scenarios require substantial technologies, while returns remain
Electricity demand is projected to between 2024 and 2027¹ driven shifts to occur across the energy uncertain
The conflict in Ukraine, as well as triple by 2050 as sectors electrify and largely by EV uptake—a development landscape. Even in the Current
other factors, have triggered sig- hydrogen and hydrogen-based fuels that is already underway. Coal Trajectory scenario, significant Annual investments in energy supply
nificant peaks in energy prices as increase their market share due to demand peaked in 2013 and, after investments will likely be required to and production are expected to double
uncertainties around supply security decarbonization a temporary rebound in 2021, is kickstart new technologies by 2035 to reach $1.5 trillion to $1.6
and affordability are paramount. This projected to continue its downward trillion¹; almost all growth is expected
comes at a time where markets are Renewable generation is projected to trajectory With current government poli- to come from decarbonization technol-
already tight following the COVID-19 reach 80–90% of the global energy cies, additional commitments, and ogies and power, which will by 2050
rebound mix by 2050 as the global build-out The conflict in Ukraine is leading projected technology trends, global exceed today’s total energy investments
rates for solar and wind grow by a to price spikes as the market and warming is projected to exceed
Throughout 2021, global energy de- factor of five and eight respectively consumers balance supply security 1.7°C, making a 1.5° pathway increas- EBIT in decarbonization technologies
mand and emissions increased by 5% and affordability ingly challenging and power is expected to grow by 5%
compared to 2020, almost reaching Hydrogen demand in new sectors per annum, and could outpace the
pre-COVID-19 levels (~33 Gt ener- could reach 350–600 mtpa in 2050 Toward 2035, gas demand across To keep the 1.5° Pathway in sight, the growth in underlying investments
gy-related CO₂ equivalent) (compared to ~80 mtpa today); global all scenarios is projected to grow global energy system may need to
demand for sustainable fuels is another 10–20% compared to today¹; accelerate its transformation signifi- Business models in a highly decarbon-
In the context of COP26, a total of expected to mature, reaching 8–22% after 2035, gas demand will likely cantly, shifting away from fossil fuels ized system are expected to remain
64 countries (accounting for 89% of all liquid fuels by 2050 be subject to larger uncertainties, toward efficiency, electrification, uncertain across sectors, and will likely
of global CO₂ emissions) have made driven especially by the interplay with and new fuels, quicker than even the rely on adjustments in market design (for
net-zero pledges, while financial hydrogen announced net-zero commitments example, capacity payments for flexible
institutions and private sector enter- thermal power generation), subsidies, or
prises also continue to increase their Two to four¹ Gt of CO₂ will need other support mechanisms (for example,
decarbonization aspirations to be captured by CCUS by 2050 support for CCUS on top of CO₂ prices)
to decarbonize heavy industries
1. Between Current Trajectory and Achieved Commitments scenarios
where fossil fuels continue to play a
Source: McKinsey Energy Insights Global Energy Perspective 2022
significant role Global Energy Perspective 2022 6
While developments of the conflict in Ukraine are highly uncertain, today’s
While
decisionsdevelopments
could impact theof the conflict
long-term in Ukraine
energy transition are towards
and path highly
uncertain, today’s decisions could impact the long-term
decarbonization
energy transition and path towards decarbonization
There are many questions related to the development of the conflict, as well as the impact on GDP
and energy
There markets
are many questions related to the development of the conflict, as well as the impact on GDP and energy markets
Energy markets are affected by GDP, but are also a driver

Potential uncertainties related to development of the conflict for GDP
Duration and scale of • What will be the duration of the conflict? GDP • To what extent is GDP disrupted?
disruption • Does the conflict expand (within and beyond Ukraine)? • How does inflation develop?
• Does the number of refugees further increase? • What will the increased share of wallet on energy mean
• Do sanctions escalate? for growth in other sectors?
• To what extent and for how long are energy and
commodity markets (severely) disrupted? Energy
• How will high prices affect energy demand?
Demand
• Will policies drive fuel switching?
• What share of natural gas can be substituted by

Government policy • Will governments accelerate monetary measures to limit Supply alternatives?
and consumer inflation? • How can Europe substitute its Russian gas supply with
response • Will governments invest in improving long-term growth LNG from elsewhere?
prospects?
• Will there be a structural shift in consumer behavior in
response to the current crisis? • Can Europe scale the grid fast enough to allow for faster
• Will consumers see fiscal support for energy and food Infra- renewables build-out?
cost? structure • What infrastructure and connection bottlenecks exist
• Will governments see investment in energy that need to be addressed for a changed energy mix
infrastructure? (LNG, gas, renewables etc.)?
McKinsey’s
McKinsey’s latest perspective
latest on the
perspective onimpact of the conflict
the impact in Ukraine
of the conflict inon energy on
Ukraine markets is regularly
energy marketsupdated. Please
is regularly. refer to:
Please Warto:
refer in Ukraine: Lives and Lives
War in Ukraine: livelihoods, lost and disrupted
and livelihoods, lost
and disrupted

McKinsey’s Global
McKinsey’s Energy
Global Perspective
Energy offers a detailed
Perspective demand
2022 offers a outlook
detailed
across key dimensions
demand outlook across key dimensions
Our report assesses energy systems across countries, sectors, and energy products
Our report assesses energy systems across countries, sectors, and energy products
Non-exhaustive Builds on 20+ state-of-the-art McKinsey assets,

including:
55 segments
McKinsey Hydrogen Model
Transport Combines energy and hydrogen demand projections with
country-specific supply-cost dynamics. Models detailed
• Road transport (including
cost outlooks for underlying technologies such as
Sectors
buses, trucks, and cars) electrolyzers, SMR, RES cost decline, and CCUS
• Rail
• Aviation
McKinsey Sustainable Fuels Model
• Marine
• Other transport Provides global regulatory tracking and country-level
Sustainable Fuels demand outlooks for more than ten bio/synfuel types (eg,
advanced HVO, PtL SAF, drop-in bio/synfuel gasoline),
Buildings Ene hies
rgy along with advanced fuels project database, feedstock
pro grap
• Residential buildings duc Geo availability, and production cost models
ts
• Commercial buildings
Heat
McKinsey Power Model
Industry 70+ energy products 146 countries
• Iron and steel Projects capacity additions in the power sector and
• Natural gas • 45 in Asia simulates dispatching decisions based on system-cost
• Chemicals
• Coal • 43 in Europe optimization. Captures more than 80% of global power
• Manufacturing
• Oil products (eg, gasoline, • 31 in Africa demand at the country and subcountry level and models
• Mining at an hourly granularity
diesel, and HFO) • 27 in the Americas
•
• Renewable resources (eg,
• Other industry
solar, wind, and hydro) McKinsey e-Trucks TCO Model
CCUS
• Sustainable fuels (eg, HVO, Assesses future evolution of commercial vehicle parc by
Power
SAF) country and vehicle class and projects powertrain mix
• Electricity generation
• Electricity development based on total cost of ownership. Incorpo-
• Hydrogen production
• Hydrogen rates views on the cost decline of of battery- and
Hydrogen Supply hydrogen-fueled engines in e-trucks and efficiency
improvements of ICE trucks

In our Global Energy Perspective 2022, we explore five
scenarios
In
In our
our 2022
2022 Global
Global Energy
Energy Perspective
Perspective report
report we
we use
use 5
5 scenarios
scenarios
Scenarios center around pace of technological progress and level of policy enforcement
Slower Faster As the state of energy transition is

Speed of energy Modelled bottom - up as part of GEP 2022
Faster
Speed of energy Slower Modelled bottom - up as part of GEP 2022 evolving (eg, national and industry
transition
transition climate commitments, financial sector
changes) this report introduces a revised
set of scenarios to assess the potential
Scenario Fading Momentum Current Trajectory Further Acceleration Achieved Commitments 1.5° Pathway
impact on fuels and sectors
Scenario
description Fading Momentum Current Trajectory Further Acceleration Achieved Commitments 1.5° Pathway
description Fading momentum Current trajectory of Further acceleration Net-zero commitments3 A 1.5º pathway is The three main scenarios used in this
Fading momentum
in cost reductions, Current trajectory
renewables cost of Further acceleration
of transition driven Net-zero
achieved commitments3
by leading A 1.5º pathway
adopted is
globally, report are:
in cost reductions,
climate policies, and renewables cost
decline continues, of
bytransition driven
country-specific achieved
countries by leading
through adopted globally,
driving rapid
climate policies, and decline • Achieved Commitments
public sentiment will howevercontinues,
active by country-specific
commitments, countries
purposefulthrough
policies; driving rapid
decarbonization
public
lead tosentiment
prolongedwill however active
policies currently commitments,
though financial and purposeful policies; at
followers transition decarbonization
investment and • Further Acceleration
lead to prolonged
dominance of fossil policies currently to
remain insufficient though financial and
technological followers transition at
slower pace investment and
behavioral shifts • Current Trajectory
dominance
fuels of fossil remain insufficient
close gap to
to ambition technological
restraints remain slower pace behavioral shifts
fuels close gap to ambition restraints remain
Of these, Further Acceleration will
Required CO₂ < € 50 € 55 - 130 € 75 - 140 € 100 - 180 € 200+
Required CO₂ < € 50 € 55 - 130 € 75 - 140 € 100 - 180 € 200+ be presented as the central scenario
price¹
price¹ throughout this report
€/tCO₂, 2030-50
€/tCO₂, 2030-50
Global temp. These scenarios are centered around
> 2.4 ºC 2.4 ºC 1.9 ºC 1.7 ºC <1.5 ºC
Global
increasetemp.
linked to > 2.4 ºC 2.4 ºC
(1.9 - 2.9)
1.9 ºC
(1.6 - 2.4)
1.7 ºC
(1.4 - 2.1)
<1.5 ºC the pace of technological progress and
increase
expectedlinked to
emission (1.9 - 2.9) (1.6 - 2.4) (1.4 - 2.1) various levels of policy enforcement
expected
levels2 emission
levels2
This report therefore uses these
scenarios to evaluate long-term trends
1. Global average CO₂ prices required in 2030 and 2050 to trigger decarbonization investments sufficient to fulfil the scenario. Prices are weighted by
1. Global average
country CO₂emissions
and sector prices required in holistic
and are 2030 and 2050
in that to trigger
they includedecarbonization investments
both explicit costs sufficient
(eg, carbon to fulfil
tax, emission the scenario.
trading system)Prices are weighted
and implicit by
costs (eg, and fundamentals and their impact on
country and
subsidies, sector emissions
feed-in-tariffs) and are holistic
to incentivize in that they include both explicit costs (eg, carbon tax, emission trading system) and implicit costs (eg,
abatement
2. subsidies, feed-in-tariffs)
Warming estimate to incentivize
is an indication abatement
of global rise in temperature by 2100 versus pre-industrial levels (median - 17th/83rd percentile), based on IPCC the energy transition.
2. Warming estimate
assessments givenisthe
anrespective
indication of global rise
emission in and
levels temperature
assumingbycontinuation
2100 versusofpre-industrial levelsbut
trends after 2050 (median - 17th/83rdemissions
no net-negative percentile), based on IPCC The uncertainties surrounding the
3. assessments given the respective
Excluding international bunkers emission levels and assuming continuation of trends after 2050 but no net-negative emissions
3. Excluding international bunkers conflict in Ukraine are not addressed by
these scenarios

Analysis conducted before the invasion of Ukraine in February 2022
The global energy mix is projected to shift rapidly towards

power and hydrogen
In ourof
Share 2022 Globaland
electricity Energy Perspective
hydrogen report we use
in final consumption may5grow
scenarios
to 32% by 2035, and
50% by 2050
In our 2022
Scenarios Global
center aroundEnergy Perspective
pace of technological reportand
progress welevel
useof5policy
scenarios
enforcement
Further Acceleration Global energy consumption is projected to flatten

Scenarios center around pace of technological progress and level of policy enforcementCAGR 2019-50 in the coming decades. Despite rapid growth of
Final energy consumption by fuel, million TJ the global economy and population growth of two
Further Acceleration CAGR 2019-50 billion people, energy consumption is projected to
500
grow by only 14%
Final energy consumption by fuel, million TJ Other¹ 2.3%
+14%
500 Continued reductions in the energy intensity of
400
32% Other¹ 2.3% GDP are a key driver, triggered by greater end-use
+14% Electricity 2.8% efficiency in buildings, transport, and industry.
400 50% Electrification plays an important role in this, as a
300
32% shift to electrical solutions tends to come with a
Electricity 2.8%
50% Hydrogen 6.5% step-change in efficiency in many segments, such
300 as space heating and passenger cars
200
Bioenergy 0.7%
Natural
Hydrogen 6.5% The role of electricity in the final consumption mix
-1.6%
200 gas
100 Bioenergy is projected to grow from ~20% today to 40% by
0.7%
Oil
Natural -1.9% 2050. The corresponding doubling of electricity
-1.6%
gas consumption combined with uptake of hydrogen is
100 Coal -1.5%
0 projected to offset fossil-fuel consumption (which
1990 2000 2010 2020 2030 2040 2050Oil -1.9%
excludes primary demand of coal and gas for
7 6 5 5 4 Coal -1.5% power generation), which could be ~40% lower in
0 3 Energy intensity of
1990 2000 2010 2020 2030 2040 2050 GDP, MJ/$ 2050 compared to 2020
7
48 50
6 53 55 53 50
5 5 Energy
4 3 Energy intensity of
consumption
GDP, MJ/$ per
capita, GJ/cap
1990-2000
48 2000-2010
50 2010-2020
53 55
2020-2030 2030-2040
53 2040-2050
50
Energy
1. Includes heat and synthetic fuels consumption per
capita, GJ/cap
1990-2000 2000-2010 2010-2020 2020-2030 2030-2040 2040-2050
1. Includes heat and synthetic fuels

Power supply and demand

Chapter summary
Power consumption is expected Renewables are expected to Flexible assets like gas plants, Technologies like CCUS¹ and
to triple by 2050 as electrification become the new baseload, batteries, and hydrogen nuclear will likely see additional
and living standards grow accounting for 50% of the power electrolyzers are key for grid growth if renewables build-out
mix by 2030 and 85% by 2050 stability and decarbonization remains constrained
Electrification is often the first lever
projected to achieve the emission- Solar and wind builds already come at a The large projected build-out of
Both traditional and new flexible capacity
reduction goals, being the cheapest and lower cost than than existing fossil fuels intermittent renewables can pose
are needed to ensure system security
easiest to implement in most sectors in most countries and are projected to challenges around land use, transmission
(globally, 24 TW capacity additions by
become increasingly cost competitive capacity, and overall acceptance
2050). Flexible capacity additions are
Transportation is projected to see the globally
estimated to account for ~25% of total
fastest transition to electricity due to EVs Should roadblocks arise that limit the
additions between 2030 and 2035, with
reaching cost parity with ICE cars already in Thermal generation is projected to shift deployment of renewables, low-carbon
hydrogen, EVs, and batteries making up a
the mid-2020s to a role of back-up flexibility provider to technologies such as CCUS, nuclear, and
large share of this capacity
support grid stability, with load factors long-duration energy storage (LDES) could
In buildings, increasing living standards are declining ~30% globally from 2019 to 2050 help meet emission goals
Green hydrogen is projected to account for
projected to drive the increasing demand (from 40% to 28%)
28% of power demand by 2050. Despite
for appliances and space cooling, bringing Nuclear uptake could be significant in
creating additional demand, dispatchable
the sector to ~60% electrification in 2050 There are expected regional differences land-constrained regions, while CCUS
electrolyzers allow for the integration
from ~30% today in the decarbonization paths for the power could cover 8—17% of the remaining fossil
of more intermittent renewable energy
mix, driven by active policies, political generation by 2050, if growing CO₂ prices
sources in the system, reducing specific
Particularly for the long term, green preferences, economic factors, and the make it attractive in regions with low-cost
emissions by ~15%
hydrogen production is projected to be the availability of land and resources fuels
biggest driver of additional power demand
Green hydrogen is projected to contribute
(42% of the growth between 2035–2050),
as a storage mechanism for power
with hydrogen playing a key role for hard-
production. Gas turbines converted to
to-abate sectors such as iron and steel
hydrogen can provide additional flexibility.
New technologies, such as vehicle-to-grid
and long-duration energy storage, could
play a key role if they reach technological
1. Carbon capture, utilization, and storage maturity and prove to be cost-effective

Renewables are projected to account for 80—90% of power

generation globally
Talent growth practices by
drop off sharply2050
and return in late tenure
Talent growth practices drop off sharply and return in late tenure
Share of renewables in the power mix is projected to double in the next 15 years
Respondents who agree the activity is done frequently in their organisation, % responses
Share of Other2 Wind offshore Hydro Fossil with CCUS3 Coal In all scenarios, renewables are projected
Further Acceleration
Solar Wind to lead the power generation mix, reaching
renewables1
Share of Other2 Wind onshore
offshore Hydrogen
Hydro Gas with CCUS3
Fossil Nuclear
Coal
80—90% in 2050. In the Further Acceleration
renewables1 Solar Wind onshore Hydrogen Gas Nuclear
scenario, RES share is expected to double in the
Global power generation
next 15 years, from 29% to 60%
Thousand
Global TWhgeneration
power Other scenarios
Thousand TWh Other scenarios Most of the growth in RES is expected to come
87
83 from solar and onshore wind, due to declining
87
83 costs, and they are projected to make up 43%
70 70 and 26% of generation respectively in 2050
58 70 70 under the Further Acceleration scenario. Off-
shore wind is projected to remain limited to less
48 58
than 7% of global generation due to permitting
39 48 constraints and policy hurdles, with potential to
32 39 grow further if constraints on onshore wind such
24 27
22 32 as land use persist
15 18 24 27
13 22
15 18 Thermal generation is still expected to play
13 an important role as a flexibility provider, with
gas providing substantial shares of base-load
1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 CT4 AC4 generation up to 2040 in regions with favorable
1995 2000 2005 2010
20% 2015 2020 60% 2040 2045 2050
29% 2025 2030 2035 86% CT4
79% AC4
89% fuel costs
20% 29% 60% 86% 79% 89%
2050 Nuclear generation is still expected to require
2050 economic support from policies, which is not yet
present in many regions as public acceptance
1. Includes solar, wind, hydro, biomass, BECCS, geothermal, and marine and hydrogen-fired gas turbines
2. Other includes bioenergy (with and without CCUS), geothermal, marine, and oil continues to prove challenging
1.
3. Includes solar,
gas andwind,
coalhydro,
plantsbiomass,
with CCUSBECCS, geothermal, and marine and hydrogen-fired gas turbines
2.
4. Other
CT includes
refers to thebioenergy (with and scenario;
Current Trajectory without CCUS), geothermal,
AC refers marine,Commitments
to the Achieved and oil scenario
3. Includes gas and coal plants with CCUS
4. CT refers to the Current Trajectory scenario; AC refers to the Achieved Commitments scenario
Source: McKinsey Energy Insights Global Energy Perspective 2022; McKinsey Power Model
Oil demand
Chapter summary
Global liquids demand is expected to peak A decline in liquids demand in road Crude oil demand is expected to decline
around 102 MMb/d in the next two to five transport will likely drive a peak across rapidly after 2030, while remaining liquids
years, despite a near-term recovery of liquids markets, while growth in chemicals and demand growth may mostly be seen in non-
demand from the impacts of the COVID-19 aviation may slow down energy use of oil and bio- and synfuels
pandemic
Liquids demand in road transport is projected to decline Crude oil used for combustion is expected to decline from
COVID-19 resulted in a significant drop in liquids demand; 75% by 2050 after peaking in the early 2020s, driven 80%-45% of total liquids by 2050, as growth in non-
while regional demand has largely bounced back, pre- by slowing growth in the number of cars on the road, energy use of oil continues and bio- and synfuels increase
pandemic levels are projected to be reached only by 2023, increased efficiency, and accelerating uptake of electric their share, especially in transport applications
mainly due to low international aviation traffic vehicles (EVs), with bio- and synfuels decreasing demand
for crude oil further Shifts across sectors—such as faster EV uptake, increased
Global liquids demand is projected to peak in the next usage of alternative fuels in aviation and maritime, and
two to five years, driven primarily by electrification and Aviation liquids demand is projected to continue growing, increased plastic recycling—could accelerate the energy
efficiencies across sectors but uptake of bio- and synfuels may result in a decrease transition further. As a result, crude oil demand could
in the demand for fossil kerosene. Indeed, the demand for fall to 40 MMb/d by 2050 in the Achieved Commitments
Liquids demand in 2050 could be 35—50% lower than fossil kerosene is projected to peak by the mid-2030s, scenario, a 25% decrease from the Further Acceleration
today’s levels; however, reaching the target set by the 1.5° while sustainable aviation fuels may grow to 40% of scenario
Pathway would require an even steeper decline in liquids aviation liquids demand by 2050
demand
Chemicals remain one of the few growth avenues for
On a regional level, liquids demand in major oil markets, liquids demand; demand is projected to grow 50% by
such as the US and EU, has already peaked, and all 2050, despite increasing downward pressure from
markets, including developing regions such as India and demand reduction, recycling, and pyrolysis
Southeast Asia, are likely to peak before 2040

Oil demand could peak in the next two to five years

Oil
Thedemand
uptake ofcould peak
electric in theisnext
vehicles twodriver
the main to fiveforyears
stagnating growth in oil demand
Oil uptake
The demand couldvehicles
of electric peak isinthe
the next
main two
driver for to five years
stagnating growth in oil demand
Liquids demand is projected to peak within this
Liquids1 demand, MMb/d Key drivers for peak in 2025, Further Acceleration decade. The primary driver for the reduction in
The uptake of electric vehicles is the main driver for stagnating growth in oil demand
growth is a slow-down in demand growth for road
Fading Momentum Further Acceleration Historical Projection transport
Liquids1
Currentdemand,
Trajectory MMb/d
Achieved Commitments Key drivers for peak in 2025, Further Acceleration
4,8 3,6 Historically, oil demand was growing by 1—2
FadingPeak liquids demand
Momentum Further Acceleration 2,3
0,7 2,0 0,9 0,9 Historical 1,8
108 Oil average 0,9 0,2
Projection
MMb/d, half of which was through growth in road
Current Trajectory Achieved Commitments yearly growth
-0,2 -0,4 transport. While oil demand continues to recover
106 Post 30 MMb/d 4,8 3,6
Peak liquids demand 2,3 post-COVID-19 in 2022 and 2023, the trends are
108 Oil average 0,7 2,0 0,9 -8,5
0,9 1,8 0,9
0,2
2015 16 17 18 19 20 21 22 23 24 25 26 2027
projected to change from 2024 onwards
104 yearly growth -0,2 -0,4
106 27 Post 30 MMb/d The primary driver for reduced oil demand for road
102 -8,5
25 3,1 transport is the continued uptake of EVs:
104 Oil demand 2015 16 17 18 19 20 21 22 23 24 25 26 2027
1,1 0,6 0,7 1,0 1,0 0,6
24 • Global EV sales grew 62% per annum on
100 27 change for 0,4 0,4 0,1
average in the last four years and by 96%
road 0 -0,2
102 25 MMb/d 3,1 in 2021 alone. EV sales in absolute terms
98 Oil demand 1,1 1,0 1,0 0,6 increased from 2.3 million in 2019 to 6.6 million
24 0,6 0,7 0,4 -3,7
100 change for 2015 16 0,4 0,1
17 18 19 20 21 22 23 24 25 26 2027 in 2021
96 road 0 -0,2 • EV sales in Europe accounted for more than
MMb/d 20% of total car sales in 2021; US EV sales only
98
94 -3,7 accounted for 5%, but doubled year on year
+27%
2015 16 17 18 19 20 21 22 23 24 25 3726 2027
96 31
Global EV 25
92 +57% 16
21 Alongside this, the use of oil in power and heat is
sale share 9 12 decreasing. In the buildings sector, a ban on new
5
94 %, pass car 1 1 1 2 3 +27% domestic oil heaters continues the decline in line
37
0 2015 16 17 18 19 20 21 31
22 23 24 25 26 2027 with historical trends
2018 20 22 24 26 28 2030 Global EV 25
92 +57% 21
16
sale share 9 12
5
1. Crude oil products, liquid biofuels, and synthetic fuels %, pass car 1 1 1 2 3
0 2015 16 17 18 19 20 21 22 23 24 25 26 2027
2018 20 22 24 26 28 2030
1. Crude oil products, liquid biofuels, and synthetic fuels
Source: McKinsey Energy Insights Global Energy Perspective 2022; US Energy Information Administration, Short-term Energy Outlook
Natural gas demand

Chapter summary
Gas has gradually increased its Gas demand is projected to Gas demand is projected to peak The regional shift of gas demand
share in the energy mix and grow by 10% in the next decade by 2035. Demand growth in to Asia is expected to continue,
is expected to play a key role in all scenarios. After 2030, power and industry, particularly as China’s role of demand-growth
throughout the transition with its gas projections diverge across in Asia, may eventually be offset engine is taken over by Southeast
wide range of applications scenarios driven by increasing by decline, especially in buildings Asia after 2030
decarbonization pressure in
The global gas price rally in 2021 was buildings and industry Gas demand in power is set to grow strongly China’s gas consumption is likely to be
supported by high gas demand due to until between 2035 and 2040, after which supported by coal-to-gas switching and the
rapid economic recovery and unexpected it is projected increasingly to play the role of role of CCUS in power and industry
The demand for gas is projected to be more
weather conditions, and a lower supply back-up to renewables
resilient than for other fossil fuels. Its share
due to unexpected outages and Almost all additional demand for imported
in primary energy demand is expected to
underinvestment Long-term gas demand is likely to gas is supplied by LNG , which is projected
decline from 23% today to 23—15%
be supported by industry (for high- to lead to a growth of 20–70% in 2050
by 2050
Uncertainty around the pace and shape temperature heat and chemicals), compared to 2019, depending on the
of the energy transition may impact the particularly in Asia scenario
In the Achieved Commitments scenario, the
volatility in gas prices and lead to even more
remaining gas demand in 2050 is due to
pronounced investment cycles Gas demand in buildings is expected
countries without net-zero commitments,
to decline after 2025. The decline will
carbon offsets, or the deployment of CCUS,
Going forward, gas could play a new role in likely be driven by increased insulation,
which explains 54%, 15%, and 31% of gas
blue hydrogen and ammonia production, electrification, and usage of green gases
demand respectively
and gas infrastructure could be repurposed such as hydrogen or biomethane
for low-carbon fuels such as hydrogen and
Relatively robust absolute gas demand
biogas, or CO₂ transportation for CCUS
translates into a reducing role of gas in
providing heat and power due to high
growth of low-carbon alternatives in these
sectors

Gas demand is projected to grow by 10% in the next decade in

all
Talentscenarios
growth practices drop off sharply and return in late tenure
Scenarios diverge after 2030, driven by increasing decarbonization pressure in buildings
and industry
Current Trajectory Further Acceleration Achieved Commitments 1.5º Pathway Historical In the Further Acceleration scenario, gas
demand is projected to grow until 2035.
Peak natural gas demand The decline thereafter is driven primarily
Natural gas demand by government policies to decarbonize the
bcm industrial and buildings sectors. Alternative
fuels in buildings and industry may need strong
5,000 policy support to become viable
4,500 In the Current Trajectory scenario, gas demand

+10% is projected to increase by 16% from today
4,000
before it reaches a peak in 2040
3,500
In the Achieved Commitments scenario, the
decline is expected to start in 2030, driven
3,000
by decarbonization targets in buildings and
2,500 industry
2,000 However, even progressive scenarios are far

from achieving the 1.5º Pathway, in which gas
1,500 consumption must decline substantially before
2030
1,000
Overall, the decline in gas demand post 2030
500 2019 2030 2035 2040 is driven by electrification, strong renewables
uptake, and green hydrogen adoption in the
0 power, buildings, and industrial sectors
1990 2000 2010 2020 2030 2040 2050

.
Hydrogen demand
Chapter summary
Hydrogen demand is projected Hydrogen supply is projected Three fundamental enablers New trade flows could emerge
to grow fivefold by 2050, driven to shift from nearly 100% may be needed to support the to connect demand centers with
primarily by road transport, grey hydrogen to 60% clean development of the hydrogen resource-rich regions
maritime, and aviation production by 2035, as costs economy
decline and policymakers support Regions with cost-optimal production
Growth to 2035 is driven by sectors with hydrogen technology adoption Infrastructure and supply chain: Timely resources, such as natural gas or renewable
favorable economics versus alternatives, deployment of infrastructure across the energy, could become major hydrogen
such as road transport where fuel cell whole supply chain is likely required to meet export hubs and be at the forefront of a new
In the Further Acceleration scenario, clean
electric vehicles (FCEVs) will likely displace hydrogen demand. Transport and storage global hydrogen trade
hydrogen supply totals around ~110 Mt
conventional diesel trucks infrastructure may be key to enabling a
(~60% of total supply) by 2035 and ~510 Mt
global hydrogen value chain Hydrogen imports would enable the
(~95%) by 2050. Some regions are projected
Beyond 2035, private and public sector uptake of hydrogen in countries that
to fully phase out grey hydrogen (from fossil
commitments could drive the adoption Technology advancement and have decarbonization ambitions, but lack
fuels) by 2050, such as the EU and the UK
of hydrogen in sectors with unfavorable manufacturing scale-up: Cost reduction resources such as renewable energy,
economics, such as the aviation and and increased scale-up in renewable natural gas, and carbon dioxide storage
Announcements of new clean hydrogen
maritime sectors, which are likely to adopt energy production, electrolyzers, and (such as Japan, South Korea, and parts of
production projects tripled year on year
hydrogen-derivative fuels like synthetic carbon capture, utilization, and storage Europe)
in 2021. Around 22 Mt of clean hydrogen
kerosene and ammonia will likely be needed to make clean
capacity has been announced to date,
technologies cost competitive against Converting hydrogen to synfuels (a liquid
approximately 15–20% of what is needed by
This growth is not without precedent; conventional high-carbon production fuel mixture containing hydrogen, such as
2035
historical natural gas adoption in the routes ammonia or methanol) at the export hub
European Union (EU) indicates it is possible could expedite international hydrogen
Hydrogen production will likely be a major
to rapidly change the energy system Government support: Government support shipping
driver of energy demand growth. By 2050,
and targeted actions, such as an increase
hydrogen is projected to add approximately
in CO₂ prices, could be key. Such moves
18,000 TWh of electricity consumption
are particularly needed in segments where
(~36% of electric demand growth) and
hydrogen will not be cost competitive
around 300 bcm to natural gas demand
compared to the high-carbon alternative,
such as the aviation sector. Around 40
countries already have dedicated hydrogen
strategies in place

Transport and new industrial uses could drive two-thirds of

hydrogen demand
Talent growth practices growth
drop off sharply to in2035
and return late tenure
Beyond 2035, hydrogen is projected to scale across all sectors of the energy economy
Further Acceleration In the Further Acceleration scenario, before

2035, 29 Mt (30%) of hydrogen demand
Chemicals Refining Road Transport Aviation and Maritime1 New Industry2 Other3 growth is projected to come from new industrial
uses such as iron and steel, driven by early
Global hydrogen demand change 2019–50 by sector
decarbonization targets and by new-built
Mt
536 plants. Another 26 Mt (30%) comes from
road transport, driven by the increasing cost
92 competitiveness of hydrogen vehicles
Hydrogen demand is projected to accelerate

125 after 2035 across all sectors, with road
transport and new industrial uses still
accounting for more than 50% of demand
93
growth
Demand for synfuels production, mainly

177
112
kerosene, diesel, and ammonia for aviation and
29 maritime sectors, is also projected to accelerate
84 26 13 after 2035, resulting in a total of 93 Mt in 2050,
26 equivalent to ~17% of total H2 demand
100
74
Refining is the only sector where demand is
2019 Chemi- Refining Road Aviation New Other 2035 Chemi- Refining Road Aviation New Other 2050 projected to decline post 2030. As hydrogen is
cals Transport & Industry cals Transport & Industry
involved in the hydrotreating processes of oils
Maritime Maritime
in refineries, the shift from oil to cleaner fuels
for transport (including direct hydrogen use in
1. Aviation and maritime include direct use of hydrogen and hydrogen-derived synfuels including kerosene, diesel, methanol, gasoline, and ammonia. The aviation and maritime, synfuels, BEV, and FCEV)
category also includes some hydrogen-derived synfuels in road transport consequently decreases demand for hydrogen
2. New industry includes all new uses of hydrogen in Industrial processes, eg, iron and steel production, whereas chemicals and refining are traditional
hydrogen uses
3. Other includes buildings and electricity generation

Sustainable Fuels
Chapter summary
Sustainable fuels can Sustainable fuels are The demand for Limited availability of Investments in
provide GHG reductions needed to meet 2030 sustainable fuels is certain bio-feedstocks sustainable fuels are
comparable to BEVs and decarbonization targets projected to triple over calls for the uptake of gaining momentum—
are applicable in multiple the next 20 years other advanced options $40 billion to $50 billion
sectors New regulations, such as Fit for of investment expected by
55 in the EU, will likely drive the Growth in sustainable fuels In the late 2020s, waste oil 2025
Sustainable fuels include biofuels demand for sustainable fuels until 2035 is driven primarily by feedstock (EU REDII Annex IX
such as hydrotreated vegetable road transport, reaching 290 Part A and B) is projected to With ~70% of investments
oil (HVO) or bioethanol, and Even in a world with fast EV Mt in the Further Acceleration reach global supply caps at ~30 already after a Financial
synthetic fuels (synfuels) such uptake—where EVs account scenario, while aviation plays Mt in the Further Acceleration Investment Decision (FID), 49 Mt
as ammonia or methanol. They for ~75% of total vehicle sales an increasingly important role scenario of sustainable-fuels capacity is
can be used as drop-in fuels in by 2030—reaching regulatory thereafter projected by 2025
conventional internal combustion GHG reduction targets for Meeting the growing demand for
engines (ICE) transportation could require Post 2035, increasing BEV sustainable fuels beyond 2030 However, further investments of
a significant contribution from penetration is expected to is expected to require greater between $1 trillion and $1.4 trillion
Even though the costs of using sustainable fuels cause a decline in ICE vehicles use of other types of feedstocks, are needed by 2040 to meet
sustainable fuels are projected and a corresponding decline of including RFNBO (CO₂ and H2)¹ decarbonization commitments
to be higher than alternatives sustainable fuels used in road and lignocellulosic materials and regulated demand
in the long term, the use of transport. However, increasing that require novel production
100% renewable diesel, such as sustainable aviation-fuels pathways In the coming decades, business
HVO, can achieve comparable demand driven by mandates is cases may need to consider
lifecycle greenhouse-gas (GHG) projected to more than offset the integrated production logic with
reduction to the use of electric decline, resulting in a net total volumes shifting from road to
vehicles (EVs), allowing for faster demand of almost 400 Mt by aviation, where profitability of
decarbonization of existing fleets 2050 production is projected to depend
in the short term on supply-demand balance,
feedstock availability, and
consumer attractiveness
1. Renewable fuels of non-biological origin

New advanced feedstocks will likely be necessary to meet the

growing demand for sustainable fuels
Limited availability of certain bio-feedstocks might call for the uptake of other advanced options
Further Acceleration Sustainable fuel demand is projected to
increase rapidly in the 2020–30s, driven
Sustainable fuel demand by sector, Mt Sustainable fuel demand by feedstock type, Mt primarily by demand growth in the road
transport market
Sustainable
Aviation fuel demand byOther
Road Transport sector, Mt
sectors1 Sustainable fuel demand by feedstock
Edible sugars Waste oilstype,
(AnnexMt
IX Part A)3
Aviation Road Transport Other sectors1 EdibleEdible
sugarsoils2 Waste oils (Annex IX Partand
Lignocellulosic A)3 other4
After 2035, however, the projected
Limited role of liquid sustainable EdibleWaste
oils2 oils (Annex IX Part B)3
Lignocellulosic and(CO₂
other4
RFNBO5 and H₂ for synthetic) increase in EV penetration of the transport
fuelsrole
Limited in maritime where ammonia
of liquid sustainable
and Waste oils (Annex IX Part B)3 RFNBO5 (CO₂ and H₂ for synthetic) market may cause a decline in the use of
fuels in H₂ are expected
maritime where ammonia
and H₂ are expected ICE vehicles and a corresponding decline
In late 2020s waste oil feedstock Synfuels from CO₂ and H₂ and
In late(Annex
2020s IX PartoilA feedstock
waste and B) are Synfuelsadvanced
from CO₂ andbiofuels
H₂ andfrom of liquid fuels, and thus sustainable fuels,
(Annex expected
IX Part Ato reach
and B) areglobal supply advancedlignocellulosic
biofuels from materials make up in road transport. On the other hand,
+3% p.a. cap to
expected at reach
around 30 Mt
global supply most demand
lignocellulosic materialsby 2050
make up increasing mandates in aviation could
400 +3% p.a. cap at around 30 Mt most demand by 2050
400 outweigh the decline, resulting in further
350 growth of the total demand for sustainable
350
300 +7% p.a. 49% fuels, reaching almost 400 Mt by 2050 in
300 +7% p.a. 49%
250 the Further Acceleration scenario
250
200
200 However, since the availability of waste
150
150 oil feedstocks is highly constrained, the
100
100 49%
49% global supply cap (30 Mt) is projected
96%
50 96%
50
to be reached in the late 2020s, unless
purposely-grown volumes of low ILUC⁶/
0
0 cover crops are rapidly scaled. Indeed,
2020 25
2020 25 3030 3535 4040 45 45 2050
2050 20202020
25 2530 3035 35
40 40
45 45
2050 2050
meeting the growing demand for
1. Maritime,
sustainable fuels will require significant
1. Maritime,rail,
rail,buildings,
buildings,chemicals,
chemicals,industry, andand
industry, other
other
2.
2. Oils
Oilsfrom
fromedible
ediblecrops
crops growth in the use of other feedstocks
3.
3. Feedstocks listed in Annex IX of REDII directive (2018/2001/EU),
Feedstocks listed in Annex IX of REDII directive (2018/2001/EU), Annex A (POME,
Annex tall oil),tall
A (POME, and Annex
oil), and B (UCO,Banimal
Annex (UCO,fats)
animal fats)
4. Includes
beyond oils and sugars, including RFNBO
4. Includesallallfeedstocks
feedstocks forfor
relatively unconstrained
relatively unconstrainedtechnologies, i.e., PtX,
technologies, i.e., gasification, AtJ, bio/syn
PtX, gasification, methane,
AtJ, bio/syn green H₂green
methane, for refinery
H₂ foruse, or more
refinery use,HVO if
or more HVO if
more
morefeedstock
feedstockisisunlocked
unlocked (CO₂ and H₂ for synthetic fuels) and
5. Renewable fuels from non-biological origin
5.
6.
Renewable fuels from non-biological origin
Indirect land use change
lignocellulosic
6. Indirect land use change
Source: McKinsey Energy Insights Global Energy Perspective 2022; Renewable Energy Directive II (2018/2001/EU)
Carbon capture, utilization, and storage (CCUS)

Chapter summary
CCUS is niche today but is projected to By 2050, ~80% of CCUS uptake is CO₂ revenue schemes are uncertain, as
scale notably, reaching ~2—4 Gt by 2050. projected to be deployed in cement, projected CO₂ prices of up to $150–$205/
This will likely require a significant iron and steel, and H₂ production, yet is ton are likely insufficient to accelerate
acceleration compared to the current expected to be subject to sector-specific CCUS uptake towards a net-zero
pipeline uncertainties and to show regional trajectory
differentiation
To meet announced net-zero commitments in the The costs and economic viability of CCUS applications
Achieved Commitments scenario, CCUS uptake Among the industrial segments, the highest CCUS vary widely depending on segment and geography
will need to grow 120 times by 2050, reaching ~4.2 uptake is projected for the blue hydrogen production,
Gt and decarbonizing 45% of remaining emissions iron and steel, and cement sectors (together There is large uncertainty on the revenue streams
in the industry sector. It could act as an important accounting for 85% of global total in the Further for CCUS, given that the projected carbon dioxide
decarbonization lever for hard-to-abate sectors and as a Acceleration scenario) prices are insufficient to scale up CCUS on their
kick-starter for blue hydrogen own, especially for low-purity point sources where
CCUS could play a larger role in the decarbonization additional revenues may be required
In the Further Acceleration scenario, hard-to-abate of the power sector and may reach 1—2 Gt by 2050 if
sectors in countries without net-zero commitments are renewable energy sources (RES) build-out is limited Additional revenues are projected to account for
projected to decarbonize to a lesser extent, only scaling by increased land costs in the US, and if India and ~15% of total revenues required to make business
up when economically viable and reaching ~3.6 Gt by China choose to avoid stranding young coal and gas cases toward 2050. These could be from market
2050 plants and regulatory incentives (such as voluntary
carbon markets, government subsidies), consumer
In the Current Trajectory scenario, CCUS demand would The role of CCUS in reducing emissions varies by willingness to pay, and CO₂ end use (such as
reach ~2.1 Gt by 2050, assuming the scale up is mainly in industry segment. It is the only scalable solution enhanced oil recovery)
line with today’s pipeline for cement to reduce process emissions, but is
facing strong competition from alternatives in other Especially in early years, large additional revenue is
However, CCUS uptake is subject to uncertainty, segments required to kick-start CCUS, given that less than one-
mostly driven by a lack of clarity on commercially- third of CCUS is expected to be in the money without
viable business models of CCUS relative to alternative CCUS uptake differs per region, mainly depending additional revenue streams
decarbonization levers, as well as on the regulatory on decarbonization ambitions, the economics of
development blue hydrogen, and the availability of alternative Cost-intensive segments, such as cement, and
decarbonization levers for hard-to-abate sectors iron and steel, are projected to take the majority of
additional revenues

New energy technologies are growing from niche to significant

parts of the energy system across scenarios
Talent
Talent growth
growth practices
practices drop
drop off
off sharply
sharply and
and return
return in
in late
late tenure
Especially after 2030, sustainable fuels, hydrogen, and CCUS are tenure
projected to grow
significantly
Respondents
Respondents who
who agree
agree the
the activity
activity is
is done
done frequently
frequently in
in their
their organisation,
organisation, %
% responses
responses
Fading Momentum Current Trajectory Further Acceleration Achieved Commitments 1.5° Pathway Achieved Commitments + The growth in sustainable fuels is driven by
Fading Momentum Current Trajectory Further Acceleration Achieved Commitments 1.5° Pathway Achieved Commitments +
upside CCUS in power the decarbonization ambition in much of the
upside CCUS in power
Liquid sustainable fuels—global Global hydrogen demand outlook Global CCUS uptake by scenario latest regulation, recent investments, and
Liquid sustainable fuels—global Global hydrogen demand outlook Global CCUS uptake by scenario
share in transport energy demand1 Mt H₂ Gt CO2 technological advancement. This is expected
share in transport energy demand1 Mt H₂ Gt CO2
% to include both different types of biofuels as
%
well as power-to-gas fuels. By 2050, the share
40 700 7 of sustainable fuels in the energy demand for
40 700 7
transportation could be between 6% and 37%,
H2 and H2-derived depending on net-zero ambition levels across
35 600 H2 and H2-derived 6
35 600 synfuels consumption will 6
synfuels consumption will countries
be 10% of global final
be 10% of global final
30 8.6 million barrels consumption in 2050 2050 demand is
30 8.6 million barrels 500 consumption in 2050 5
2050 demand is Similarly, this momentum is helping the uptake
per day in the 500 5 equal to 10% of
per day in the equal to 10% of of hydrogen. In the Further Acceleration
Further Acceleration 2020 global
25 Further Acceleration 2020 global
25 scenario by 2050 emissions scenario, demand is projected to be mainly in
scenario by 2050 400 4 emissions
400 4 the iron and steel, road transport, and buildings
20 sectors. In maritime and aviation, hydrogen
20
300 6x 3 is also projected to be required as input for
300 6x 3
15 synfuels
15
200 2 In the Further Acceleration scenario, CCUS
10 200 2 100x
5x
10 5x 100x uptake will need to increase 100 times by 2050,
decarbonizing ~40% of remaining emissions
100 1
5 100 1 in the industry sector. CCUS is an important
5
decarbonization lever for hard-to-abate
0 0 0 sectors, such as iron and steel and cement, and
0 2020 25 30 35 40 45 2050 0 2020 25 30 35 40 45 2050 02020 25 30 35 40 45 2050
2020 25 30 35 40 45 2050 2020 25 30 35 40 45 2050 2020 25 30 35 40 45 2050 may also be necessary as a kick-starter for blue
hydrogen
1. Includes bio and synthetic liquids and gases in road transport, rail, maritime, and aviation (not including hydrogen)
1. Includes bio and synthetic liquids and gases in road transport, rail, maritime, and aviation (not including hydrogen)

Investments and Value Pools

Chapter summary
Energy investments may need to grow Nascent technologies and renewables Business models in a decarbonized system
4% per annum to support the energy are likely to consolidate their role and remain uncertain, and will likely be
transition, with new technologies experience a quadrupling in EBIT growth affected by regulations' adjustments
capturing ~65% of the investments to 2035 by 2050
Whereas a strong uptake is projected in
A substantial growth of energy-related investments is Starting from a relatively low EBIT base of ~$300 billion decarbonization energy technologies, triggered by
triggered by rapid increases in energy demand, with today, power and decarbonization technologies are cost reductions and rising decarbonization ambitions,
demand for power expected to triple and hydrogen projected to grow at 5% per annum and reach around $1 revenue streams and support schemes to incentivize
expected to grow fivefold by 2050 in the Further trillion in 2050 these low-carbon investments remain uncertain
Acceleration scenario, combined with more stringent
emission-reduction goals Profitability is projected to become a challenge for To enable a successful transition, regulations mandating
conventional power, as its role shifts from base load to a higher share of renewables, CCUS, or sustainable
Renewables are projected to account for more back-up generation, with global EBIT turning negative fuels could address the current uncertainties in the
than 30% of the global investments in the next after 2040 in the Further Acceleration scenario business cases of these new propositions, and should
15 years (excluding transmission and distribution stimulate a rapid growth in investments in the short term
reinforcements). This is twice as high as projected The exceptionally high returns that characterized oil and
investments in conventional power generation, and gas investments in past decades are unlikely to reoccur, Technologies such as firm thermal power generation are
almost on par with oil and gas investments as the demand outlook weakens and the cost of supply likely to remain in the mix to provide system stability but
increases. Projected EBIT for new technologies, such could see increasing shares of uncertain revenues for
Regional dynamics are projected to persist, with 70% as clean hydrogen, EV charging, CCUS, and sustainable which new compensation mechanisms may need to be
of the oil and gas investments concentrated in North fuels in 2050 is expected to surpass the 2021 total specified
America, Middle East, and Africa to 2035. Europe and energy sector EBIT
Greater China are expected to have a larger spend
on decarbonization technologies such as hydrogen
electrolyzers and CCUS

Energy may attract increasing investment, with most growth

being inpractices
Talent growth RES dropand
off decarbonization technologies
sharply and return in late tenure
Despite decline in underlying fossil-fuel demand, investments in O&G are expected to

Respondents
remain stablewho agree the activity is done frequently in their organisation, % responses
Further Acceleration4 Total annual investments in the energy supply

sector are projected to grow by 4% per year in the
Historical Decarbonization Technologies¹ Power Renewables² Power Conventional³ Gas Oil
Further Acceleration scenario
Global investments in the energy sector CAGR Driven by a significant uptake of demand for
Billion $–through cycle perspective average over three-year window 2021–35
clean technologies—such as 15% CAGR for
1,950 renewable power generation and 5% CAGR for
hydrogen demand between 2019 and 2035—for
+4% p.a.
1,700 the energy transition, almost all growth is driven
1,550 1,550 12% by renewables power and decarbonization
technologies
1,250
1,150 4% However, despite the underlying decline in fossil
1,100
fuel demand and its peak in 2024 in the Further
Acceleration scenario, required investments in
850 1% O&G are projected to stay stable. This is driven by
increasing costs, as maintenance capex as well as
exploration costs increase, partially triggered by
2%
increased environmental requirements
-1% Both trends lead to decarbonization technologies

making up more than a fourth of global
investments in the energy sector in the early
2012 15 20 25 30 35 CT AC 2030s
2035
1. Includes sustainable fuels, CCUS, hydrogen, and EV charging

2. Includes solar, onshore wind, offshore wind, hydro, and other
3. Includes coal, gas, nuclear, and other
4. For the O&G segments the 2021 Accelerated Transition Scenario is used in combination with Further Acceleration and Achieved Commitments, and the
2021 Reference Case Scenario with Current Trajectory
Source: McKinsey Energy Insights Energy Value Pools Model; IEA World Energy Investments; IEA World Energy Outlook 2021
Emissions
Chapter summary
Global emissions are headed toward 1.7°C Emissions in 2021 rebounded to historic Meanwhile, 2021 brought a new focus
to 2.4°C warming, depending on the trends alongside the global economic on net-zero commitments and methane-
scenario recovery emission reductions
Across scenarios, global energy-related emissions are Following a significant decline in 2020, emissions Many countries updated their decarbonization plans
projected to peak before 2030. By 2050, projected showed a strong rebound in 2021, almost returning in 2021 to have more aggressive reduction targets.
levels are expected to be 30–70% below emissions to 2019 levels; emissions in 2021 were only 1% lower Around 91% of global CO₂ emissions are now covered
in 2019. In the Achieved Commitments scenario, than 2019 levels. This illustrates how pre-pandemic by net-zero targets
for example, global energy-related emissions are trajectories in emissions have largely continued
expected to peak around 2023 and decline by 69% to In late 2021, as a precursor to COP26, some of the
11 Gt CO₂ by 2050 Emerging economies drove the rebound in emissions. world’s largest emitters recognized the GHG methane
China’s emissions grew at twice its pre-pandemic (CH4) as a prominent contributor to global warming.
However, even though projected emissions reductions growth rate (3% per annum in 2021) and India They committed to a 30–50% reduction in methane
have accelerated compared to earlier outlooks, the rebounded to 2019 levels in 2021 emissions by 2030
world remains far from achieving the 1.5° Pathway,
even if all countries fulfill their pledges, as in the Both coal and natural gas emissions were higher than Although these pledges would reduce global methane
Achieved Commitments scenario, global warming will 2019 levels. The use of coal in power primarily drove emissions by around 13% by 2030, they remain
likely still exceed 1.5°C the surge in coal emissions, supported by strong far from the 34% that is required to achieve a 1.5°
industrial growth in China and high gas prices globally. pathway. Some large emitters, such as Russia, India,
To meet the requirements for a 1.5° pathway, mature Gas emissions only marginally declined in 2020 and and China have not yet made commitments to reduce
economies would likely need to accelerate their increased beyond 2019 levels in 2021 emissions
annual emissions' decline, on average, by a factor
of eight to nine times compared to efforts in the last Oil emissions only partially rebounded in 2021, largely Strong innovation may be necessary to further
ten years. Emissions from emerging economies are due to the slow recovery in aviation develop technologies to reduce methane emissions
projected to continue to grow over the next decade; and reach a 1.5° pathway. Such technologies,
these countries may need to move to lower-carbon alongside existing technical levers, will likely be
growth paths sooner and reach their emissions peaks crucial to reduce methane emissions
earlier

Global emissions remain far from a 1.5º pathway,

even if all remain
Global emissions countries deliver
far above those requiredon
for atheir current
1.5º pathway, even if commitments
Global emissions
all countries
Knock-on andremain
deliver
effect fardifferences
on their
regional above those
current required
commitments
could for a 1.5º higher
drive significantly pathway, even if
temperature
all countries
increases deliver on their current commitments
locally
Global warming could exceed 2ºC under all scenarios, even though emissions peak before 2030
Global warming could exceed 2ºC under all scenarios, even though emissions peak before 2030
Historical Current Trajectory Further Acceleration Achieved Commitments Fading Momentum COVID-19 triggered a drop in global CO₂
emissions of around 5%. However, emissions
Historical
Global net energy-related Current Trajectory
CO₂ emissions Further Acceleration Achieved Commitments
Emissions peak Fading1.5º
Momentum
Pathway have already rebounded and are back to a
GtCO₂
Global p.a.
net energy-related CO₂ emissions Emissions peak 1.5º Pathway pre-COVID-19 level. In the Further Acceleration
scenario, a flattening of energy-related CO₂
GtCO₂ p.a.
36 emissions is projected, with a peak in 2023,
36 followed by an accelerating decline
32
Global warming
32 projection², ºC In the Achieved Commitments scenario,
28 Global warming expected emissions in 2050 are 30% lower
28 projection², ºC than in Further Acceleration, reflecting a more
>2.4
24 rapid shift to renewable sources for power
>2.4
24 2.4 generation as well as an accelerated uptake
20 (1.9-2.9) of new, lower-carbon technologies in end-use
2.4
20 (1.9-2.9) segments, such as road transport and industry
16 1.9
16 (1.6-2.4) However, emissions across all scenarios remain
12 1.9 far from the requirements for the 1.5º Pathway.
(1.6-2.4)
12 1.7 Depending on the scenario, the median of
8 (1.4-2.1) expected global temperature increases could
2023 1.7
(1.4-2.1) reach 1.7—2.4ºC or more by 2100. This median
8 2023
4 global increase implies a 50% chance of
2019 2030: 1.5°C carbon <1.5
budget exceeded¹ exceeding the average on a global level, with
4 2030: 1.5°C carbon
0 2019 <1.5 stronger increases for specific regions
budget exceeded¹
1990 2000 10 20 30 40 2050
0
1. 1990 2000
570 Gt of cumulative CO₂ emissions from 10 20of limiting global warming
2018 for a 66% chance 30 to 1.5°C 40 2050
2. Warming estimate is an indication of global rise in temperature by 2100 versus pre-industrial levels (median - 17th/83rd percentile), based on IPCC
1. 570 Gt of cumulative
assessments CO₂
given the emissions
respective from 2018
emission forand
levels a 66% chancecontinuation
assuming of limiting global warming
of trends after to 1.5°Cbut no net-negative emissions
2050
2. Warming estimate is an indication of global rise in temperature by 2100 versus pre-industrial levels (median - 17th/83rd percentile), based on IPCC
assessments given the respective emission levels and assuming continuation of trends after 2050 but no net-negative emissions

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For more information about our Global Energy Perspective please contact us:
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© Copyright 2022 McKinsey & Company

This report contains confidential and proprietary information of McKinsey & Company
and is intended solely for your internal use. Do not reproduce, disclose, or distribute
the information contained herein without McKinsey & Company’s express prior written
consent.
Christer Tryggestad Namit Sharma Ole Rolser
Senior Partner Senior Partner Partner Nothing herein is intended to serve as investment advice, or a recommendation of any
particular transaction or investment, any type of transaction or investment, the merits of
purchasing or selling securities, or an invitation or inducement to engage in investment
activity.
This material is based on information that we believe to be reliable and adequately

comprehensive, but we do not represent that such information is in all respects accurate or
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Bram Smeets Markus Wilthaner Jasper van de Staaij use of the contents of this report.
Partner Partner Associate Partner and
Senior Solution Leader
Tamara Gruenewald Jesse Noffsinger Linda Tiemersma

Associate Partner and Associate Partner and Solution Leader
Senior Solution Leader Senior Solution Leader

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Global Energy

2 Global Energy Perspective 2022

Global Energy Perspective 2022 4

Energy markets are affected by GDP, but are also a driver

• What share of natural gas can be substituted by

Source: McKinsey Energy Insights Global Energy Perspective 2022

Non-exhaustive Builds on 20+ state-of-the-art McKinsey assets,

Source: McKinsey Energy Insights Global Energy Perspective 2022

Slower Faster As the state of energy transition is

Source: McKinsey Energy Insights Global Energy Perspective 2022

9 Global Energy Perspective 2022

The global energy mix is projected to shift rapidly towards

Further Acceleration Global energy consumption is projected to flatten

Source: McKinsey Energy Insights Global Energy Perspective 2022

Power supply and demand

Source: McKinsey Energy Insights Global Energy Perspective 2022

11 Global Energy Perspective 2022

Renewables are projected to account for 80­­­­­­­—90% of power

Source: McKinsey Energy Insights Global Energy Perspective 2022

13 Global Energy Perspective 2022

Oil demand could peak in the next two to five years

1. Crude oil products, liquid biofuels, and synthetic fuels

Natural gas demand

Source: McKinsey Energy Insights Global Energy Perspective 2022

15 Global Energy Perspective 2022

Gas demand is projected to grow by 10% in the next decade in

4,500 In the Current Trajectory scenario, gas demand

2,000 However, even progressive scenarios are far

Source: McKinsey Energy Insights Global Energy Perspective 2022

17 Global Energy Perspective 2022

Transport and new industrial uses could drive two-thirds of

Further Acceleration In the Further Acceleration scenario, before

Hydrogen demand is projected to accelerate

Demand for synfuels production, mainly

Source: McKinsey Energy Insights Global Energy Perspective 2022

1. Renewable fuels of non-biological origin

Source: McKinsey Energy Insights Global Energy Perspective 2022

19 Global Energy Perspective 2022

New advanced feedstocks will likely be necessary to meet the

Carbon capture, utilization, and storage (CCUS)

21 Global Energy Perspective 2022

New energy technologies are growing from niche to significant

Source: McKinsey Energy Insights Global Energy Perspective 2022

Investments and Value Pools

Source: McKinsey Energy Insights Global Energy Perspective 2022

23 Global Energy Perspective 2022

Energy may attract increasing investment, with most growth

Despite decline in underlying fossil-fuel demand, investments in O&G are expected to

Further Acceleration4 Total annual investments in the energy supply

-1% Both trends lead to decarbonization technologies

1. Includes sustainable fuels, CCUS, hydrogen, and EV charging

Source: McKinsey Energy Insights Global Energy Perspective 2022

25 Global Energy Perspective 2022

Global emissions remain far from a 1.5º pathway,

Source: McKinsey Energy Insights Global Energy Perspective 2022

© Copyright 2022 McKinsey & Company

This material is based on information that we believe to be reliable and adequately

Tamara Gruenewald Jesse Noffsinger Linda Tiemersma

27 Global Energy Perspective 2022

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Renewables are projected to account for 80—90% of power