Renewables will be the fastest growing energy source over the next two decades, according to the latest annual Energy Outlook from oil and gas major BP plc (NYSE:BP) (London, England).

Looking outward to 2040, BP estimated renewables will dominate the fuel source sector, increasing five-fold to meet around 14% of primary energy. Despite the continued rapid growth, fossil fuels will still play a major role. The global energy mix by 2040 will be, according to BP, "the most diverse the world has ever seen" with oil, gas, coal and non-fossil fuels each contributing around 25%.

Natural gas demand will grow strongly, overtaking coal as the second-largest source of energy. During the same period, global coal consumption flatlines with Chinese coal consumption, "seeming increasingly likely to have plateaued." Oil demand will grow over much of the Energy Outlook period before plateauing in the later years. By 2040, oil and gas together will account for over half of the world's energy.

According to projections, natural gas will grow at 1.6% per annum, much faster than either oil or coal, with its share in primary energy overtaking coal and converging on oil. Oil will grow at 0.5% per annum, although is projected to plateau in the 2030s. Coal consumption is broadly flat, with its share in primary energy declining to 21%, the lowest since the Industrial Revolution. Meanwhile, renewables will grow at 7% per annum.

Spencer Dale, group chief economist at BP, commented: "We are seeing growing competition between different energy sources, driven by abundant energy supplies, and continued improvements in energy efficiency. As the world learns to do more with less, demand for energy will be met by the most diverse fuels mix we have ever seen."

China will be the largest source of growth, adding more renewable energy than the entire OECD combined. The strong growth in renewable energy is enabled by the increasing competitiveness of wind and solar power. According to BP, subsidies will be gradually phased out by the mid-2020s, with renewable energy increasingly able to compete against other sources of energy, aided by a gradual rise in carbon prices and continued regulation.

The other major growth area will be in electric cars, growing to around 15% of the total, BP estimated. However, "because of the much higher intensity with which they are used, account for 30% of passenger vehicle kilometers." It also maintained that that the impact on transport fuel demand will "be largely offset by efficiency gains. In the European Union, new cars in 2040 are likely to be around 70% more efficient than in 2000."

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