McKinsey | Global Energy Perspective 2022 (Executive summary)

Key insights from McKinsey's Global Energy Perspective 2022

1  While governments and businesses are increasingly committed to steep decarbonization targets, energy markets face extreme volatility driven by geopolitical tensions and a rebound in energy demand The conflict in Ukraine, as well as other factors, have triggered significant peaks in energy prices as uncertainties around supply security and affordability are paramount. This comes at a time where markets are already tight following the COVID-19 rebound

Throughout 2021, global energy demand and emissions increased by 5% compared to 2020, almost reaching pre-COVID-19 levels (~33 Gt energy-related CO₂ equivalent) In the context of COP26, a total of 64 countries (accounting for 89% of global CO₂ emissions) have made net-zero pledges, while financial institutions and private sector enterprises also continue to increase their decarbonization aspirations Going forward, the energy mix is projected to shift toward power.

By 2050, electricity and enabling hydrogen and synfuels could account for 50% of the energy mix Electricity demand is projected to triple by 2050 as sectors electrify and hydrogen and hydrogen-based fuels increase their market share due to decarbonization Renewable generation is projected to reach 80–90% of the global energy mix by 2050 as the global build-out rates for solar and wind grow by a factor of five and eight respectively  Hydrogen demand in new sectors could reach 350–600 mtpa in 2050 (compared to ~80 mtpa today); global demand for sustainable fuels is expected to mature, reaching 8–22% of all liquid fuels by 2050

The projected peak in demand for fossil fuels continues to move forward; demand for oil is projected to peak in the next five years Peak oil demand is projected to occur between 2024 and 2027¹ driven largely by EV uptake—a development that is already underway. Coal demand peaked in 2013 and, after a temporary rebound in 2021, is projected to continue its downward trajectory The conflict in Ukraine is leading to price spikes as the market and consumers balance supply security and affordability Toward 2035, gas demand across all scenarios is projected to grow another 10–20% compared to today¹; after 2035, gas demand will likely be subject to larger uncertainties, driven especially by the interplay with hydrogen Two to four¹ Gt of CO₂ will need to be captured by CCUS by 2050 to decarbonize heavy industries where fossil fuels continue to play a significant role Even if all countries with net-zero commitments deliver on their aspirations, global warming is projected to reach 1.7°C by 2100

All scenarios require substantial shifts to occur across the energy landscape. Even in the Current Trajectory scenario, significant investments will likely be required to kickstart new technologies With current government policies, additional commitments, and projected technology trends, global warming is projected to exceed 1.7°C, making a 1.5° pathway increasingly challenging To keep the 1.5° Pathway in sight, the global energy system may need to accelerate its transformation significantly, shifting away from fossil fuels toward efficiency, electrification, and new fuels, quicker than even the announced net-zero commitments

Total investments across energy sectors are projected to grow by more than 4% per annum and are projected to be increasingly skewed towards non-fossil and decarbonization technologies, while returns remain uncertain Annual investments in energy supply and production are expected to double by 2035 to reach $1.5 trillion to $1.6 trillion¹; almost all growth is expected to come from decarbonization technologies and power, which will by 2050 exceed today’s total energy investments EBIT in decarbonization technologies and power is expected to grow by 5% per annum, and could outpace the growth in underlying investments Business models in a highly decarbonized system are expected to remain uncertain across sectors, and will likely rely on adjustments in market design (for example, capacity payments for flexible thermal power generation), subsidies, or other support mechanisms (for example, support for CCUS on top of CO₂ prices) 2 3 4 1. Between Current Trajectory and Achieved Commitments scenarios Source: McKinsey Energy Insights Global Energy Perspective 2022 Global Energy Perspective 2022