Exxon predicts fossil fuels will reign supreme through 2040

WASHINGTON — Oil and gas will provide  the bulk of the energy needed to fuel the world by 2040, with most of it coming from North America, Russia and the Middle East, Exxon Mobil predicted Thursday.

According to the latest version of the company’s annual long-term outlook, the two fossil fuels will reign supreme in three decades, with gas displacing coal to become the largest power generation fuel in the mid-2020s, second only to oil as an energy source.

The environmental benefits and relatively low price tag of natural gas-based power will drive that transition as countries continue to establish pollution limits that constrain coal, said William Colton, Exxon Mobil’s vice president of corporate strategic planning. And while nuclear power will be competitive with coal, Colton said, it will remain more expensive than natural gas as a source of electricity.

With coal hit by environmental limits, nuclear power facing constraints to expansion and solar and wind-based power beset by cost and intermittency concerns, “natural gas emerges as an easy and practical choice,” Colton said. “It doesn’t require new technology, the cost to build a new plant is reasonable and they can be built quickly,” he said, noting also that natural gas power plants can be fired up and shut down faster than coal plants.

“Whatever your agenda — power plant or politician — natural gas will always be a competitive and practical option,” Colton said.

Exxon made similar prognostications in its 2011 annual outlook, a public version of the internal predictions that help guide the company’s multibillion-dollar investments in projects spanning decades.

Exxon factors a carbon cost of $60 per ton into its outlook, in recognition of the implied price tag posed by existing and looming environmental regulations worldwide. That’s down from an $80-per-ton forecast two years ago.

Ken Cohen, Exxon Mobil’s vice president of public and government affairs, said the company’s projected carbon cost is a pragmatic recognition of the regulatory landscape around the globe — not an endorsement of any kind of explicit carbon tax.

Given “the size of the investments we are making, you can imagine, we live with the economics,” Cohen said. “Once we put the steel in the ground, we are living with that basic cost through decades, different political regimes and controls and regulations.”

“We assume a whole array of (regulations) are going to be put into effect,” Cohen added. “It is not saying we anticipate an explicit carbon tax.”

Exxon Mobil does not use its annual outlook to make specific policy recommendations, but Colton and Cohen used the document’s release Thursday to stress the importance of free trade policies to a Washington, D.C. audience.

A 38-year-old law effectively bars exports of crude as well as other commodities in short supply, although the Commerce Department historically has issued waivers allowing oil sales to Canada. Crude harvested from Alaska’s Cook Inlet also has been sold to other countries. But oil industry leaders are gearing up for a bigger fight over broader crude exports.

Related story: Lawmaker takes aim at crude export push

“When you look at the actual market, a healthy market should have imports and exports on an ongoing basis,” Colton said. “A very healthy market,” for instance, could “have some imports coming into the east coast and exports from the Gulf Coasts, and they can net to zero and you still have lots of trade.”

“We would like to hope that even in the year 2040, there would be a very robust trade of both crude and products,” Colton said.

Among this year’s other predictions:

  • Europe and Asia will be a growing source of demand for oil and natural gas. Asian countries, which are already dependent on imported energy, will see their reliance on foreign sources grow further, and 60 percent of Europe’s energy consumption will be fed by foreign suppliers as its own production declines. “For both oil and gas, Europe and Asia remain the two key importing areas,” Colton said, while the Middle East and Russia will stay the biggest exporters.
  • Natural gas production will expand and diversify by 2040. North America and Russia will continue to be the dominant producers of natural gas, Exxon Mobil says, but Asia, Africa and Latin America each will more than double their own gas production in the next three decades.
  • Hybrids will emerge as the dominant vehicle on the roads in 2040. The vehicles, which include an internal combustion engine and an electric motor, will account for about half of global new-car sales by 2040, Exxon Mobil says. And while there is big interest in using natural gas as a transportation fuel, the shift will mainly be among heavy-duty commercial vehicle users. The exceptions may be in countries such as Argentina, Brazil, Iran, Pakistan and India which have conditions widely favoring natural gas as a transportation fuel for light-duty vehicles.
  • Energy demand globally is expected to climb 35 percent by 2040, fed by improving living conditions in developing countries and population growth. Most of the surging demand will come in developing countries, offset slightly by a decline in consumption in other, developed nations.