Energy Perspectives 2018 Long-term macro and market outlook Equinor ASA NO-4035 Stavanger Norway Telephone +47 51 99 00 00 www.equinor.com COS-180194 2018. Perspectives Energy Energy Perspectives 2018 Welcome to Equinor’s Energy Perspectives 2018 Equinor’s vision is to shape the future of energy. Our strategy is: Always safe, High value and Low carbon. To succeed, we must have a balanced approach to opportunities and challenges we are faced with. The future of energy is uncertain. It depends on d evelopments in the global economy, technology, policy, resource availability and consumer preferences. At the same time, it seems certain that demand for goods, services and activities that require energy in their production or consumption will continue to grow, driven by increasing population and increasing wealth. The challenge for energy companies and society at large is to satisfy this growing demand while contributing to increased sustainability. For that to happen, we need an energy transition of enormous proportions. Fortunately, we see signs of this transition happening today, in the development of new renewable sources of electricity, in electrification of transport, in digital services, and elsewhere. However, demand for fossil fuels is still growing, greenhouse gas emissions are rising again, and technologies for capturing emissions hardly progress. The transition is simply too slow, and must speed up. Uncertainties call for the use of scenarios, describing how policy, technology and market conditions can move development in different directions, both desired and undesired. That is what Equinor’s Energy Perspectives 2018 describes. It shows that different drivers can move the development in vastly different directions over time. With one set of assumptions, the world will move in a sustainable direction in terms of continued economic development, access to affordable energy and lower emissions. With another set, energy efficiency will develop slowly, and the transition will be too slow. The analysis in this report is important input to our strategic priorities, together with other analyses. Equinor wants the global energy mix to move in a sustainable direction, according to the goals set out in the Paris Agreement. That is the best for everyone living on this planet, as well as for our business. Our strategy; Always safe, High value, Low carbon; is designed to handle the uncertainties and contribute to a sustainable development, allowing Equinor to shape the future of energy in a balanced manner. With this 8th edition of Energy Perspectives our analysts again contribute to discussion, highlight challenges and opportunities, and suggest shared beliefs on what will drive the development in global energy markets. In short: they provide insight. I hope Energy Perspectives will provide useful input to your own work, regardless of your field of interest. Eldar Sætre President and CEO 2 Energy Perspectives 2018 Executive summary Energy company executives, market analysts and the public seem to agree about three things: first, that a growing, richer global population will demand more goods, services and activities that require energy; secondly, that there is an energy transition going on; and thirdly, that large investments are needed to grow and improve the global energy system. This agreement is less visible in terms of the implications for energy demand, the speed and scope of the energy transition, and where in the energy system there is a need for large investments. In this 8th edition of Energy Perspectives, we intend to paint a holistic, aggregated picture of global energy markets towards 2050, analysing relevant energy sources, sectors and regions across three distinct scenarios. The three scenarios in this report are constructed to embrace a wide range of possible future outcomes, building on different factors, trends and developments we observe today, but where there is considerable uncertainty about future development. Energy markets in Reform build on recent and current trends within market and technology development, rather than policy support, to be the main driver of change. Renewal represents a future trajectory, supported by strong, coordinated policy intervention, that delivers energy-related emission reductions consistent with the 2°-target on global Welcome to Equinor’s Energy Perspectives 2018 warming. Rivalry describes a volatile world, where development and policy focus are determined mainly by geopolitics and other political priorities than climate change. While the important characteristics of the three scenarios remain the same compared to earlier years, certain scenario features are new in this year’s report. We have supplemented Renewal with Equinor’s vision is to shape the future of energy. Our strategy is: Always safe, High value and Low carbon. To succeed, we two sensitivities in addition to the main scenario projections to address two key uncertainties of low carbon emission must have a balanced approach to opportunities and challenges we are faced with. scenarios; one where the role of carbon capture, utilisation and storage (CCUS) remains miniscule and is limited to currently operating and sanctioned projects; and another where climate policy action is delayed to 2025. This year’s Rivalry The future of energy is uncertain. It depends on d evelopments in the global economy, technology, policy, resource contains cyclical economic growth with boom and bust periods, underlining the volatility of the scenario and allowing availability and consumer preferences. At the same time, it seems certain that demand for goods, services and activities visualisation of the effects of cyclicality on energy demand. Additionally, oil demand has been split into oil products in that require energy in their production or consumption will continue to grow, driven by increasing population and each scenario, to better understand implications for crude oil quality and refinery crude slates. increasing wealth. The challenge for energy companies and society at large is to satisfy this growing demand while contributing to increased sustainability. For that to happen, we need an energy transition of enormous proportions. Global population will grow to 9.8 bn people by 2050, and average global economic growth in the three scenarios ranges Fortunately, we see signs of this transition happening today, in the development of new renewable sources of electricity, from 1.9% to 2.7% per year, yielding a global GDP in 2050 between 1.9 and 2.5 times that of the level in 2015. in electrification of transport, in digital services, and elsewhere. However, demand for fossil fuels is still growing, Improvements in energy intensity are larger than those seen between 1990 and 2015 in all scenarios, but vary significantly greenhouse gas emissions are rising again, and technologies for capturing emissions hardly progress. The transition is between 1.1% and 2.8% per year, resulting in total primary energy demand (TPED) in 2050 being 6% lower than in 2015 simply too slow, and must speed up. in Renewal, 25% higher in Reform and 30% higher in Rivalry. Renewal represents a tremendously challenging development aimed at achieving targeted emission reductions, with vast improvements in energy intensity, delivering on the first belief Uncertainties call for the use of scenarios, describing how policy, technology and market conditions can move development above without resulting in higher energy demand. Changes in the global energy mix provide a good indication for the in different directions, both desired and undesired. That is what Equinor’s Energy Perspectives 2018 describes. It shows speed and scope of the widely discussed energy transition. In 2015, fossil fuels – coal, oil and gas – accounted for 82% of that different drivers can move the development in vastly different directions over time. With one set of assumptions, TPED. Towards 2050, this share declines in all scenarios, but at vastly different rates; to 51% in Renewal, 70% in Reform, the world will move in a sustainable direction in terms of continued economic development, access to affordable energy and 77% in Rivalry. The development in Rivalry thus questions the notion of a broad and swift energy transition. Oil demand and lower emissions. With another set, energy efficiency will develop slowly, and the transition will be too slow. in 2050 varies between 59 (Renewal) and 122 (Rivalry) million barrels per day (mbd), with Reform at 105 mbd. Peak oil demand arrives as early as 2020 in Renewal, around 2030 in Reform, while oil demand continues to grow through the The analysis in this report is important input to our strategic priorities, together with other analyses. Equinor wants the entire time horizon in Rivalry. Gas demand in 2050 varies between 3,300 (Renewal) and 4,800 (Reform) billion cubic global energy mix to move in a sustainable direction, according to the goals set out in the Paris Agreement. That is the metres (Bcm), with gas demand in Rivalry a little lower than in Reform. There is a significant need for new investments in best for everyone living on this planet, as well as for our business. Our strategy; Always safe, High value, Low carbon; is oil and gas in all scenarios, with Reform and Rivalry offering the widest opportunity set, while Renewal calls for the designed to handle the uncertainties and contribute to a sustainable development, allowing Equinor to shape the future development of premium resources with competitive cost structure and low carbon footprint. Demand for coal, the most of energy in a balanced manner. important contributor to global carbon emissions, develops in vastly different directions across the scenarios; in Renewal, the need to reduce CO2 emissions drives coal demand down to 26% of the 2015 level. In Rivalry, where other forces With this 8th edition of Energy Perspectives our analysts again contribute to discussion, highlight challenges and dominate, demand is 111% of the 2015 level. Coal demand in Reform is 82% of the level in 2015. New renewable sources opportunities, and suggest shared beliefs on what will drive the development in global energy markets.