A new report has found that energy importing countries are expanding clean energy production three times faster than exporters. According to the tenth edition of DNV’s Energy Transition Outlook, the disruption of energy supplies through the Strait of Hormuz strengthens governments’ resolve to reduce dependence on imported oil and gas.
At the same time, exporting countries outside the Middle East are increasing production to make up for supply shortages, while their own decarbonization steps are becoming 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 the importing regions increased by 2.2 percentage points in the last five years, compared to only 0.7 percentage points in the exporting regions. According to the report, this means that China, India and Europe as a whole have transitioned to non-fossil energy more than three times as quickly as the Middle East, North America and Russia.
“Energy security is redrawing the map of the energy transition,” said Ditlev Engel, CEO – Energy Systems at DNV. “Importing regions are accelerating electrification, renewable energy and storage to reduce their exposure to the most uncertain fossil fuel markets. Exporters, meanwhile, are responding to today’s shortages by increasing investment and production. The result is a growing gap in the speed and direction of transition.”
The Strait of Hormuz disruption has increased incentives for importing countries to diversify their supplies and reduce their dependence on oil and gas, increasing the long-term risks facing fossil fuel exporters. According to a press release, DNV’s new forecast expects the Middle East to supply about 40% of global oil production in 2050, compared to 50% in last year’s forecast.
An additional DNV sensitivity analysis examines the impact of the Middle East conflict lasting until 2030, with oil and gas prices remaining moderately elevated over this period. In this scenario, global demand for oil and gas would fall by 4-6% as long as the conflict continues. Demand would remain 2-5% below DNV’s main forecast for the remainder of the forecast period, indicating a permanent decline in demand as consumers and governments accelerate the transition to alternative energy sources, according to the press release.
“As the geopolitical landscape becomes increasingly complex, there should be no doubt that the energy transition is underway and that it is already large in scale. However, we must continue to embrace and accelerate it as everyone begins to recognize that energy is now part of our critical infrastructure and must be prioritized accordingly,” Engel added.
The report also showed that the gap between competitive mature technologies and new technologies that rely on increasingly limited policy support is widening. Falling costs are accelerating the deployment of solar power, onshore wind and batteries, while more expensive new technologies are losing ground. Solar PV and onshore wind are increasingly displacing fossil fuels in electricity generation, and installed battery capacity has increased 14-fold in the last five years.
Decarbonizing hard-to-electrify sectors
The report also highlighted that technologies essential to decarbonizing hard-to-electrify sectors are not being prioritized due to their high costs and concerns about industrial competitiveness. Compared to last year’s forecast, the amount of hydrogen and carbon capture and storage in DNV’s long-term forecast fell by 29% and 15%, respectively. While both technologies are expected to continue to grow rapidly from low bases, greater policy support is needed to close the cost gap and accelerate adoption.
Among the more expensive technologies, nuclear energy is the notable exception. DNV predicts that nuclear energy will maintain its current share of global electricity generation as electrification advances. Installed nuclear capacity is expected to grow by 30% over the next decade and 170% by 2060, despite high costs and supply chain risks.
“Powered 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 in the next two decades will be more than double that of the last two decades. Although importing countries are leading the change, fossil fuel exporters are also embracing electrification because it offers higher efficiency and lower costs.”
