A new report has revealed that energy-importing countries are scaling clean energy generation three times faster than exporters. The disruption to energy supply through the Strait of Hormuz is reinforcing governments’ determination to reduce dependence on imported oil and gas, according to the tenth edition of DNV’s Energy Transition Outlook.
At the same time, exporting countries outside the Middle East are increasing production to compensate for disrupted supplies, whilst their own decarbonization journeys are increasingly slower compared to the rest of the world.
Share of non-fossil energy
As a result, the share of non-fossil energy in the primary energy mix of importing regions increased by 2.2 percentage points over the past five years, compared with just 0.7 percentage points in exporting regions. This means China, India and Europe have collectively shifted towards non-fossil energy more than three times as fast as the Middle East, North America and Russia, according to the report.
“Energy security is redrawing the map of the energy transition,” said Ditlev Engel, CEO – Energy Systems at DNV. “Importing regions are accelerating electrification, renewables and storage to reduce their exposure to the most insecure fossil-fuel markets. Exporters, meanwhile, are responding to today’s shortages by increasing investments and production. The result is a widening divide in the speed and direction of the transition.”
The disruption to the Strait of Hormuz has strengthened incentives for importing countries to diversify supply and reduce their exposure to oil and gas, increasing the long-term risks facing fossil-a exporters. DNV’s new forecast sees the Middle East supplying around 40% of global oil production in 2050, compared with 50% in last year’s outlook, according to a press release.
An additional DNV sensitivity analysis examines the impact of the Middle East conflict continuing until 2030, with oil and gas prices remaining moderately elevated during that period. Under this scenario, global oil and gas demand would be 4–6% lower while the conflict persists. Demand would remain 2–5% below DNV’s main forecast for the remainder of the forecast period, indicating permanent demand destruction as consumers and governments accelerate the shift to alternative energy sources, as per the release.
“While the geopolitical landscape is becoming more complex, there should be no doubt that the energy transition is happening, and that it is already large in scale. However, we must continue to embrace and accelerate it, as everyone is starting to recognize that energy is now part of our critical infrastructure and must be prioritized accordingly,” added Engel.
The report also revealed that the gap is widening between competitive mature technologies and emerging technologies reliant on increasingly constrained policy support. Falling costs are accelerating the deployment of solar power, onshore wind and batteries, whilst more expensive emerging technologies are losing ground. Solar PV and onshore wind are increasingly displacing fossil fuels from power generation, and installed battery capacity has increased 14-fold over the past five years.
Decarbonizing the hard-to-electrify sectors
The report also highlighted that the technologies essential to decarbonizing the hard-to-electrify sectors are not being prioritized due to their high cost and concerns about industrial competitiveness. Compared to last year’s outlook, the amount of hydrogen and carbon capture and storage in DNV’s long-term forecast are down 29% and 15% respectively. While both technologies are still expected to grow rapidly from a low base, stronger policy support will be needed to bridge the cost gap and accelerate deployment.
Nuclear power is the notable exception among higher-cost technologies. DNV forecasts that nuclear will maintain its current share of global power generation as electrification accelerates. Installed nuclear capacity is expected to grow by 30% over the next decade and by 170% by 2060, despite high costs and supply-chain risks.
“Driven by solar, wind and increasingly battery storage, electricity is emerging as the clear winner of the energy transition,” said Sverre Alvik, Director of Energy Transition Research at DNV.
“The pace of electrification over the next two decades will be more than twice that of the past two decades. Although importing countries are leading the shift, fossil-fuel exporters are also embracing electrification because it delivers greater efficiency and lower costs.”